Peru - Sixth Power Project

Documen L of The WorlcL Bank L EC FOR OFFICIAL IUSE ONLY Report No. 3743b-PE STAFF APPRAISAL REPORT PERU SIXTH POWER PROJECT May 18, 1982 Regional Projects Department Latin America and the Caribbean Regional Office 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.  CURRENCY AND EQUIVALENTS Currency Unit Sol (S/) US$1.00 S/ 430 (July 1981) S/ 426.6 (Calendar 1981) UNITS AND MEASURES kW = kilowatt MSW = megawatt = 1,000 kW GW = gigawatt = 1,000,000 kW kWh = kilowatt hour GWh = gigawatt hours - 1,000,000 kWh kV = kilovolt kVA = kilovolt-ampere MVA = megavolt-ampere MVAR = megavolt-ampere reactive m = meter = 3.28 feet km = kilometer = 0.621 mile keal = kilocalories - 1,000 calories ton = metric ton = 1,000 kg = 2,200 pounds TOE = metric ton of oil equivalent - 107 kcal kTOE = thousand metric tons of oil equivalent MTOE = million metric tons of oil equivalent ABBREVIATIONS AND ACRONYMS CEFOCAP = Centro de Formacion y Capacitacion de ELECTROPERU CENTROMIN = Compania Minera del Centro del Peru COFIDE = Corporacion Financiera de Desarrollo DGE = Direccion General de Electricidad ELECTROLIMA = Electricidad de Lima (Empresa Electricas Asociadas) ELECTROPERU = Electricidad del Peru ETEMHI = Escuela Tecnica de Mecanica Hidraulica HIDRANDINA = Compania Hidroelectrica Andina INGEMMET = Instituto de Geologia, Minerales y Metalurgia ITINTEC = Instituto de Investigacion Tecnologica Industrial y de Normas Tecnicas KFW - Kreditanstalt fur Wiederufbau MEM = Ministerio de Energia y Minas SEDAPAL = Servicio de Agua Potable y Acueductos de Lima UNDP = United Nations Development Program FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY PERU SIXTH POWER PROJECT TABLE OF CONTENTS Page No. I. THE SECTOR 1 Energy Balance and Resource Base 1 - Oil 2 - Coal 3 - Geothermal 4 - Nuclear Energy 4 - Biomass Resources 4 Sector Organization 5 The Electric Power Subsector 6 - Organization 6 - Subsector Reorganization 7 - Subsector Facilities 7 - Rural and Low-income Electrification 8 - Subsector Finance 9 II. THE BORROWER AND THE BENEFICIARIES 12 Background 12 Electrolima 12 - Organization and Management 12 - Staff and Training Programs 13 - Information Systems, Accounting and B:Llling 13 - Audits 14 - Performance Indicators and Reporting 14 - Risk Management 14 Electroperu 15 - Organizatiorn and Management 15 - Staff and Training Programs 16 - Information Systems, Accounting and Billing 17 - Audits 18 - Performance Indicators and Reporting 18 - Risk Management 19 Hidrandina 19 III.THE MARKET AND THE MEANS TO MEET IT 20 Central-north System 20 Electrolima System 21 This report is based on the findings of an appraisal mission which visited Peru during August and September 1981. The mission comprised Messrs. J. E. Graves, H. Garcia and C. XSarren. This document has a restricted distribution and may te used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents con't. Page No. IV. PROGRAM AND PROJECT 23 The Program 23 The Project 24 - Project Components 24 - Brief Description of Components 25 Project Cost and Financing 27 Project Implementation 29 Procurement and Disbursement 30 Environmental Aspects 32 Project Risks 32 V. FINANCE 33 History 33 Financial Requirements 34 Financial Forecasts 36 VI. ECONOMIC ANALYSIS 40 Long Run Incremental Cost of Energy 41 Rate of Return 41 Tariff Structure 43 Yuracmayo Dam 44 VII.AGREEMENTS REACHED AND RECOMMENDATION 45 ANNEXES AND MAPS ANNEXES 2.1 Electrolima Organization Chart 47 2.2 Electrolima's Performance Indicators 48 2.3 Electroperu Organization Chart 49 2.4 Electroperu's Performance Indicators 50 2.5 Hidrandina's Performance Indicators 51 3.1 Forecast Demand in the North-central Interconnected System: 1981-1990 52 3.2 Central-north System 1981-1987 Power and Energy Balances 53 3.3 Electrolima - Historical Sales, Generation Requirement and Peak Demand Statistics 55 3.4 Electrolima - Forecast Sales, Generation Requirement and Peak Demand 56 3.5 Electrolima 1981-1987 Power and Energy Balances 57  -iii Table of Contents con't. Page No. 4.1 Central-north System Generation and Transmission Expansion Program 58 4.2 -Electrolima's 1982-1986 Distribution 59 Expansion Program 4.3 Mantaro Transfer Scheme Brief Description 61 4.4 Project Implementation Schedule 63 4.5 Estimated Loan Disbursement Schedule 66 4.6 Procurement Schedule 67 5.1 Electroperu, Electrolima and Hidrandina Consolidated Sources and Applications of Funds 68 5.2 Electroperu, Electrolima and Hidrandina Key Financial Indicators 69 5.3 Electroperu Sources and Applications of Funds, Income Statements and Balance Sheets 1980-1987 70 5.4 Electrolima Sources and Applications of Funds, Income Statements and Balance Sheets 1980-1987 74 5.5 Hidrandina Sources and Applications of Funds, Income Statements and Balance Sheets 1980-1987 77 6.1 Long Run Incremental Cost of Fnergy in the Central-north 80 System Table 1: North-central System Generation and Transmission Expansion Program Costs and Iacremental Demand Met 82 Table 2: Long Run Incremental Cost of Energy as a Function of the Discount Rate 83 6.2 Rate of Return Analysis 84 6.3 Electrolima's Tariffs 85 7 Documents and Data Available in the PrDject File 86 Map No. 16094R Central-north Interconnacted System Map No. 16096R Metropolitan Lima/Electrolima Distribution Expansion 1982-1986 Program Map No. 16095R Mantaro Transfer Project Plans Map No. 13425R2 Mantaro Transfer Projezt Sectional View   CHAPTER I THE ENERGY SECTOR Energy Balance and Resource Base 1.01 Peru's energy resource base is diverse. Though oil currently provides about 70% of the country's commercial energy requirements and 52% of total energy requirements, there is a large undeveloped hydroelectric potential and significant unutilized reserves of low-grade coal. The Peru's 1980 gross energy balance was as follows:_/ Energy Source % Share Energy use % Share Oil and products: domestic production 75.6 Residential, Comm. & Public 31.2 imports 0.4 Tranisportation 17.0 exports (24.4) Industrial and Mining 18.9 domestic supply 51.6 Agriculture,livestock & fisheries 5.0 Non--energy uses 2.5 Firewood 22.5 Total final uses 74.6 Hydroenergy 15.6 Energy sector own consumption 5.1 Tranisformation, storage and Plan and animal fuel 4.2 distribution losses 18.4 Statistical adjustment 1.9 Coal and coke: domestic production 0.3 imports 0.9 Inventory variation and unutilized (3.2) Gross internal supply: % 100.0 Gross internal use: 100.0 million TOE2/ 13.27 million TOE 2/ 13.27 1/ Source: Ministry of Energy & Mines draft; 1980 consolidated energy balance, January 1982. 2/ 1 TOE = 107 kcalories. Peruvian crudes range between 10.2 x 106 kcal/ton and 10.9 x 106 kcal/ton. Hydroenergy is converted at an equivalent thermal generation rate of 286.7 TOE/GWh, assuming an average 30% hypothetical thermal plant efficiency.  - 2 - 1.02 Known (proven and probable) oil reserves total about one billion barrels (140 million tonnes of oil equivalent-MTOE), or 15 years supply at the 1979 level of production, and estimates of undiscovered reserves range from two to twenty billion barrels. There is no reliable estimate of coal reserves but they are almost completely unutilized due to insufficient mining development and, until recently, the low price of petroleum. Gas reserves are estimated at only one to two trillion cubic feet (28-56 MTOE). A 1979 survey of Peru's hydroelectric potential enumerated 100 technically feasible hydroelectric projects with a combined average ouitput of about 60 GW, or 390,000 GWh/yr (5,591 MTOE over 50 years3/), of which only 1654 MW are presently being used. About 85% of this potential is in the Atlantic watershed. Warm and boiling springs exist in many parts of the country but the size of the geothermal resource is unknown (see para. 1.06). In rural areas wood is the single most important primary energy source, accounting for 75% of supply, while in urban areas kerosene is used by 58% of the population and wood by 19%. The primary energy potential of Peru's forests is an order of magnitude greater than total national primary energy consumption. 1.03 From the above it can be seen that the most significant primary sources of energy, in terms of magnitude of potential, are hydraulic power and firewood; this contrasts to the current heavy dependence on oil. Until recently, the Pacific watershed hydro potential and the northern oil reserves were sufficient to satisfy urban demand in the developed coastal regions. New developments will involve tapping the hydroelectric, oil and biomass resources of the Atlantic watershed, far from the demand centers, with consequent increases in the cost of delivering energy to consumers. Demand for "commercial" forms of energy is likely to grow rapidly as the strong current of migration from rural to urban areas continues. Oil 1.04 From the early 1960s until 1976 Peru was dependent on imported oil to meet its needs; in the three years since then, oil output has increased threefold to 207 thousand barrels per day in 1980, 37% of which was exported. If this is to be avoided, new oil reserves must be discovered and developed, production of existing fields must be maintained and domestic petroleum prices must be increased to discourage wasteful consumption. To spur exploration efforts, the Government is promoting investment by foreign companies, under production sharing arrangements with PETROPERU -- the Government-owned oil company -- as the major source of financing for petroleum exploration and development. To attract foreign companies, the Government put into effect a reinvestment tax credit and eliminated restrictions on their participation in secondary recovery projects. On this basis, existing private operations (Occidental and 3/ 286.7 TOE/GWh thermal equivalent assuming a 30% efficiency.  - 3 - Belco) have increased their investment proErams. Exploration contracts for northern and southern jungle areas have beEn signed with Shell and Superior Oil and discussions are underway with a number of other firms. PETROPERU would restrict its operations to two jungle blocks and the company is being strengthened so it can more effectively exyloit these traditional areas. Its administration, staff and operations are being upgraded with support from-the Bank's $32.5 million Petroleum Rehabilitation Loan (Ln. 1806-PE of 1980). This support would be continued under a petroleum production enhancement project to be presented later this year. 1.05 The Government has been periodically raising domestic petroleum prices. In 1981, prices were raised 10 percent in real terms. After the latest round of increases, in January 1982, gasoline prices reached about US$0.99 and US$1.21 per gallon for 84 and 95 octane gasoline, respectively. There is, however, cross-subsidization of prices, particularly for kerosene and diesel, and current average retail prices for petroleum products are about 65 percent of international prices. The Government's objectrive is to continue its program of regular price increases to reduce cross-subsidi- zation and to increase average petroleum prices by 25% in real terms in 1982. Coal 1.06 According to official statistics, the last year that coal was mined in Peru was 1973, when about 12,200 tonnes were produced in La Libertad Province. The main reasons for the cessation of coal production were the rising costs of mining and competition from subsidized oil production. Eighteen of Peru's 24 departments are said to have deposits of coal; these deposits range from lignite to anthracite. No reliable estimate of the size of coal reserves exists, and there has been no attempt to classify them according to standard procedures. Four coal fields appear to hold potential as possible sources of fuel for producing energy and as sources of coking coal; these are the Alto Chicama and Santa Valley fields in northern Peru and the Jatunhuasi and Oyon-Gazuna fields of central Peru. The field that has received most attention is Alto Chicama, covering an area of 750 km2 at a distance of 135 km east of Trujillo. Proven and probable reserves at Alto Chicama total about 60 million metric tons and possible reserves, 210 million metric tons. Electroperu has carried out studies on the use of Alto Chicama coal to fire a 480 MW power plant, requiring about 1.7 million tonnes/year of coal. The cost of developing the mine and the power plant has been estimated at about US$720 million (1978 prices), of which US$460 million would be for the power plant. The current state of knowledge of the Alto Chicama coal reserves, however, is insufficient for firm plans for such a plant to be made. Further geological studies are required to determine the technical and economic feasibility of developing a mine and the question of the environmental effects of the power plant, and hence its location, also need more investigation. While Mineroperu has not put a high priority on a survey of the country's coal reserves (its current priorities are to concentrate on mineral reserves that have a direct impact on foreign-exchange earnings), an IDB financed engineering project is expected to improve the country's definition of the coal resources. Given Peru's abundant hydraulic (para. 1.02) and promising geothermal resources (see para. 1.06) and in view of limited human and financial resources to carry out studies, the country's decision not to assign top priority to coal-resource surveys appears reasonable.  -4- Geothermal 1.07 A 1978-79 study by the U.S. Department of Energy in collaboration with Peruvian agencies on Peru's energy situation (see para. 3.05) mentioned that, based on surface indications such as hot springs, there are apparent geothermal resources in many areas of the country . A further study financed by OLADE and performed by Italian consultants identified, based on geological studies only, six areas in southern Peru which appear promising; this was confirmed by a New Zealand consulting firm -- using bilaiteral assistance from the New Zealand government -- which has also noted the possiblity of geothermal development in Cajamarca in the north. Furtlher investigations are desirable, involving geophysical and geochemical inveStigations, in order to select the most promising areas and to identify drilling sites. The Ministry of Energy and Mines (MEM), through its Instituto de Geologia, Minerales y Metalurgia (INGEMMET) is responsible for developing this resource but has not yet formulated a plan of action. The ]3ank should follow progress in this field with a view to providing assistance in a future lending operation, if needed. Nuclear Energy 1.08 The Peruvian Institute of Nuclear Energy (IPEN) is conducting research on nuclear energy using a zero power (10 watts) research reactor provided by Argentina under an agreement for nuclear cooperation and using U.S. supplied enriched uranium. In addition, Argentina is providing an entire research center at Huangaral, including a 10 MW research reactor and other facilities. Uranium has been detected in a number of different places in Peru, but none of the occurrences has been of sufficient grade or size to warrant physical exploration. There are currently no firm plans for the construction of a nuclear power plant, given the large unexploited hydro potential. Biomass Resources 1.09 Most of the energy needs of the rural population are met by biomass, with firewood being the dominant resource utilized; dung, bagasse and other vegetable matter are also used in certain areas. Although 60% of Peru's land surface is covered by natural and cultivated forests and the annual gross primary potential available from this resource has been estimated to be an order of magnitude greater than the gross primary energy currently consumed in Peru, 99% of the forest is located in the thinly popu:Lated Selva (Amazon) region4/. Despite this fact, biomass accounted for :30% of total gross energy supply in 1976 and for 70% of all residential and commercial energy consumption. Most biomass fuel is used in the domestic sector for cooking; even in the colder regions there is little use of b:Lomass for heating, except as a by-product of cooking. Depletion of 4/ Joint Peru/United States Report on Peru/United States Cooperative Energy Assessment, U.S. Department of Energy August 1979, Vol. 1, p.B1-16.  wood resources in the Sierra is a problem in some rural areas and the time spent collecting fuel is increasing. Cottage industries such as drink mills (chicha), bakeries and brick producl:ion also use wood as an energy source. Charcoal is used for cooking, particularly in restaurants. Because of past deforestation in the Sier::a region, charcoal production has been prohibited by law but some production still takes place. Estimated firewood, charcoal and dung consumption in 1976 was as follows:5/ Gross 1012 kcal % share Firewood: residential 22.4 76% small industry 3.6 12% charcoal 1.1 4% dung 2.4 8% Total 29.6 100% 1.10 The Government has not adopted ;ny formal policy on the development and use of renewable energy technologies. The Ministry of Industry, through its autonomous agency ICINTEC is conducting a certain amount of research into wind turbines for water pumping, solar distillation and drying, solar water heaters and cooke:es, biogas digestors and mini-hydro plants, with most of its effori: focussed on the latter technology. The mining sector provides the greatest opportunity for the use of renewable energy, specifically solar energy. As a result of a recent law, requiring all mining companies to provide domestic hot water for their worker, mining companies are al-eady testing solar water heaters. Sector Organization 1.11 The Ministry of Energy and Mines (MEM) is assigned the responsiblity for coordinating all energy planning activities and for pricing in the energy sector, with operational responsibility divided among various semi-independent bodies. Petroperu, the parastatal oil company, is responsible for all phases of production and distribution of petroleum and petroleum products. Two other oil compan:es are currently active in exploration and production in Peru, Occidental Petroleum and Belco, both US-based companies. In the electric-power subsector the two most important operating entities are Electroperu and Electrolima (see Chapter 2 for description). 1.12 In recent years MEM has received large technical assistance in the energy planning field; including preparation of an energy balance study (1976, UNDP and continued since then by MEiM), an assessment of resources (1979, US government), a survey of hydroe:ectric potential, the development of a power sector masterplan and several other sector studies (1979/80, German Government and Bank loan 1215-PE). MEM thus has sufficient 5/ "Balance Nacional de Energia", Ministerio de Energia y Minas, Peru, and UNDP, Lima, December 1978.  knowledge of the country's energy situation, to develop a comprehensive resource development program which would attempt to minimize the consumption of oil through conservation measures and its substitution by hydroelectric power and coal where possible. Development of the power subsector would be aided by the expected passage of the General Electricity Law (see para.1.16) while the creation of a National Energy Council is being considered to coordinate and give form to sector policies. The Electric Power Subsector Organization 1.13 Within its role of coordinating energy sector planning, MEM is responsible for policy formulation and authorization of investments in the electricity subsector, and for tariff setting through the Ministry's Direccion General de Electricidad (DGE). Prior to 1972, the pub'Lic-service portion of the subsector was composed of distinct private, municipal and state entities serving concession zones or regions; no national sector planning or coordination existed and captive plants serving large mining and industrial installations, -- which accounted for about 40 percent of total electricity generation -- were generally not interconnected with public-service systems. The Electricity Law of September 1972 made the State the principal authority in the sector by reserving for it the responsibility for public-service electricity supply, creating a central State-owned enterprise (Electroperu), providing for State participation in existing private utilities (by far the largest of which was the predecessor company to Electrolima) and providing for interconnection of power systems. 1.14 DGE. Through most of the 1970s, DGE did not exert the leadership it might have mainly because it experienced excessive high-level personnel turnover. A general electricity law, drafted in 1974, was never enacted. The Master Plan (see para. 4.02) was not completed until late 1980, more than 18 months behind schedule. A tariff-structure study, also partially financed by loan 1215-PE, was contracted in mid-1981, four years behind schedule. Tariff levels have remained low, so that utilities' rates of return and self-financing capability have been below reasonable levels, jeopardizing their expansion plans (see Chapter 5). 1.15 Electroperu. The 1972 Electricity Law gives Electroperu responsibility for planning, design, construction and operation of all new generating facilities larger than 10 MW and for the development and construction of the transmission network. Despite the law's provisions, Electroperu has not assumed many of the responsibilities assigned to it. Major investment decisions have been imposed by the government, and large projects have been carried out on a turnkey basis. DGE was the only active Peruvian participant in the subsector master plan, financed in part by Loan 1215-PE, until late 1980, when participation by Electroperu and Electrolima began. Electroperu, formed from four weak State entities, has had difficulty in attracting and retaining highly qualified and motivated personnel and therefore has not performed as the 1972 law provided for, as is discussed in Chapter 2.  -7- Subsector Reorganization. 1.16 Subsector organization studies were carried out in 1979 anO_1980, financed by the Bank under Loan 1215-PE and by the IDB, respectively. With the input from these studies, the Governmenit has presented to Congress a draft General Electricity Law which provides for sector reorganization, leaving to Electroperu responsibility for 'i) national power-system planning, (ii) execution of large (500 MW and up) generation and transmission projects (through provision for other companies to undertake large projects under certain conditions is made), (iii) execution and operation of inter-regional interconnections and (iv) acting as a holding company for the public-sector shares of all sector entities. Under the bill, Electroperu would share responsibilit:y for public-service electricity supply with an undefined number of regional utilities; the regional companies would serve as distribution companies, either directly or through municipal or other local distribution systems. The intention is to have the formerly private concessionaires expandl their operations from the cities they now serve to the surrounding regions. The first steps in this regionalization process have already been caken by MEM and several utilities are beginning to prepare themselves for their expanded roles. The bill also provides for the establishment of captive plants and separate generation companies to supply electric power to the public-service system. 1.17 A main advantage of the bill is that it would create a framework in which responsiblity for sector development at the distribution level would be decentralized and regional utilities will be able to play a greater role than they have in the past, whi1e leaving to DGE responsibility for subsector policy determLnation. However, the bill leaves some aspects of sector organization, such as the identity of the new regions and the utilities that will be responsible for them, undefined. It would be a major impediment to sector deveLopment if the current situation of rather undefined allocation of responsibilities continues for an extended period of time. For this reason, the Government has agreed to discuss with the Bank and establish, by December 31, 1983: (i) the identity of the regions and the responsible regionaL utilities; and (ii) a timetable for accomplishing an acceptable reorganiza:ion of the sector, in particular, the transfer of plant and personnel from Electroperu to the designated regional utilities. Subsector Facilities 1.18 Despite its hydraulic potential, aational electric-energy production remained at a fairly constant 71/30 hydro-thermal ratio throughout the 1970s. The central-north interconnected system, which comprises 80-90% of the public-service system is, however, largely hydro, as shown in Annex 3.2. As the system is extended to now-isolated regions and mining complexes where thermal generation now predominates, the hydro-electric component will increase, assuming new hydro developments are commissioned in time. 1.19 The Central-north system (see map No.16094R), was established in early 1981 by means of a 220 kV transmissian line connecting Chimbote and Trujillo with Lima. The installed capacity of its generating components are:  Installed Capacity - MW Hydro Thermal Total Percent Electroperu: Mantaro 798 Canon del Pato 150 Chimbote gas turbines and Chiclayo diesel 119 Total Electroperu 948 119 1,067 54 Electrolima: Huinco 258 Matucana 120 Callahuanca 68 Gas turbines 152 Total Electrolima 446 152 598 30 Hlidrandina: Moyopampa 63 Huampani 31 Cahua 40 Total Hidrandina 134 - 134 7 Autoproducers Several thermal plants 193 Total Autoproducers 193 193 9 Total Central-north 1,528 464 1,992 100 Percent of total 77 23 100 As shown on the map, the central-north system will be extended as far north as Piura during this decade, incorporating the hydro installations of Peru's largest mining company, Centromin, in 1982 and various cities in the northern coastal zone by 1987. 1.20 The only large systems remaining outside the central-north system after 1990 would be the southwest (Arequipa and Tacna), and southeast (Cuzco) -- both principally hydro -- and those of the two eastern cities, Iquitos and Pucallpa, which depend on thermal generation. Rural and low-income electrification 1.21 Rural Electrification (RE). Until the late 1970s, rural electrification did not have a high priority in Peruvian power planning. Depending on methods of estimating, somewhere between 3 and 10% of the rural population has access to public-service electricity. The Government declared RE to be a major priority for the sector in 1978, and MEM has concentrated effort on developing small hydro systems as the principal solution to the RE requirement because: hydraulic resources are available in much of the country; topography (mountainous or jungle) make grid interconnection unfeasible; the poor road network increases the cost and decreases the reliability of supplying fuel to isolated diesel plants. A small hydro program was begun in 1979; ten plants, mostly completion of works once begun but long abandoned, have been completed. Under Electroperu, work is now underway at 40 small hydro locations, and USAID has provided a US$9 million loan for construction of 28 small plants.  -9- :1.22 Electroperu's previous organization impeded rational RE expansion because separate departments were in charge of small hydro, grid extension and diesel plant installation. Coordination among these departments was poor. Electroperu's new management established in January 1982, a single department with responsibility for all distribution planning activities (Gerencia de Coordinacion Empresarial y Electrificacion Pr-ovincial, Distrital y Rural), thus eliminating much of the overlap that existed previously. The department is now concentrating on developing a project executing capability and establishing priorities for all distribution and RE projects. Systematization of RE planning is now highly desirable because of :he inflow of large amounts of money from the increased energy tax (see para. i.27), which are to be allocated for projects in rural areas. 1.23 Pueblos Jovenes (PJ). Migration of rural population to Peru's cities began in the 1950s and has continued unabated; in 1981, about 23% of Lima's population (and 27% of the population of 45 cities surveyed by the government) lived in areas denominated PJ, some of which have evolved from squatter settlements into standard urban districts. ]'J electrification began in 1956 in Lima; the percentage of PJ population with electricity is generally close to that for the city as a whole, as indicated in the 45-city survey. Percent of population with electricity Pueblos Jovenes Whole City Lima 68 78 Arequipa 65 69 Trujillo 83 75 Chimbote 44 64 Chiclayo 24 50 Aggregate 45 cities 56 68 A component of Loan 1215-PE assisted in financing Electrolima's expansion to PJ, and the proposed loan would include financing for further installations in IPJ as part of Electrolima's distribution expansion program. Subsector Finance 1.24 Based on the net-income-to-equity ratio traditionally used in Peru to measure financial performance of electric utilities, the subsector's results have been unsatisfactory. In the five-year period 1975-79, the return on equity of all sector entities except one small distribution company did not exceed 4 percent per annum. For 1980, the subsector's net income was marginal. This contrasts with an 11-1/2 percent return on equity permitted by the 1955 electric industry law, which served as the standard until 1972 and, although it has not been replaced, has not been followed since then. 1.25 The draft General Electricity Law establishes new criteria for setting tariffs, criteria closer to worldwide practice. Specifically, the bill provides that rates would be set to produce a 12% return on rate base  - 10 - after deducting all operating and maintenance, administrative and general expenses. Such expenses include taxes and provisions for depreciation and a number of other funds, viz expansion, electric-system development, inter-company generation, operation of the tariff commission, and a compensating fund for returns lower than 12% (see following paras. for description of these funds). Rate base is defined as tangible and intangible plant (including interest charged to construction), installations paid for by third parties and working capital - two months' billings and inventories - less accumulated depreciation on all assets except working capital; the rate base is to be revalued quarterly. These provisions are satisfactory. Since the bill has not been passed, agreements related to the proposed loan provide that the companies will apply for, and the government will grant, tariffs to be set in accordance with the above provisions beginning in 1985, with steadily increasing rates of return (identified in a side letter as 4%, 7% and 10% respectively for 1982, 1983 and 1984) for the intervening years. As shown in Chapter V, this would result in a satisfactory financial situation. 1.26 The bill provides that the tariff commission - Comision de Tarifas Electricas - is to be composed of seven members: the representative of the President, who is to have a four-year term and is to preside over the commission and six -representatives with two-year terms. These would represent: (i) the Ministry of Economy and Finance, (ii) the Ministry of Energy and Mines, (iii) the Ministry of Industry, (iv) Electroperu, (v) the regional utilities, and (vi) the College of Mechanical and Electrical Engineers. Besides fixing tariffs, the commission is to regulate the "Fondo de Compensacion de Generacion", a device to be used to limit tariff differentials between companies. 1.27 Besides the rate of return in the bill, other means of increasing the tariff-based contribution to expansion have already been eilacted or are provided for in the bill. The most important of these is an energy-tax increase from 5 to 25% on all electricity sales to the final consumer, which was put into effect in mid-1981 (Decreto Ley 163). The incre:.ental 20%, which if considered as a revenue, would increase the rate of retura by four to five percentage points, is to be assigned to Electroperu for investment in system expansion. There is a feeling that much of this incremental tax will be spent on village and rural electrification outside of the main load centers, but there is no specific program or allocation of funds for such works (para. 1.21). Consequently, Electroperu's financial forecasts in Chapter 5 show only half the incremental energy tax being devoted to the normal expansion program, on the assumption that the other half will be spent on expansion outside of the presently-defined expansion program. To permit satisfactory financial planning at Electroperu, it and the Government have agreed to present to IBRD by December 31, 1983 an investment program for works outside the main systems which would be funded by the incremental tax and to allow IBRD to comment on that plan. In addition, Electroperu and the Government have agreed to present to the Bank for review and discussion, on an annual basis beginning November 30, 1983, the sectoral investment and financing plan for the ensuing years.  - 11 - 1.28 Other financing devices included in the draft General Electricity Law are the expansion fund and electric development fund (Fondo de Ampliaciones and Fondo de Desarrollo Electrico). Both "funds" would be financed by provisions which would be treated as operating expenses (para. 1.24); the expansion fund provision would be determined by the tariff commission and would be no greater than 10% of the utility's investment in distribution works for the year. The electric development fund would be spent on so-called social electrification (presumably, works with a low rate of return) after review by DGE. Provisions for this fund would be limited to 5% of each utility's revenues from sales to the final consumer. The operation of the other so-called funds - inter-company generation (a surrogate for tariff-equalization), compensation for rates of return lower than 12%, assigned quotas for operation of the tariff commission - would be defined in the regulations once the draft law is passed.  - 12 - CHAPTER II THE BORROWER AND THE BENEFICIARIES Background 2.01 The borrower and main beneficiary of the loan would be Electrolima, a state-controlled public utility concessionaire with responsibility for generation, transmission and distribution in metropolitan Lima and likely to be the first of the regional utilities under the proposed Electricity Law (para. 1.16). In spite of Electroperu's leadership role in the sector, Electrolima has been selected by the Government as the borrower because: (i) it would receive the largest amount of the loan (80%) and (ii) the Government desires that each of the enterprises within the subsector maintain its own creditworthiness and capacity to finance its own programs from domestic and foreign sources. The second beneficiary would be Electroperu, the State-owned power company, which is responsible for planning, design, construction and operation of generating and transmission facilities, and which is expected to be a holding company for regional generation and distribution entities under the proposed Electricity Law (para. 1.16). The third beneficiary would be Hidrandina, which is mainly owned by Electroperu and is concessionaire for generation on part of the Rimac River and on the Pativilca River. Electrolima would retain part of the loan for its part of the project (see para. 4.14) and would relend to the other utilities their part of the loan. Electrolima Organization and Management 2.02 Electrolima, formerly a privately-owned company known as Empresas Electricas Asociadas, has been controlled since 1973 by the Government. 88% of the shares belong to the Government, 4% to Electroperu and the remaining 8% to private investors. Electrolima's Board of Directors is composed of 10 members, of which seven are nominated by Electroperu, two by the Electrolima workers and one by COFIDE. 2.03 Electrolima is well organized and managed (Annex 2.1 shows the organization chart). The Board and the Executive President take care of policy matters and supervise public relations and internal audit. The General Manager controls five operating units (planning and construction manager, operations manager, commercial manager, administrative managers and personnel manager), two support units (data processing and general secretary) and three advisory committees (technical, low-income electrification and labor). Some of the managers were the older generation from the Swiss-controlled Empresas Electricas Asociadas and introduced an efficient style in Electrolima's management that still subsists. Now, most of the executive positions are filled by Peruvians and intermediate positions are held by well qualified young Peruvian professionals. Several years of inactivity in the construction of generation works have eroded its project and supervisory capacity in this fieald, which Electrolima is now trying to recover to face the supervision of the works under its responsibility (Yuracmayo dam, Matucana reinforcement, Transandean  - 13 - Tuniel expansion and possibly Salto Bajo scheme). The Bank would assist Electrolima in training intermediate level professionals wit:hin the training component considered in the proposed loan (para. 2.07). 2.04 The Bank has made five loans to Electrolima - or its predecessor -: 260-PE(1960); 365-PE(1963); 464-PE(1966); 511-P3(1967) and 1215-PE(1976);totaling US$102.5m. In general the Borrower's performance has been satisfactory. For loan 511-PE, which financed the construction of the M4atucana hydro power plant, the project performance audit report concluded that completion of the project was achieved with minor delay and that its rate of return was higher than expected. Execution of loan 1215-PE, still underway, suffered delays due to the deterioration of Peru's economy during the period 1975-1978 and consequent reduction of demand for expansion, and due to bureaucratic procurement procedures (see paragraph 4.24). However, the present project progress is satisfactory and the project is expected to be completed by mid-1982. Staff and Training Programs 2.05 Electrolima's total permanent staff as of December 1980 consisted of 2993 employees of whom 83 were directors and managers, 438 were intermediate chiefs and technical employees, 673 were administrative employees, and 1799 were skilled and unskilled workers. The number of employees is reasonable compared with the size of the utility; it has increased only by 15% since 1975. Professionals are capable of performing all activities related to the proposed loan. Bank experience regarding the technical capability of the professional staff during the execution of the previous Fifth Power Project was favorable. Electrolima's workers are also well skilled and capable of executing the project's distribution works. 2.06 Electrolima has proven experience in training personnel. During 1980, average of 1.2 training activities per employee was achieved, covering all staff levels. More than half of the training activities are given internally in its own tra!ining center which also accepts 25% of trainees from other utilities. A total of 49 fellowships for professional training outsic.e the country were also used in 1980. 2.07 Electrolima's training center requires substantial renewal and modern equipment to continue performing its role. Technical assistance is also needed to update teaching materials, methodology and to 1:rain instructors. US$2.5 million is included in the proposed loan to finance thhs project component for which details have been prepared by Electrolima under the Bank's guidance. The program will include a fellowship program for professionals and medium-level managers. Information Systems, Inventory Control and Accounting and Billing 2.08 Electrolima's internal information systems are good and it was one of the first utilities in the region to computerize it:s data processing operations: operational and financial reports are issued promptly and accurately. Managerial information is available for a close follow-up of the utility's performance through an adequate accounting system. Taking advantage of the high concentration of its clients, Electrolima has mounted a well-organized computerized billing procedure and makes use of commercial banks in collecting bills. Nevertheless, Electrolima feels that it could make wider use of its modern data processing unit and contracted a consultant who will study a reorganization of the data processing system in order to include inventory management, operating results analysis, and other themes. Under  - 14 - loan 1215-PE consultants were contracted to do a study of the company's procurement and inventory control procedures. The first stage of the study was successfully completed and made a series of recommendations for improvements in these two fields. The proposed loan includes financing of consultant services for the implementation of a second stage aimed at implementing these recommendations (para. 4.08(a)). Audits 2.09 Electrolima's internal audit office reports to the Executive President and performs satisfactorily. Since 1980, external auditors with less than the necessary degree of experience have been appointed from a short-list by the Contraloria General de la Republica without consultation with the Bank. As this procedure violates Loan 1215-PE covenants, it has been agreed in principle with the Contraloria and Electrolima that the short-list of candidates for auditors would be issued in consultation with the Bank and that terms of reference stating the minimum requirements to be met by the candidates would be drawn up. Electrolima submitted to the Bank, before loan negotiations, acceptable terms of reference for performing the 1982 audit; these terms of reference were designed to limit the choice of firms to be selected by the Contraloria General to those with requisite experience. Electrolima has agreed to follow this procedure in subsequent years. Electrolima has also agreed to submit its audited financial statements with the auditors' report within six months of the close of its fiscal year. Performance Indicators and Reporting 2.10 Electrolima's performance indicators are good, reflecting the utility's efficiency. As the evolution of performance indicators defined for the Fifth Power Project has been favorable, a similar set of indicators has been defined for the proposed loan and is included in Annex 2.2. Electrolima has indicated its acceptance of these performance indicators. 2.11 Electrolima has a well organized operating results control, which is timely and accurate. The reports cover production and commercialization, but a system for monitoring quality of service to the final users has not been adequately implemented. Electrolima expects to improve its quality control during project execution. Reports related to development plans in a prefeasibility stage are prepared by the Planning and Engineering unit. Reports on feasibility studies and engineering design for the distribution works are also prepared by Electrolima but for generation and transmission works, Electrolima makes use of consultants. Risk Management 2.12 Electrolima has insurance policies from local companies covering main assets such as generating plants, transmission systems and buildings. Policies cover main risks als fire, explosion and hostile acts but do not cover earthquake. Electrolima has no insurance on: (i) hydraulic structures exposed to floods because the risk is not covered in Peru, and (ii) the distribution system because of  - 15 - the extension and complexity of the works and the low risk of losing an important part of the network at one time (except in the case of an earthquake, which is an uninsurable risk in Peru). As policies cover nain assets and main risks, insurance policies are acceptable. Electroperu Organization and Management 2.13 Electroperu was created by Decree Lau No. 19521 of September 5, 1972, merging four existing State-owned utilities. Electroperu's organizational structure has four functional groups: high direction (Board of Directors), executive direction (Executive President and General Manager), support units (advisors, coordinators, public relations, secretary, internal auditing and others) and operating units (specialized and regional units). Of the ten-Ean Board of Directors, the executive president and four directors are nominated by the Ministry of Economy and Finance, one by the Ministry of Agriculture and one by the Ministry of Industry, Tourism and Integration. The employees elect the remaining two directors. 2.14 At the time this project was appraised Electroperu's executive organization was complex and confused. It did not clearly cefine the division of responsibilities between the Executive Presidernt and the General Manager. Furthermore, up to November 1981, the General M[anager supervised a total of 20 working groups which were: (i) three advisory groups (legal, financial and general), (ii) seven support managers (planning, design, accounting, finance, administration, personnel and training), and (iii) ten operaticinal managers (seven special regional projects executing agencies, the production and. transport unit, the engineering unit and the Electrical Research Institute). The high level of centralization in decision making, the physical communication difficulties between different parts of the country and the bureaucracy contribute to the tLtility's overall deficient organization. The utility began a deep reorganization late in 1981 but a definitive organization scheme was not available at the time this report was prepared. (Annex 2.3 shows the organization as it is now foreseen.). 2.15 Electroperu's management performance has traditionally been poor. With few exceptions, its management personnel have not been capable of running a large utility. Due to the utlity's bad image, experienced professionals declined to work for it and, up to 1981, insufficient salaries had been offered to candidates. 2.16 The Government, concerned with Electroperu's organization/management problems is attempting, with support from the Bank and the Interamercan Development Bank (IDB), to improve the situation within the framework of the planned reorganization of the electric power subsector (para. 1.16). The following steps have been taken in this regard: (a) Legislative Decree No. 41 of March 4, 1981 gives to Electro- peru increased autonomy by transform:ng it into a corporation and subjecting it to a large extent to the laws that govern private corporations. At the same time, salary limitations have been lifted, thus permitting better incenl:ives for high-level staffing. (b) The Government recently nominated an experienced professional as general manager and changed the three divisional managers by nominating highly qualified professionals.  - 16 - (c) General reorganization of the functional structure is in progress. (d) Contracts for five professionals to serve as advisors to Electroperu's key managers and provide on-the-job training are being financed under an IDB loan. (e) The Bank, under Loan 2018-PE, will finance training and support for Electroperu's planning unit. As the utility's reorganization is beginning to be applied, improvements depend on the capability of the new nominated executives and the staff response to the changes. The Bank should maintain a close follow up on the process. 2.17 Improvements in Electroperu's organization and management situation are necessary for efficient and timely project execution because the Government has decided that the Mantaro Transfer Project will be carried out by a special executing agency cresated within Electroperu. A prestigious professional have been nominated as head of the unit, all the staff of the late Mantaro Transfer Commission has been transferred to Electroperu and an organizational strucure and a program for completing the staff has been prepared for the unit. In addition to that, the Ministry of Energy and Mines prepared a legal document satisfactory to the Bank - which was signed by all institutions related to the Mantaro Transfer scheme (Electroperu, Electrolima and Sedapal, the Lima water supply company) - outlining the general conditions for project execution. To ensure that the Mantaro project is carried ou1t in a timely manner the Bank, prior to loan disbursements against the funds assigned to these studies, should obtain detailed information on this process such as: (a) the definition of the organizational structure for the management of the engineering studies of the Mantaro Transfer Project and its relationship with the rest of Electroperu's organization; and (b) an acceptable timetable for implementing that structure and staffing the unit. Staff and Training Programs 2.18 Electroperu's total permanent staff as of December 1980 consisted of 5,350 employees of whom 41 were directors and managers, 694 were professionals, 351 were technicians, 3,159 were administrative employees and 1,105 were skilled and non-skilled workers. The high number of administrative employees as explained by Electroperu, is due to the size of the utility and its geographical organization but bureaucracy and weak management certainly contribute. The proportion of professioiials (12%) is somewhat high, but only 12% of the professionals, that is 82, work in E:Lectroperu's planning and engineering areas. It is expected that, under the new management, organization and personnel problems will be addressed in order to achieve a more efficient utility. 2.19 Training activities have been neglected in recent years. Even though the global figure for 1980 is about one training activity (of any kind except basic education) per employee every 2.2 years, there are significant deficiencies:  - 17 - (a) There is a lack of training in some crucial fields like plant operation and maintenance, distribution network maintenance and testing of measurement equipment. (b) The personnel training office has very few competent staff and little support. Due to lack of instructors, it resorts to Electrolima's training facilities wh"ch are in Lima. This arrangement does not solve training problems elsewhere and does not cover training fields not handledl by Electrolima. (c) Fellowships for training of professionals outside the country are almost non-existent. As training activities are needed to prepare ELectroperu for its holding company role in the sector, and to prepare personnel for the future regional distribution utilities, a training program is included in tLe proposed project. An amount of US$3 million is being included to finance foreign ecpenditures of the program, which has been prepared by Electroperu's training center (CEFOCAP) with the Bank's assistance. Information Systems, Accounting and Billing 2.20 Theoretically, the administration of Electroperu's financial resources is distributed as follows: (a) the Finance Manager is in charge of the utility's financial po- licy, the credit management, the investment control and the financial forecasts; (b) the Accounting Manager is in charge of accounting,assets control,budget control and payments. Actually, there is neither a clear definition of the functions of each manager nor a uniform application of accounting procedures. There is no managerial information system to monitor the utility's operations. Furthermore, the recording and processing of data, coming from the regional offices, lack uniformity and are delayed. 2.21 Accounting records are kept first in each of the 40 local offices, reviewed and consolidated in each of the six regional offices, then sent to Lima where the information is reviewed and consolidated again together with corresponding information from the seven special projects offices. The process is time-consuming and its results worthless, because: (i) the procedures applied are not standard; (ii) the system does not provide analytical information; (iii) data gathering lacks simultaneity; and (iv) Electroperu has no data processing equipment. Electroperu's administration has not given the necessary attention to this problem because 80% of sales are to 40 large consumers whose bills are prepared by hand. It is expected that the new financial manager will address these issues. Electroperu has agreed to complete, by the end of 1985, the following tasks: (a) define clearly the responsibilities related to the financial and accounting units; (b) develop standard accounting procedures and handbooks;  - 18 - (c) prepare data processing equipment specifications to meet the needs of the f-inance and accounting units; and (d) reorganize the accounting and internal audit system in an acceptable manner. Audits 2.22 E2lectroperu's internal audit office reports to the Board of Directors. Scarcity of experienced personnel and lack of standard procedures limit its performance. Independent external audits recently performed have shown weakness in the internal audits, specifically regarding assets control, inventory movement, accounts due, supplier accounting and personnel record keeping. 2.23 External auditing is performed by an independent auditor nominated from a short-list by the "Contraloria General de la Republica". This procedure may not result in the selection of an auditing firm with the necessary degree of experience to examine the accounts of an enterprise with the size and complexity of Electroperu. Therefore, Electroperu has confirmed that it will follow a procedure similar to that of Electrolima (see para. 2.09) which would permit selecting an acceptable auditor; it also has agreed to submit its audited financial statements with the auditors' report within six months of the end of its fiscal year. Plerformance Indicators and Reporting 2.24 Even though a slight improvement in Electroperu's performance indicators took place during the last years, they are still poor as compared with a number of other Latin American utilities1/. The number of clients per employee increased from 47 in 1976 to 60 in 1980 and the energy sold per employee increased from 0.40 GWh in 1976 to 0.56 GWh in 1980. The slight improvement is due to: (i) the number of employees has not increased substantially (from 5249 in 1976 to 5600 in 1980), and (ii) the Mantaro hydro plant increased its energy production by 50% in the same period. It is expected that performance indicators will improve as a result of the reorganization mentioned in paragraph 2.16. A group of performance indicators is suggested in Annex 2.4 in order to monitor Electroperu's performance. In particular, it is recommended that the personnel limitation policy should be continued, to improve efficiency. Electroperu has indicated its acceptance of those performance indicators. 2.25 Reports are prepared in several units inside Electroperu, but mainly in the planning and operating areas and in the public relations office. Reports refer to expansion and investment plans, operational programs, operating results, annual reports and others. There is a lack of uniformity in operating results reporting, which is partially covered by MEM statistical summaries. Nevertherless, absence of an operation results control unit is noted as well as systems to monitor quality of supply. The Bank should encourage the solution of this problem with the new administration, and follow-up closely in order to determine if assistance in this field is needed that could be included in future loans. Even though Latin American utilities used for comparison purposes do not necessarily have the same organization and functions, performance figures give an idea of their efficiency (numbers of clients per employee, for example are over 120).  - 19 - Risk Management 2.26 The insurance management is split among three departments for assets, for goods under procurement and vehicles, and for personnel. Asset insurance is limited to generating plants and substations. A provision for a self-insurance system is being included in the financial forecast to insure transmission lines. In addition, Electroperu is hiring a consultant to prepare a wider, general insurance policy report which is expected by mid-1982. Current practices are acceptable, and any significant changes would be reviewed by the Bank. Hidrandina 2.27 Hidrandina is a small company formed in 1947 by Empresas Electricas Asociadas, the private company predecessor of hlectrolima, to generate electricity and sell it in bulk. At the present, Electroperu owns 93% of the shares, the remaining 7% belong to private investors. Four of the six members of Hidrandina's Board of Directors are nominated by Electroperu and the remaining two by Hidrandina's workers. The company has three hydroelectric plants: the 40 MW plant at Cahua serving three customers in the Pativilca concession, and the 63 MW Moyopampa and the 32 MW Huampani plants in the Rimac concession. These last two plants sell all their production to Electrolima. ) 2.28 Hidrandina has built up a workshop (Taller Moyopampa) that specializes in the maintenance of hydraulic machinery used in the production of electric power which may be considered a model due to the quality oi- work performed in it. The workshop takes care of work as specialized as reconstruction oS -Pelton wheels and injectors for Hidrandina and other Peruvian utilities. En 1980, a training school (Escuela Tecnica de Mecanica Hidraulica, ETEMHI) was created with an aim to transfer the experience and knowledge of the Moyopampa workshop to the sector. 25 hydraulic mechanic apprentices are being prepared and the school plans, in the near future, to extend its activities to training workers from other utilities and to including other specialities as operating hydraulic mechanics. For this purpose they will receive Swiss technical assistance. 2.29 Hidrandina's staff as of December 1930 consisted of 203 employees, of which 13 were professionals, 60 were administrative officers and 130 were skilled workers. 108 of these employees work in the Moyopampa workshop and training school. Being a small, well-organized, well-managed utility, HLdrandina has an outstanding performance record. The increase in personnel from 1973 to 1980 was only 12 employees. In the same period the utilization factors of the hydro plants has been optimum with only some water spillage due to lack of demand. A special set of performance indicators has been designed for Hidrandina and is presented in Annex 2.5; Hidrandina has indicated its acceptance oE these indicators to monitor its performance during the project execution period. 2.30 Hidrandina's internal information systems, including accounting, are good. External auditing is performed by an independent auditor nominated by the Contraloria General de la Republica. Hidrandina has confirmed that it will follow a procedure similar to that of Electrolima (para. 2.09) in auditor selection and has agreed to submit its audited financial statements with the auditor's report within six months of the end of its fiscal year.  - 20 - CHAPTER III THE MARKET AND THE MEANS TO MEET IT 3.01 In 1980 total production of electricity in Peru was 9805 GWh, or 551 kWh/inhabitant, from a total installed generating plant capacity of 3191 MW. Comparative statistics show that the 1979 level of per capita electricity production of 535 kWh was one-third of the way up the scale for Latin America and the Caribbean, which stretched from 57 kWh for Haiti to 1315 kWh for Uruguay. The percentage of the population receiving electricity service in 1980 was estimated to be 36X, ranging from a high value of 67% in the department of Lima (including metropolitan Lima) and a low value of 6% in the departments of Cajamarca and Amazonas. There is still substantial room for expansion of service on a national scale. The major load center is the Lima metropolitan area, served by Electrolima, and in 1980 39% of all electricity produced in Peru was consumed in Lima, which has 27% of the country's population. It was estimated in 1979 that 78% of households in Lima had electricity, including 68% of households in squatter settlements (Pueblos Jovenes). Central-north System 3.02 For the purpose of developing a long-term generation and transmission development plan for the Central-north system MEM contracted consultants, financed by Loan 1215-PE, to prepare a national forecast of the demand for electricity. This study was completed in 1979. Currently (February 1982) MEM has updated the study using its own personnel. This revision provides an acceptable forecast on which to base future expansion of generating facilities in the system. The forecast, presented in Annex 3.1, is the sum of individual fore(casts for 1540 cities, towns and villages, and also for existing and future major industrial loads. These load centers were then classified into those that are likely to be interconnected in the short term, and those that, by virtue of their distance from the networks, are not. For the larger cities and towns trends in the number of electricity subscribers per population and kWh consumption per subscriber were estimated which, when applied to official population projections yielded estimates of future kWh demand for each load center. A similar procedure was used for the analysis of demand in small towns (population less than 20,000), while large industrial loads were forecast on a case by case basis. For the Lima load center, in particular, the probable effect of real increases in the price of electricity (Chapter 5) in reducing sales growth were taken into consideration when preparing the forecast. 3.03 The average growth rate of the 22 load centers that will form the interconnected North-central system by 1990, in the 1981-1990 period, is estimated at 9.4%. The Lima load center, by virtue of its being a more mature market, has an estimated average rate of 7.4% in the same period. Higher growtWh rates are expected during the earlier years of the period. Successive integration of load centers into the Central-north system is assumed as follows:  - 21 - Trujillo, Chimbote, Huallanca, Paramonga 1981 Mantaro 1982 Huancavelica 1983 Centromin (Pachachaca, La Oroya, Cerro de Pasco) 1984 Chiclayo, Pacasmayo 1985 Huanuco 1986 Cajamarca 1987 Talara, Piura, Bayovar 1988 Tumes 1990 The resulting forecast is summarized below: Actual ----Forecast---- Central-north System 1980 1985 1990 Energy demand (GWh) 5,060 10,529 16,890 Power demand (MW) 1,270 1,952 3,054 System load factor 56% 62% 63% 3.04 The current long term generation expansion program of the sector was developed on the basis of an earlier load forecast about 2% below the February 1982 MEM forecast described above. Sensitivity analyses of this long term plan were carried out with demand growth rates one percentage point above and one percentage point below those given abcive for the period 1981-1990. These analyses show that if demand is higher thEn forecast, the amount of steam plant required in the system by 1986 will be higher than the 143 MW required for the basic load forecast. Conversely, lower growth would lead to a reduced requirement for thermal plant. Other tharL this change, the generation program in 1982-1987 is rather insensitive to changes in demand growth. In the years beyond 1987, however, the sequence and timing of hydroelectric plants changes considerably with changes in the load forecast and no definite plan for this period exists. The recent IBRD loan to E]ectroperu (Loan 2018-PE, August 19, 1981) for a power engineering project includes the financing of technical assistance for planning and, also, a feasibility study of the thermal plant that will be required in the late 1980s. Under this loan Electroperu has agreed to update the generation and transmission plan every six months and present it to the Bank for discussion. 3.05 The power and energy balances associated with the most recent demand forecast are shown in Annex 3.2 for the period 1981-1987. The system reserve capacity (MW) varies from a low of 7% of peak demand in 1985 to a high of 20% in 1987 after entry into operation of the 300 MW first stage of the Sheque hydro plant. The energy balance shown is based upon average hydraulic conditions and shows a surplus of between 14% and 32% of demand.1/ An analysis of critical (dry) month condit:ions indicates that, in the 1982-87 period, thermal generation requirements in the critical month may vary between 0% of demand, in 1983 and 1984, to 7% in >986, giving rise to the need for additional thermal plant mentioned in para. 3.04. Electrolima System 3.06 During 1979 Electrolima commissioned a study of market forecasting techniques with the objective of developing a single forecasting method to 1/ The balance does not include the energy associated with thermal generation required to meet system peak demand.  - 22 - replace the three independent forecasts being used at that time by the planning, operations and commercial departments respectively of the company. This study was financed under Loan 1215-PE as one of a series of studies designed to improve Electrolima's distribution expansion planning. The forecast disaggregates total demand into the various groups used for tariff purposes; residential, industrial, commercial and public lighting. Energy demand for each group is related to variables such as population growth, the passage of time, household expenditure and gross domestic product by applying multiple regression analysis to historical data for 1967-78. A load factor trend is then assumed for the derivation of peak demand. 3.07 Though the accuracy of this forecast has been reasonable during 1979 and 1980 2/, when actual sales grew by 4.9% and 7.8% respectively, compared to the 4.0% and 5.6% forecast, Electrolima has not yet implemented a unified approach to demand forecasting. This is partly a result of reservations Electrolima management has with regards to adopting a forecasting procedure which requires as inputs forecasts of economic variables which have been difficult to predict with any accuracy in the past. During the recession of the late 1970s the GDP growth rate fell from levels around 6% per year in 1970-74 to -1.2% and -1.8% in 1977 and 1978 respectively. Despite these difficulties, the techniques explored in this study could serve as a basis to consolidate and upgrade Electrolima's load forecasting procedures. Electrolima has agreed to draw up a plan of activities for improving forecaLsting methods by December 31, 1982 and to submit a load forecast report to the Bank at the end of each year for comment. 3.08 The market forecast developed by MEM for Electrolima's concession area (para. 3.02) was used as the basis for preparing the distribution component of the proposed project. Annex 3.3 shows historical sales, generation requirement (sales plus losses) and peak demand statistics for Electrolima's system during 1970-1981, while Annex 3.4 gives the details of the forecast. In developing this forecast, sales to the Cajamarquilla zinc refinery operated by Mineroperu and commissioned in May of 1981 have been treated separately. This load, estimated at 450 GWh/year by 1985 with a peak demand of 52 MW, is Electrolima's single largest customer and should represent 10% of Electrolima's sales in 1982, the first full year of operation. Other sales in Electrolima's system are forecast to increase, on average, by 7.1% per year during 1981-87, below the 8% average experienced during 1970-76 prior to the 1977/79 recession (Annex 3.4). The forecast is summarized below: ---Actual - Forecast ------ 1982-87 Average growth (% 1980 1981 1982 1983 1984 1985 1986 1987 per year) Total Electrolima Sales (GWh) 3392.7 3817.7 4254 4531 4827 5148 5484 5841 7.3% Electrolima Peak Demand (MW) 694 782 831 881 933 991 1056 1126 6.3% 2/ In 1980 forecast sales were 2.9% below actual sales, while forecast peak demand was 3.0% below actual.  - 23 - CHAPTER IV PROGRAM AND ]'ROJECT The Program 4.01 The main objectives of the Peruvian Electric Development Program are: (a) to coordinate Peru's power development with the general economic development policy designed by the Government; (b) to develop the least-cost generatingi and transmission system needed to provide the required power and energy with adequate reliability; (c) to increase participation of hydroeLectric potential in power production; and (d) to increase electricity availability to the population, particularly in rural areas. 4.02 The main efforts in power developmenit are dedicated to the Central-north system, by far the largest system in the counl:ry, to which all the project components belong. A Master Plan for electricity supply for the Central-north system was recently prepared by DGE, with the assistance of consultants. The plan provided: (a) a suitable, easy-to-update demand forecast and generation expansion planning methodology; (b) an inventory of the most promising hydro projects; (c) a definitive medium-term (1982-1987) plan and a reference long-term (1988-2004) plan for generation expansion, and (d) a medium-term plan for transmission expansion. 4.03 The 1982-1987 generation and transm:Lssion plan for the Central-north System includes the construction of new hydro plants and the expansion of existing hydro p:Lants totalling an additional capacity of about 820 MW, and the construction or upgrading of about 1,000 km of high voltage lLnes to complete an 850 km long interconnected system, from Marcona to TrujilLo (see map no. 16094). Annex 4.1 presents the 1982-1987 generation and transmission program. Responsibility for the operation of the Central-north interconnected system has been assigned to E:Lectroperu, which will need to install a Load Dispatch Center. This is now being studied by Electroperu with the assistance of consultants. This center will be coordinated with Electrolima's dispatch center- now being installed. Additionally, an interutility commission has been created by MlM to prepare monthly energy interchange pLans in the Central-north system. 4.04 Since hydro project preparation and execution have been seriously delayed in the last several years as a result of lack of planning, the Master Plan exercise showed that, in spite of its large hydro potential, Peru will need to install thermal p:Lants in the period 1982-1987. Two gas turb:nes with total capacity of 110 MW have been already committed for service in 1982, and a 150-200 MW steam plant may be needed by 1986.  - 24 - 4.05 Several steps are under way to accelerate studies of hydroelectric projects in order to minimize the need for new thermal capacity. Under the Bank's Loan 2018-PE, studies for nine projects located in the Pacific watershed and two in the Atlantic watershed are to be prepared. Technical assistance from IDB and from the German Government will be used to help prepare feasibility studies for other promising hydro projects in the Atlantic watershed. Additionally, the proposed loan, focusing on the short-term solutions, should help to develop remaining hydraulic resources in the vicinity of Lima. 4.06 E.lectrolima is responsible for the subtransmission and distribution network in metropolitan Lima, by far the largest urban population center in the country. Distribution planning objectives are: to provide the users with adequate capacity in the amount and location needed; to ensure a high service reliability to customers; and to expand service in low-income urban areas. The distribution expansion program included in the proposed loan covers the 1982-1986 period, in which an increase of 44% in electricity consumption is expected. The project has been prepared by Electrolima's own technical staff under MEM's standards for distribution works. The general design criterion is to include both underground cables and overhead lines. Underground cables have a higher capital cost but have been preferred by Electrolima in the past: due to the special environmental conditions (dust and salty, humid air) and as a measure to reduce unauthorized connections. Investment in conducting overhead liLnes is less expensive but lines require frequent maintenance. A design with a higher proportion of overhead lines than in the previous project (Loan 1215-PE) has been included in the present project with the aim of gaining experience with overhead lines maintenance. Nevertheless, grids in the more crowded part of the city will continue to be undergrounded for aesthetic and load density reasons. The Project: Project Components 4.07 Power VI would have several components to be carried out by Electrolima, Electroperu, and Hidrandina. P'art A Electrolima's component, is: (a) Electrolima's 1982-1986 distribution program: implementation. (b) Yuracmayo dam: construction. (c) Huinco hydro plant expansion: feasibility study and final design. (d) Salto Bajo scheme: feasibility study. (e) Transandean tunnel expansion: final design. (f) Training program. Part B, Electroperu's component, is: (a) Mantaro Transfer Scheme: final design. (b) Training program. (c) Financing assistance. P'art C, Hidrandina's component, is: Mayush hydro project: final design.  - 25 - Brief Description of Components 4.08 Part A, Electrolima's Component (a) Electrolima's 1982-1986 Distribution Program consists of expanding the Lima distribution network to meet expected demand increases for the period. Main works are: construction or expansion of 19 60/10 kV substations with a total of about 390 MVA of additional transformer capacity, construction of about 700 circuit - km of 60 and 10 kV cables and lines, acquisition and installation of about 1700 additional 10,000/220 V transformers and the corresponding control and protection equipment, acquisition and installation of 75 MVAR of capacitors for reactive compensation, installation of 400 circuit - km of urban lines at 220 V and thLe corresponding street lighting, connection to 130,000 new clients, completion of the communications system and auxiliary services. Annex 4.2 presents more details on this project component. (b) Yuracmayo Dam, a project located in the upper Rimac basin, will regulate the water used by Matucana, an existing 120 MW plant, thus increasing its production by 88 GWh/year of dry-season energy. Electrolima expects to complete the engineering studies and bidding documents for Yuracmayo dam (financed by Loan 2018-PE) by end 1982. The dam, an earth dam, will be 44 m high and form a 40 million cubic meter lake. As the project engineering is still underway, there is neither a definitive design nor a final cost estimate for this component, though feasibility studies show no major technical problems and preliminary cost esi:imates show it to be economically attractive and leave enough room for a cost increase without jeopardizing the economic feasibLlity of the work (see para. 6.13). Nevertheless, as the final geologric explorations--which may vary the estimated cost of foundation and impermeabilization works--have not been yet been completed, disbursement of the loan for this project component should be contingent up?on completion of the dam's definitive studies. (c) Huinco Hydro Plant Expansion consists of the addition of a fifth 60MW unit (present installed capacity is 240 MW) which would be located in a cavern adjacent to the existing underground powerhouse. The expansion would permit better use of the water diverted by the Mantaro Transfer Scheme by increasing energy production through greater availability and also gaining some 35 MW of power output. Power VI would include the feasi':ility study and, if justified, bidding documents preparation. (d) Salto Bajo Scheme is a generic name for the use of the hydro potential existing downstream fr3m Huinco. Increased water flow from the Mantaro River diversion would make this project economically viable. Alternatives to be considered are expanding existing plants (Callahuanca, Moyopampa and Huampani) and 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. (e) The Transandean Tunnel Expansion Study, which also includes modifications of the Marcapomacocha canal, is actually a part of the  - 26 - Mantaro Transfer Scheme (described under para. 4.09 (a)). Electrolima has been entrusted with the execution of this part of the Mantaro Transfer Scheme because it has a better knowledge of the existing facilities (as constructor and owner) and because decisions on out-of-service situations required by the tunnel modifications project (and construction) will affect generation at Electrolima's existing hydro plants. The studies to be carried out under this project would be at the same level as the Mantaro Transfer Scheme: that is, final design and bidding documents preparation and construction design. (f) Training Program, which has been defined with the Bank's assistance. will contribute to improve and complete Electrolima's training center through equipment acquisition and technical assistance (see para. 2.07). The program will include new equipment for the training center, upgrading of instructors, technical assistance and a fellow- ship program for professionals and medium-level managers. In addi-- tion, consultant services will be sought for the implementation of procedures to improve Electrolima's procurement and inventory control procedures. 4.09 Part B, Electroperu's Component (a) Mantaro Transfer Scheme, which has been shown to be the combined least-cost solution for electric power supply to the central-north grid and water supply in Lima, includes several civil and electromechanical works whose objective is to increase the water discharge in the Rimac basin by diverting water from the Mantaro basin. The works include the construction of a hydraulic circuit with two pumping stations, two dams, a diversion dam, a canal, the raising of an existing lake's level and the enlargement of an existing canal and tunnel (see maps for details). The water diverted (16 cubic meters per second) will be used to increase energy production in the existing hydro plants, to develop a new 300 MW hydro plant (Sheque) in the Pacific watershed1/ and to supply additional drinking water to Lima. The proposed loan would help tco finance final design and bidding documents preparation of the diversion scheme. Among the various civil works related to the Mantaro Transfer Scheme, the modification of the existing Transandean tunnel and the Marcapomacocha canal will not be included under Electroperu's component. As explained in paragraph 4.08(e), these modifications will be studied by Electrolima. A brief description of the Mantaro Transfer Scheme is presented in Annex 4.3. (b) Training Program, which has been defined with the Bank's assistance, will contribute to improve Electroperu's training capability. The program will include the acquisition of training equipment for CEFOCAP; technical assistance for improving manpower planning, defining training needs, instructor training, the preparation of programs and teaching aids and evaluation; and a fellowship program for professionals and managers at various levels. 1/ Sheque would be expanded to a final capacity of 600 MW.  - 27 - (c) Financing Assistance, which consists of the services of investment bankers and other financial advisers to provide: (i) advice to Electroperu management on devisingl a financing plan, including restructuring of existing debt, for the project-execution period; and (ii) assistance in obtaining finanicing. 4.10 Part C, Hidrandina's Component Mayush Hydro Project Study. This hydro project, 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 Pai:ivilca River. The feasibility study is currently being financed under Loan 2018-PE. The appraisal mission analyzed the possibility of speeding up the Mayush engineering studies because the construction of this plant could reduce the size or eliminate a thermal plant which Electroperu would otherwise be forced to install by 1987 (para. 4.04). (Due to i:he lack of well-defined hydro projects, Peru's Master Plan includes the construction of a 150 MW oil-fired or coal-fired thermo plant by 1986. As the feasibility study for this plant has not yet been completed, t:he plant may be delayed to 1987.) The proposed loan would finance preparation of final design and bidding documents for Mayush, provided the feasibility study shows it is technically and economically feasible within the framework of the Central-north system expansion study. Project Cost and Financing 4.1u Project cost is estimated at US$257 million, of which US$93 million is the direct and indirect foreign-exchange component. Costs have been estimated as follows: the cost of Electrolima's distribution program - which is detailed in Annex 4.2 - based on recent prices for material, equipment and construction costs of the current distribution expansion program; Yuracmayo dam construction, on the consultant's progress report; consultant services for Electrolima's studies (Huinco, Salto Bajo and Transandean Tunnel Expansion and fc,r the financing assistance for Electroperu) based on actual prices charged by consultants for similar works, that is, about US$11,000 per staff-month; Electrolima training, by Electrolima in consultation with the Bank; the cost of engineering services for the Mantaro Transfer Scheme, based on a negotiated contract with Binnie and Partners (United Kingdom), resulting in an average rate of US$9600 per staff--month; Electroperu training, by Electroperu in consultation with the Bank; and Hicrandina component by Hidrandina staff in consultation with the Bank. 4.12 The following table summarizes the project cost composition. To make it independent of the exchange rate policy of the cou.ntry, the cost estimates are expressed only in US$ equivalent. Foreign cost represents the direct and indirect foreign exchange cost. Local costs include tax ar.d duties over imported goods which are estimated at 10% of the total project cost.  - 28 - US$ Millions Local Foreign Total PART A, ELECTROLIMA COMPONENT 1. 1982-1986 Distribution Program and Consultant Services 89.3 40.0 129.3 2. Yuracmayo Dam Construction and consultant services 16.1 7.4 23.5 3. Huinco Expansion Study 1.2 1.0 2.2 4. Salto iBajo Study 1.0 2.0 3.0 5. Transandean Tunnel Expansion Study 0.3 1.1 1.4 6. Training Program 2.1 3.6 5.7 Subtotal A 110.0 55.1 165.1 PART B, ELECTROPERU COMPONENT 1. Mantaro Transfer Project Studies 4.4 5.0 9.4 2. Training Program 3.0 3.0 6.0 3. Technical Assistance:Financial Planning - 1.0 1.0 Subtotal B 7.4 9.0 16.4 PART C, HIDRANDINA COMPONENT 1. Mayush Hydro Project Study 1.0 2.5 3.5 Subtotal C 1.0 2.5 3.5 TOTAL BASELINE COSTS 118.4 66.6 185.0 Physical Contingency 13.3 7.9 21.2 Price Contingency 32.2 16.9 49.1 TOTAL PROJECT COSTS 163.9 91.4 255.3 Front-end fee - _1.2 1.2 TOTAL FINANCING REQUIRED 163.9 92.6 256.5 4.13 Costs reflect the prevailing prices of April 1982. Owner's supervisory and administrative expenses for construction works (Electrolima's distribution program and Yuracmayo dam) were estimated by Electrolima and resulted in 11% of the direct cost, which is reasonable. Physical contingencies were calculated by the Bank at a rate of 10% for Electrolima's distribution program and 15% for the other components which have a higher uncertainty. Price contingencies were applied to base costs plus physical contingencies and were estimated on the execution schedule of each project component using the following annual escalation-rates: 8.0% for 1983, 7.5% for 1984, 7.0% for 1985, and 6% for 1986 to 1988. The use of the international inflation rate for local costs reflects the assumption that Peruvian exchange rate policy will recognize the difference between local and worldwide inflation. 4.14 The proposed US81.2 million loan would finance: (a) the direct and indirect foreign cost component of the Electrolima Distribution Program 1982-1986, estimated as: (i) the c.i.f. cost of equipment and materials except for US$11.4 million in major equipment (transformers, capacitors and communications sytem) for which supplier credits would be sought, and (ii) 30% of the civil works; (b) the estimated direct and indirect foreign cost component of the civil works as well as consultant services for the Yuracmayo Dam;  - 29 - (c) the consultant services (i) for the Hluinco Expansion Study, for the Salto Bajo Study, for the Transandean Tunnel Expansion Study under Electrolima's part of the Project; (ii) for the Mantaro Transfer Project Studies and for the Techincal Assistance under Electroperu's part of the Project; and (iii) for the Mayush Hydro Project Study uider Hidrandina's part of the Project; (d) the foreign cost component of teachiag materials, technical assistance and fellowships for both Electrolima and Electroperu Training Programs; (e) the front end fee of US$1.2 million. From the US$81.2 million loan, Electrolima would retain US$65.3 million and would relend US$12.3 million to Electroperu and US$3.6 million to Hidrandina under the same terms as those of the Bank loan. The Bank loan would be made on standard Bank terms, with 17 years maturity, 4 years grace period and the interest rate prevailing at the time of loan approval.2! Tha local cost of the project, about US$163.9 million, would be financed from each of the involved agencies' internal cash generation (Electrolima: US$151.9 million, Eleztroperu: US$10.5 million, Hidrandina: US$1.5 million). The Government has agreed to provide any additional funds necessary to carry out the project. Project Implementation 4.15 The various project components would be carried out under different schemes, according to their complexity and the capability of the beneficiary, as explained in the following paragraphs. Annex 4.4 presents a detailed implementation schedule for all components. 4.16 Electrolima's distribution program will be carried out by its own staff, which will prepare bidding documents for acquisition of equipment and materials as well as supervise construction. Consultants will be hired to assist in implementing improvements in procurement and inventory control procedures (para. 4.08(a)). Electrolima's technical staff has demonstrated its high standards of professionalism in the execution of the Fifth Power Project, expected to be completed in 1982. Installation of the reactive compensation equi3ment and 60 kV lines and substations will be performed by local contractors, engaged through local competitive bidding acceptable to the Bank; Peru has an ample number of qualified contractors for this type of work, which would not be appropriate for international bidding because of the large number of small contracts. Electrolimats own personnel will do the network reinforcements and connections to clients. Installation of part of the special equipment for auxiliary services will be done by suppliers under Electrolima staff supervision. 4.17 The civil works for the construction of the Yuracmayo dam will be performed by a contractor to be selected through ICB under the supervision of consultants selected through procedures in accordance with Bank guidelines. 4.18 Consultants for studies under Electrolima's component (Huinco, Salto Bajo and the Transandean Tunnel Expansion) will be :3elected under standard procedures in accordance with Bank guidelines. Electrolima's staff is fully capable of handling 21 Assumed to be 11.6% for financial forecast purposes.  - 30 - the preparation of the corresponding terms of reference and the supervision of consultants. For the Transandean Tunnel Expansion in particular, Electrolima is contracting a consortium formed by Binnie and Partners (United Kingdom) and Motlima (Peru). Because of the previous involvement of the consultants in the feasibility study, their continuation in the study was considered acceptable by the Bank. 4.19 Electrolima's training component will be carried out by Electrolima's training center which prepared, with the Bank's assistance, an operating plan for the period 1983-1986. Electrolima is currently improving and expanding its training center, which will be moved from the present location in downtown Lima to the new administrative building under construction in Lima's outskirts. Consultants to be hired to provide technical assistance would be contracted in accordance with Bank Bank guidelines. 4.20 The studies for the Mantaro Transfer Scheme will be carried out by the executing agency recently created within Electroperu for this purpose (para. 2.17). Except for the general manager, most of the executing agency's initial staff come from the Mantaro Transfer Commission, which oversaw preparation of the feasibility study. A contract for construction design and bidding documents preparation for thle project has been recently signed with Binnie and Partners. The terms of reference, selection of consultants and contract have been considered satisfactory by the Bank. 4.21 Electroperu prepared terms of reference and issued invitations to present proposals for the Financing Assistance with Bank approval. This component would be carried out under the Financial Manager's supervision. Electroperu's training component will be carried out by Electroperu's personnel training office (CEFOCAP) during the period 1982-1984. With Bank's assistance, CEFOCAP prepared a three-year operating plan showing the activities to be developed by CEFOCAP, their cost and financing, and CEFOCAP staffing requirements. 4.22 Studies for Mayush hydro project (Hidrandina's component) will be performed by power engineering consultants selected under standard procedures in accordance with Bank guidelines. Hidrandina, with the assistance of an individual consultant, prepared terms of reference for the component which has been considered satisfactory by the Bank. Procurement and Disbursement 4.23 Most contracts for the supply of materials and equipment to be financed with funds from the proposed loan would be procured through international competitjive bidding (ICB) procedures in accordance with Bank guidelines for procurement. A 15% margin of preference or the applicable import duty, whichever is less, would be applied to bids of manufacturers of equipment and materials from Peru or other Cartagena Agreement countries. Competitive bidding in accordance with other procedures satisfactory to the Bank, such as limited international tendering, would be appropriate for a few contracts (such as expansion of existing communication equipment, special workshop and laboratory equipment computer software and teaching materials), each not exceeding US$150,000 and estimated not to exceed US$1,500,000 in total. Contracts for Yuracmayo dam civil works to be financed by the loan would be awarded through international competitive bidding, within the Bank guidelines, including, for this component, prequalification of contractors. Contracts for construction of civil works and installation of equipment for the Distribution Expansion Program would be procured under local competitive bidding acceptable to  - 31 - the Bank. Contracts for consultant services to be financed by the loan would be awarded under Bank guidelines for the use of ccnsultants (August 1981). 4.24 Electrolima's internal procurement pTocedures have caused delays in the procurement process in the last power loan to Peru (1215-PE), for it is a three-stage process:-technical evaluation, administrative review and the Board of Directors' approval. In order to avoid such delays in the proposed loan, the project includes the execution of the second stage - implementation - of the studies of procurement practices and inventory control financed under loan 1215-PE (para. 2.08). The consultant services are expected to provide an internal procurement procedure, acceptable to the Bank, which will define the specific responsibilities of the different technical and administrative groups in the procurement process, and a time schedule to be followed by the working groups in bid evaluations. The Bank should follow up the attainment of these objectives thLrough its review of the corresponding terms of reference and studies. 4.25 The loan would be disbursed over a six-year period as shown in Annex 4.5. As Electrolima's distribution expansion component accounts for most of the project cost (74%), the disbursement schedule was estimiated using a standard profile based on 28 power distribution loans from the Latin America and Caribbean Region. A correction to the standard profile was introduced in the first year to consider retroactive financing -(para. 4.26) and front end fee capitalization and in the last year, in which standard profiles reflect the effect of loans with abnormally long delays. The loan would be disbursed against fully documented withdrawal applications to cover: (a) 100% of foreign expenditures for imported goods and 100% of ex-factory cost of local expenditures of goods for the Distribution Program (Annex 4.6 shows the procurement packages and procurement schedule for this component); (b) 30% of the total cost of the contrac':s for civil works construction and equipment installation of the Yuracmayo dam, and for the civil works and equipment installation related to the Electrolima Distribution Expansion Program, this 30% representing the estimated direct plus indirect foreign exchange cost of the equipment to be purchased for the works and the goods to be provided by the contractors (construction materials, machinery, equipment); (c) 100% of total foreign expenditures of consultant services for foreign consultants or 90% of the local expeliditures for consultant services for local consultants (Mantaro Transfer Project studies, Huinco Expansion study, Salto Bajo study, Transandean Tunnel Expansion study, Mayush Hydro Project study and the training program); (d) 100 % of foreign expenditures for imported goods and fellowships of the training components. 4.26 Retroactive financing for up to US$1.0 million is proposed for payment 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.  - 32 - EnvirorLmental Aspects 4.27 Electrolima has taken adequate care of the environmental effects in designing its distribution network. Electrolima intends to minimize the visual impact of the overhead lines which have been designed to minimize the project cost. 4.28 Even though no special environmental effects are expected from the construction of Yuracmayo Dam because of its location in a desert zone in the mountains (4200 meters above sea level) a chapter on the general ecological changes that may arise from the construction - under terms of reference approved by the Bank - has been included in the feasibility study. This study, together with the technical and economic feasibility study (para 4.08(b)), should be satisfactory to the Batik. 4.29 As described below, steps will be taken to eliminate the following three potential environmental risks presented by the Mantaro Transfer Scheme: (EL) the diverted water which will be used for water supply to Lima, is polluted by mining exploitation effluents; (b) the water level in a small lake in the upper plateau, Lake Junin, will be raised 1.7 m, which could produce ecologic changes; and (c) because of impounding, relocation of some 115 families settled around Lake Junin is foreseen. These problems have been adequately addressed. The engineering studies will define a water treatment program in order to ensure that the water quality will be improved to the point at which it can be used for drinking. A water quality monitoring system is projected which will provide an alert system to avoid accidental pollution reaching the water supply treatment plant. The Mantaro Transfer's feasibility study determined that raising the water level of Lake Junin will not significantly damage the ecology of the lake and its surroundings. A relocation plan, as well as measures to maintain the existing agricultural production in the area, will be defined during the engineering design stage. Project Risks 4.30 The project faces no special physical risks. Nevertheless, as the Yuracmayo dam will be located in a seismic region, the engineering design will include a seismological analysis and the dam will be designed accordingly. Standard covenants on dam safety are included in the proposed loan agreement including the engagement by Electrolima of a Board of Consultants to review the design and, periodically, construction of the dam. 4.31 Sector organization, institutional arrangements for the execution of the Mantaro Transfer Scheme, Electroperu7s organization and management, and the sector's financial situation could, however, negatively affect the project execution and result in delays. These problems are discussed in paragraphs 2.14 to 2.17 and Chapter V. 4.32 Construction schedules for the major components of the project (Electrolima's components) were based on recent experience by Electrolima, and, consequently, no delays are expected in the execution of the project. However, as the project has ten components, its timely completion requires adequate coordination of all activities involved and the opportune preparation of engineering design for construction works. Close follow-up by the Bank is recommended in order to detect and correct any possible cause for slippage.  - 33 - CHAPTER V FINANCE History 5.01 Until 1970, utilities in Peru maintained steady profitability and a strong financial position. The Electric Industry Law (No. 12378 of 1955) provided for tariff levels to be set so that utilities (most of which, including Electrolima, were privately ownied), would earn between 8-1/2% and 11-1/2% p.a. They generally earned close to the permitted 11-1/2% return on equity, paid out their earnings in divridends, and sold new issues of stock to private investors, foreign and Local, when necessary. 5.02 Peru's use of a return-on-equity test had certain advantages over the more common return-on-rate-base procedure: in effect, it permitted construction work in progress, or at least the portion thereof financed by equity, to be included in the earnings base; and it offered more protection to the equity investor from interest-rate vicissitudes. Its use is less effective for public-sector utilities, holwever, because the opportunity cost of equity capital is not determined by the market. 5.03 Tariff-setting stopped working well in the early 1970s. While Law 12378 was not repealed, scant attention was paid to it. The Electricity Law of 1972 (para. 1.11) provided only vague guidelines on what the utilities' return was intended to provide, leaving definition of the rate of return to DGE, but it remained undefined. High turnover at DGE (para. 1.13), much higher inflation than had been the case in the 1960s and political pressure to keep the rates of the recently-nationalized utilities low all combined to produce unsatisfactory operating results. In 1975-78, the return on equity of all sector entities, except one small distribution company, did not exceed 4% p.a. In 1979-80, the three beneficiaries' returns on net revalued assets and equity (including revaluation surplus) were as below: 1979 1980 Return on net revalued assets: Electroperu 4.4% 0.6% Electrolima 8.8 5.6 Hidrandina 3.0 -0.2 Return on equity: Electroperu 3.8 0.2 Electrolima 3.3 0.1 Hidrandina 4.8 -0.7 In periods of high inflation, frequent tariff increases are necessary to enable utilities to maintain profitability. Tariff increases of 7.5% per month were authorized in the last four nonths of 1981 to bring the beneficiaries' return on rate base to marginally positive levels(between 2 and 3.5%), which is a first step towards, achievement of the rate-of-return  - 34 - targets recommended in para. 1125. In addition, a 5.8% tariff increase was put into effect in January 1982 and quarterly increases are planned for the rest of the year. 5.04 Loan Agreement provisions for Loan 1215-PE included a contrib1ution-to-expansion covenant: that tariffs for Electrolima would be set so as to pay for at least 30% in 1976, and 45% p.a. in subsequent years, of its average three-year expansion program from net internal cash generation. Despite low rates of return, Electrolima has been in substantial compliance with this covenant during three of the five years of the project-execution period, as shown below. The percentage contribution shown is before deducting transfers to the tariff compensation fund, which was not in effect at the time of appraisal; such transfers provided financial support to Electroperu's expansion program. Contribution-to-expansion percentage 1976 39% 1977 54 1978 17 1979 20 1980 44 Electrolima has been able to accomplish this because its investment program (which included only subtransmission and distribution works) was stretched out, as low growth in demand limited expansion requirements. The tariff- setting provisions (para. 1.25) related to the proposed loan would supersede those of Loan 1215-PE. 5.05 Despite all the factors which have limited financial operating performance, all three utilities had strong balance sheets at the end of 1980, as shown in their debt-equity ratios: Electroperu 17/83 Electrolima 27/74 Hidrandina 4/96 While Electroperu's investment program has been large, most of the major works which have been undertaken and are now its assets (the largest of which is Mantaro hydro plant) have not required its own funds; instead, the government has assumed responsibility for debt service on all related debt. The other two companies have not engaged in large construction programs for more than ten years. Financial Requirements 5.06 The most striking aspect of the electric-power sub-sector's financial situation is its requirements for funds. As detailed in Annex 5.1 and shown in the summary sources and applications of funds in para. 5.08, the three utilities' construction program for the project-execution period is almost US$2,500 mn (all amounts in this chapter are in Dec. 1980 prices unless otherwise noted). This excludes the unformulated expansion of rural electrification and small hydro-plant installations (para. 1.08).  - 35 - This programmed expenditure is more than 50% higher than the net fixed assets of the utilities at the beginning of the period. 5.07 The principal reason for this high expenditure level is to compensate for underinvestment in the 1970s. At the same time, it must be borne in mind that, unlike the past, the government intends to reduce its budgetary support to the sector's construction program. 5.08 The combined Electroperu/Electrolima/Hidrandina financing plan for 1982-86, excluding rural works to be financed by the energy tax (para. 1.27), is shown in Annex 5.1 and summarized below: Sources Dec.1980 US$ millions % Gross internal cash generation 1462 52 Debt service and dividends 556 20 Net internal cash generation 906 32 Incremental energy tax applicable to normal expansion program (50%) 275 10 Total tariff-based 1181 42 Borrowings 1076 39 Customer contributions for cons3truction 44 2 Equity investment by governmen: 488 17 Total Sources 2789 100 Uses Construction program 2497 90 Other 292 10 Total Uses 2789 100 5.09 The intention of sector author:!ties is to limit external borrowing to international and bilateral financing agencies, which offer terms more appropriate for utilities thani commercial banks or similar financing sources. This financing plan, which is summarized above, requires a degree of internally-generated funds at the high end of the range which IBRD generally seeks for electric utilities1/. This goal, which is expressed in rate-of-return terris in para. 1.25 is ambitious, particularly in view of Peru's recent history of limiting price increases for public services, including electricil:y. Because it is the stated goal of the government, IBRD has supported it by including it in agreements related to the proposed loan. However, :Lt must be recognized that 1/ The tariff-based internal financing of 42% estimated here is conservative in that it excludes that half of the energy tax revenues destined to finance rural electrification projects. Likewise, the investment program excludes these intvestments.  - 36 - achievement of a 12% rate of return with the new energy tax means a real tariff-level increase of about 53% over the April 1982 level of 4.27 US cents/kWh excluding tax (Dec. 1980 prices) in Lima (see Annex 6.2). 5.10 It must be borne in mind, however, that about 80% of the proposed borrowings has yet to be contracted. Offers for bilateral financing for large projects have been discussed informally, but the sources must be found for smaller projects and "routine" additions to plant. It is believed that prospects of a relatively high rate of return will help the subsector obtain funds. 5.11 In addition, current financial projections show an unnecessarily high contribution-to-expansion ratio beginning in 1986, when the rate base (and consequently, income) are increased substantially by commissioning of the portion of the Mantaro Transfer scheme applicable to the electric-power sector and the Sheque hydroplant (para. 4.08). At the same time, currently-estimated construction expenditures decrease. Considerations of tariff and financial rate-of-return levels would be merited at that time, taking account of the long-run marginal costs of electricity and the medium-term funds requirement. If these circumstances eventuate, a lower rate of return would be warranted. Financial forecasts 5.12 The financial forecasts were made assuming achievement of the stipulated rate of return and dedication of half the incremental energy tax to the presently-postulated expansion program. Based on these assumptions, the individual beneficiary companies will remain in a strong financial situat-ion, as detailed below for each, and summarized in the key indicators (Annex 5.2). 5.13 Electroperu. (Annex 5.3). Despite a very low debt/equity ratio(estimated 21/79 at year-end 1981), Electroperu's debt-service coverage is not high (1.4) and contribution-to-expansion (5%) very low in 1981 because of its marginal earnings (less than 1 percent on rate base). Despite a very heavy borrowing program ($170-230 mn drawdowns p.a. in 1983-85), its debt/equity ratio is to increase to only 27/73 by the end of 1985, as its equity gets built up by a combination of retention of earnings, government contributions (in the form of assumption of debt for speciified projects - para. 5.07), and retention of the energy tax. Its debt-service coverage ratio is expected to be disproportionately high in 1982-84 because interest on its new debt is charged to construction (and hence excluded from the test). By 1985, when that interest is charged to operations and the grace period on the related indebtedness begins to terminate, debt-service coverage declines to more normal levels - 2.1 to 2.2 times. 5.14 Estimates of the company's most important indicator, the contribution-to-expansion ratio, increase from 19% to 46% of construction expenditures including interest during construction during 1982-85 before jumping up in 1986.  - 37 - 5.15 It is worth noting that while Electroperu's stipulated return on rate base is at the high end of the range generally used for electric utilities, its return on equity is much l.ower, ranging from about 4 to about 8% during the project-execution period. The cause of this phenomenon is the company's very large investment in construction work in progress. This indicates that, should passage of the draft General Electricity Law be delayed, use of the tariff-setting provisions detailed in para. 1.25 would not result in higher tariffs than application of the return-on-equity provisions of Law 12378 (para. 5.01). 5.16 Electrolima. (Annex 5.4) Electrolima's prospects are quite different from Electroperu's: stability as opposed to dynamic expansion. Until 1986, when it will need new financ:ing to pay for expansion of its Huinco hydro plant and the initial construction of the Salto Bajo scheme, little new borrowing other than the proposed loan is foreseen, and its debt/equity and debt-service coverge ratios are expected to remain at very conservative levels. In these projects, equity investments of US$80 mn by Electroperu have been assumed to cover ELectrolima's financing needs in 1986-87. 5.17 As would be expected for a distribution company, Electrolima's projected contribution-to-expansion ratio is extremely high until the end of the project-execution period, when investments in generation expansion are planned. 5.18 Because Electrolima's construction work in progress is comparatively small in relation to its rate base, there is not a marked difference between return on equity and return on rate base during the project-execution period. In no case does the application of a 12% return on rate base result in a return on equity higher than that permitted by Law 12378 - 11.5% p.a. 5.19 Hidrandina (Annex 5.5). Assuming that Hidrandina's construction program is executed on schedule, the company will change from a small company to a medium-sized bulk-supply utility. Its balance sheet projections reflect this conversion process: virtually debt-free in 1981 (because the long-term debt obligations which financed its existing hydroplants have been paid off), Hidrandina's debt/equity ratio would increase to more than 70/30 by the end of the project-execution period, reflecting new borrowings for its prospective projects, the largest of which is Mayush. 5.20 In the latter part of the project-execution period, Hidrandina's debt-service coverage and contribution-to-expansion ratios are forecast to drop to unacceptably low levels. There are two causes for this: heavy project costs and dividend payout. For purposes of these projections, standard terms for local-cost loans fron Corporacion Financiera de Desarrollo (COFIDE) - 1.5 years of grace and six of repayment - have been assumed. These terms are much too short for a hydroplant with a construction period of four years and a useful life of at least 25. Like Electrolima, Hidrandina pays out all its earnings as dividends in the subsequent year. While Hidrandina's maragement will undoubtedly wish to  - 38 - continue this policy as long as the company has private shareholders, it will increase the company's financing needs; commitments from Electroperu to invest equity capital into Hidrandina will probably be required and have been assumed in these forecasts. 5.21 As Hidrandina's construction program increases, its return on equity declines under the return-on-rate-base assumption used throughout the forecasts. Like the other companies, its return on equity would not exceedi that permitted by Law 12378. 5.22 All three companies. The consolidated sources and applications of funds statement (Annex 5.1) for the three beneficiary companies is heavily influenced by the largest of the three, Electroperu. The annual contribution-to-expansion for the three companies (excluding the energy tax) would increase from a low 22% in 1982 to a high 57% in 1986. The expected contribution ratio for the entire project-execution period (32% and 42%, respectively, excluding and including the energy tax) is satisfactory. 5.23 Debt-service coverage is expected to be highly satisfactory under the recommended rate-of-return covenant (para. 1.25), being at least 2.0 during the project-execution period. To permit IBRD review of each company's situation and financing plans should its debt-service coverage deteriorate, each company has agreed not to incur new long-term debt without Bank permission if its net revenues, using the standard definition for such purposes (except for Electroperu), for the previous twelve-month period do not exceed 1.5 times its maximum future debt-service requirements for any succeeding year. For Electroperu, "net revenues" exclude dividends received from its subsidiary companies because they are not operating revenues; in addition, IBRD has confirmed that it would not object to Electroperu contracting loans during 1982-83 for the Mantaro transfer scheme and Sheque hydroplant plus US$300 mn (current terms) for other projects. 5.24 To avoid Electrolima's placing undue reliance on short-term debt (which it had previously used to finance construction when long-term finance was unavailable), provisions of the 1215-PE Project Agreement require IBRD approval of Electrolima's incurrence of short-term indebtedness in excess of one-sixth of its operating, maintenance and administrative expenses (exclusive of depreciation and other non-cash provisions) during the preceding twelve-month period. Similar provisions are included in proposed agreements with all three beneficiaries. 5.25 Other provisions of the 1215-PE Project Agreement restrict Electrolima's dividend payments to 8-1/2% of the par value of the shares. Because Electroperu's financing needs far exceed those of Electrolima and because present estimates show that Electrolima's contribution to expansion during the project-execution period would be adequate with full payout of earnings, this provision has been dropped. 5.26 Electroperu's situation with respect to payment of dividends is different from that of the other beneficiaries in that it does not now have private shareholders. At the same time, it receives and retains dividends on all shares of the operating utilities it holds, even if it holds them as nominee for the government. Because the financing of Electroperu's large  - 39 - investment program depends in part on its retention of earnings, the government, which is presently Electroperu's sole owner, has agreed to reinvest all dividends which it receives from Electroperu promptly back into the company. 5.27 In view of the magnitude of the sector's investment program, ag.eement has been reached that before ar.y government-controlled agency undertakes commitments to any capital expenditure which would cost more than US$50 mn (current terms) the governmtent would furnish a satisfactory report showing the economic justificatior. and financing plan for the proposed project, except for projects which are in the Master Plan, are covered by a 1982 law authorizing placement of loans, and for which feasibility studies have been completed.  - 40 CHAPTER VI ECONOMIC ANALYSIS 6.01 The project consists of nine distinct components (para. 4.07) which can be arranged in four groups as follows (costs given in July 1981 prices, including physical contingencies): (a) Electrolima's 1982-86 distribution expansion program (US$143.6 million); (b) Electrolima's and Electroperu's training programs and technical assistance (US$13.2 million); (c) Yuracmayo dam construction (US$27.0 million) (di) Studies of the Mantaro Transfer, trans-Andean tunnel expansion, Huinco hydro plant expansion, Salto Bajo hydro plant and the Mayush hydro plant (US$22.4 million). The economic analysis presented here deals with these project components in an aggregate manner in that a rate of return on the whole investment program, including generation and transmission investment in the Central-north system, is estimated. Thus items (c) and (d) and Electroperu's training program and technical assistance form part of the cost of expanding generating capacity in the Central-north system 1/, while the distribution investment and Electrolima training programs form part of the cost of expanding distribution network capacity. 6.02 The Mantaro Transfer and several hydro projects to be studied under the fourth project component form part of the least cost generation expansion program. This program was developed in the context of the power system planning exercise carried out by MEM (paras. 4.02-4.04), the feasibility study for the Mantaro Transfer scheme and Sheque hydroelectric project (para 4.08 and Annex 4.3) and a study of the joint optimization of water and electricity supply for Lima (November, 1979). In addition to these studies, other studies of the water supply situation in Lima have been carried out to determine the extent to which future demand for water may be met through existing supplies in the Rimac and Chillon river basins and underground resources, without recourse to the Mantaro Transfer scheme. The conclusions from the above studies, relevant to the economic evaluation of the projects listed in item (d) above, may be summarized as follows: (a) The likely date by which the water resources of the Rimac and Chillon river basins will be fully used up is 1990; 1/ Excluding that part of the training program costs which relates to activities outside the Central-north system.  - 41- (b) The Mantaro Transfer scheme is th, least cost alternative for meeting the growth in water demand beyond the year 1990; in addition, the Transfer scheme in conjunction with the Sheque hydroelectric plant is also the laast cost scheme for meeting electricity demand growth in the Central-north system. In other words, the cost of this joint water and power supply development is less than the cost of the next best separate alternative developments. The optimal date for commissioning of the first stage of Sheque is 1987, one year before the entry into operation of the Mantaro Transfer. (c) The least cost electricity generation development program includes the projects listed in para. 6.01 (d) (Annexes 3.2 and 4.1). Long Run Incremental Cost of Energy 6.03 Electrolima's 1982-86 distribution investment program consists of a set of facilities designed to transport energy and power from the high voltage transmission network to the final customers. A minimum estimate of the benefits of electricity sales may be made by using the price paid by customers.2/ This measure, however, is a measure of the benefits provided by the entire generation, transmission and distribution system; as a result,the rate of return for the entire investment program, including generation and transmission, must be made. Here this has been done by calculating the long run marginal cost of energy entering Electrolima's transmission and distribution network from the Central North interconnected system. 6.04 The long run marginal cost of energy at the transmission level, based on the least cost development plan fcr the North-central system in the period 1982-2004 was calculated as the ratio between the present value of the increase in total system costs (investment, operating and maintenance) over their 1981 level and the present value of the energy produced by this program, the latter being taken as the incremental production over the 1981 level. This calculation is shown in detail in Annex 6.1. At the estimated 12% opportunity cost of capital in Peru, the lcng run marginal cost of energy at the 220 kV level is 3.6 UScents/kWh (December 1980 prices). Preliminary results from the marginal cost tariff study now underway indicate that, at least in the medium term, the marginal cost of energy may be greater than the above estimate. Rate of Return 6.05 As the benefits attributable to investment in Electrolima's distribution network can not be distinguishLed from those arising out of investment in generation and transmission facilities, an internal economic rate of return on the combined Central-north system generation and transmission expansion program, and Electrclima's distribution expansion program, is calculated here. The economic analysis of Electrolima's 1982-1986 2/ A minimum because electricity prices are regulated and one does not know if, in fact, the customer would be willing to pay more.  - 42 - distribution program takes a time slice approach. That is, the distribution investments in the 1982-1986 time period enable a certain increment in electricity demand to be met in the company's zone of service. It is assumed that the increment in demand met by this investment is that occurring during 1983-1987 on the assumption that there is an average one year interval between the start of construction and commissioning of works. In practise this interval will be different for the various items of the distribution program. 6.06 Annex 6.2 presents the cost and benefit streams used in the economic analysis. Prices of 25 US$/bbl for Bunker C oil and 37 US$/bbl for diesel oil, the international prices in December 1980, were used in the generation expansion study that formed the basis for the estimate of the long run incremental cost of energy in the Central-north system. These prices were escalated 3% per year in real terms. The expansion program is insensitive to small changes in the fuel price escalation rate. 6.07 As presented in Annex 6.2 the internal rate of return is calculated using the following cost streams: (a) distribution system investment in 1982-86; (b) distribution system operating and maintenance costs, sales costs and billing costs; (c) the cost of the energy input to the distribution system, required to meet the incremental sales attributable to the distribution investment program, evaluated at the same discount rate as the rate of return (see Annex 6.1). The benefit stream is the incremental sales valued at Electrolima's forecast tariff (see Annex 5.4), including the 25% tax on electricity sales (para. 1L.26), which forms part of the price paid by the consumer. Expressed in December 1980 UScents the benefits are valued as follows: UScents/kWh 1983 5.91 1984 7.00 1985 7.69 1986 7.81 1987-2011 8.20 6.08 On the basis of this estimate of benefits, the rate of return on the expansion program is 16.6%, above the estimated opportunity cost of capital in Peru. A sensitivity analysis of this rate of return shows the following:  - 43 - Rate of Return Base Case 16.6% Benefits: up 15% 19.4% down 15% 13.8% All Costs: up 15% 14.1% down 15% 19.8% Distribution Investment Cost: up 15% 16.1% down 15% 17.1% Benefits valued at April 1982 tariff level (see Annex 6.2) 10.0% It should be noted that these rates of return refer to the investment program for the Central-north system as a whole, and not just Electrolima's distribution investment program. This has been done by ensuring that the incremental cost of energy supplied to the Electrolima network has been evaluated as the same discount rate as the rate of return. The rate of return is most sensitive to changes in benefits and total costs, and least sensitive to changes in distribution investment costs. Of total costs, the cost of energy generation and transmission is the largest single component (63%). 6.09 The 10% rate of return, below the opportunity cost of capital, that results from using current tariffs to value benefits is an indication that the level of these tariffs (including the 25% tax) is below that of marginal costs. Tariff Structure 6.10 Electrolima's December 1981 tariff structure, expressed in current US$, is shown in Annex 6.3. A comparison cf tariffs for low voltage supply shows that, with the exception of electricity used for agricultural water pumping, which is priced at 0.9 UScents/kWh, residential users pay the lowest tariff, ranging from 3.35 UScents/kWh to 4.42 UScents/kWh, while small commercial customers pay the highest, at 13.44 UScents/kWh. A heavily subsidized tariff of 0.31 UScents for up tc 30 kWh/month of residential consumption is applied. This tariff has fallen recently in real terms as it was the only component of the structure excluded from the monthly tariff increases applied during September through December, 1981. Electrolima estimates that 11.2% of their residential customers and 0.6% of their residential sales (9.9% and 0.2% of total customers and sales, respectively) fall within this tariff category. High voltage supply tariffs have the same pattern of charging commercial customers mare than the equivalent industrial customers. 6.11 A 25% tax is applied to electricity sales and an additional municipal tax is applied to cover municipal services. While most (80%) of the 25% tax reverts to the power sector to finance investment, the municipality tax does not. This latter tax covers services that are not related to the provision of electricity service and has the effect of unnecessarily discouraging consumption. Though its importance as a fraction of total revenue is not large, where applied, it can amount to 20% of the tariff (currently it is only applied in two municipalities of Lima). This situation will be monitored in connection with the tariff study now underway.  - 44 - 6.12 The tariff structure needs simplifying in such a manner that consumers are charged in accordance with the costs of providing them service so that hidden subsidies are eliminated, unless there are valid social reasons for their existence. For example, while energy charges applied at high voltage levels during the peak period are higher than off-peak tariffs, the demand charge has no time of day component. A tariff study is now underway, part:ially financed by Loan 1215-PE, with the objective of developing a new tariff structure for the North-central system based on marginal cost principles. The study is scheduled for completion in July 1982 and will be discussed with the Bank, under the provisions of the above loan. Yuracmayo Dam 6.13 The economic viability of this component of the project is to be fully established through the definitive cost estimate based on the final design now underway (para. 4.09). However, its initial economic attractiveness was established in the generation planning exercise described in para. 6.02. Construction of the Yuracmayo Dam forms part of the least cost sequence for generation development. This project has a lower cost than the average for future developments, as may be seen by comparing the cost of the additional energy that will be produced in the Matucana hydro plant as a result of construction of the Yuracmayo Dam, with the average incremental cost of energy in the system (para. 6.04)3/. The estimated costs of the dam, including physical contingencies and the expected output, are as follows (see para. 4.12). Costs (US$ millions, Present Value at: March 1982 Prices) 1982 1983 1984 1985 1986-2025 9% 11% 13% Investment4/ 0.92 2.75 9.16 5.50 - 15.40 14.85 14.34 Operating & Maintenance5/ - - - - 0.18 1.50 1.18 0.95 Total 16.90 16.03 15.29 Output (GWh) - - - - 731 576 466 Incremental energy cost (UScents/kWh) 2.3 2.8 3.3 The cost of the incremental energy produced by the dam is thus below 3.3 UScents/kWh. This energy is available during the dry season and will replace energy from thermal plants which has an approximate cost of 7cents/kWh. 3/ This latter cost actually includes the effect of the Yuracmayo Dam. 4/ Total estimated cost in March 1982 prices is US$23.5 million, including import duties, US$18.32 million excluding duties. To this was added 15% for physical contingencies. 5/ 1% of the investment cost.  - 45 - CHAPTER VII AGREEMENTS REACHED AND RECOMMENDATIONS 7.01 Agreements related to the proposed loan provide assurances that: (a) The Government would agree to discuss with the Bank and establish, by December 31, 1983 (i) the identity of the new electrical regions and the utility responsible for each; and (ii) a timetable for accomplishing an acceptable reorganization of the sector, in particular, the transfer of plant and personnel from Electroperu to the designated regional utilities (para. 1.17). (b) the beneficiaries would apply for, and the government would grant, tariff increases sufficient to enable the beneficiaries to earn rates of return of 4%, 7%, and 10% in 1982, 1983 and 1984, respectively and 12% p.a. thereafter (para. 1.25); (c) Electroperu and the Government would present to the Bank for coment an investment program for the 1983-1987 period for works outside the main systems, including rural electrification and small hydro installations, by December 31, 1983; they would also agree to present to the Bank for review and discussion, by November 30 of each year beginning in 1983, the sectoral investment and financing plan for the subsequent year (para. 1.27); (d) the three beneficiaries would submit audited financial statements and auditors' reports within six months of the close of their fiscal years (paras. 2.09, 2.23, and 2.30); (e) by December 31, 1985 Electroperu would take measures to: (i) clearly define the responsibilities of the company's financial and accounting units; (ii) introduce internal regulations and handbooks describing standard accounting procedures to be adopted; (iii) specify the data processing equipment required to meet the needs of the finance and accounting units; and (iv) reorganize its accounting and internal audit systems in a manner acceptable to the Bank (para. 2.21). (f) Electrolima would, by December 31, 1982, present an acceptable plan of action for improving load forecasting techniques. By December 31 each year Electrolima would present to the Bank for discussion its annual load forecast report (para. 3.07);  - 46 - (g) Disbursements against Yuracmayo dam construction would be contingent on satisfactory completion of final design (para. 4.08(b)); (h) Electrolima would appoint a satisfactory board of consultants to review the design and construction of the Yuracmayo dam two months after completion of the engineering design, and would carry out dam-safety inspections regularly after its completion (para. 4.30); (i) the three beneficiaries would have to obtain Bank agreement for any borrowing which: (i) caused internal cash generation to be less than 1.5 times the maximum future debt service requirement (para. 5.23); or (ii) raised short-term debt to more than one sixth of cash operating, maintenance and administrative expenses (para. 5.24). (j) the Government would reinvest all dividends it receives from Electroperu back in the company (para. 5.26); (k) the Government would submit to IBRD satisfactory justification of major projects before they are undertaken by any company in the subsector which it controls (para. 5.27); 7.02 Provisions in the 1215-PE loan agreements relating to Electrolima's tariff levels (para. 5.04) and dividend payments (para. 5.25) have been dropped. 7.03 Under side letters to the legal documents the three beneficiaries have confirmed that their operations would be maintained under acceptable performance indicators (paras. 2.10, 2.24, 2.29). 7.04 W4ith the assurances listed above, the project forms a suitable basis for a Bank. loan to Electrolima of US$81.2 mn under applicable terms and conditions for Peru, with up to US$1.0 mn available for retroactive financing. Of the total, US$12.3 mn would be relent to Electroperu and US$3.6 mn, to Hidrandina. May l8, 1982  PERU SiXTH POWER PROJECT ELECTROLIMA ORGANIZATION C11ART BOAfiDOf PIHEC1c$IS [EXECU: IIVE L:::MI r-jE EXEW I IVi PFti SlF.tN K CRPf1AIl - - INI HNIAL A I II Lr5, ci.TAIIY _}{ -_ PUEBLIC | IELATION$ L. INE AL MANAGER GENERAL DATA ~~~~~~~LOW IN um~ !k. PR'~ JIM'T MIETA... PRCSSN ELCE WIIN AUVISORS ADLICI [PLAGNINI1 - - - AND COMMiL 0iIAL VZMI h51NATIvt L MANAT E J C IAIUCAiOR iAAht.C U AI.I ti R -AAT TIAONR J L = ] _............I , _ . 1 _ _ _ --E-- - -_--- -- -- -- ASSISTAN fMANAGER HMANAI|LI ASrISIA TMANAGER ASNI.NT AS;IIANfNNAI, MANAAGEiTA MAtAA&t AAN MANAh ltANA ANIIiAIl'N AND I GENERAL S[nVICES ELECTRICAL DLSIGN CUNSTRitCTION CONSTRUCTON CILL, COLLECTNAC PluC T SISIL , E ONIL [HUCTION C SSI,AN 'lI MAN I A... AN MNAE ECLIALNNINGAND CIlDIGAN ELCIALMA.IBILNAN NACPII,IMNALNSI1t __.__ . I I _ _ ____ _ ,_ _.__ ____ __ ______ CoA I. N AN 1 RIITO sIIWrNE L olsr ir J~ Icu., MAiNILNANLE E.N LA .rt ELEIATIDIT AUMN11.1G At-|N  -48 - ANNEX 2.2 PERU SIXTH POWER PROJECT ELECTROLIMA'S PERFORMANCE INDICATORS Actual Estimated 1. MAUKET INDICATORS 1979 1980 1981 1982 1983 1984 1985 1986 1998- Total nurber of customers (1000) 680 704 732 758 784 810 836 862 88E Sales (aWh) 3,184 3,393 3,818 4,254 4,531 4,827 5,148 5,484 5,841 2. EFFICIENCY INDICATORS Number of employees 2,921 2,993 3,076 3,145 3,200 3,266 3,331 3,394 3,442 Customers/employeel/ 233 235 238 241 245 248 251 254 258 Energy sold/employee (CAi) 1.09 1.13 1.24 1.35 1.42 1.48 1.55 1.62 1.70 System losses in percent 9.1 10.5 10.4 9.5 9.1 8.8 8.5 8.6 8.6 3. FINANCIAL INDICATORS Rate of return on rate base (1) 8.8 5.6 3. 6 12 12 12 12 Return on equity (net income + average equity - %) 3.3 0.1 0.6 4.4 11 11 11 10 Debt service coverage excluding interest charged to construction 1.6 3.0 3.8 4.1 6.3 4.6 Contribution to expansion (%) 60 44 108 48 34 20 Debt/equity ratio at Dec. 31 24/80 21/79 19/81 18/82 17/83 28/72 Year-end receivables from customers 25% reserve for year 16 16 16 16 16 16 1/ In 1981-87 estimated to grow at 1.33% per year, the 1975-80 trend.  ANNEX 2.3 _ 49 - PERU SIXTH POWER PROJEbT ELECTROPERU ORGANIZATION CHART BOARD OF DIRECTORS INTERtNAL AUDIT_ EXECUTIVE PRESIDENT PUBLIC GENERAL GENERAL BOARD ; INTERUTILITY COORDINATION RELATIONS SECRETARIAT MANAGER ADVISORS AND PROVINCIAL MANAGEREELECTRIFICATION MANAGER i TECHNICAL P CONSTRUCTION PRODU CTION I FINANCECOUNTNGPRSON CENTRAL CENTRAL CENTRAL CENTRAL CEMNITRAL TIONAE MANAGER MANAGER MANAGER MANAGER MANAGER MANAGER 'I~ ~ ~ ~ ~ ~ ~~~~POUTO I I IT BI 0NANI N MANAG ER MANAGER I MANAG .WolId ank -23757  PERU SIXTH POWER PROJECT ELECTROPERU'S PERFORMANCE INDICATORS 1, Actual Estimate 1979 1980 1981 1982 1983 1984 1985 1986 1987 1. MARKET INDICATORS Total number of customers (1000) 287 320 361 381 402 424 446 469 494 Sales (GWh): retail 1,393 1,453 1,517 1,639 1,770 1,912 2,064 2,230 2,408 bulk 1,372 1,700 2,109 2,655 3,440 3,937 5,215 6,740 6,902 Average retail sales per customer (kWh) 4,870 4,540 4,202 4,302 4,403 4,509 4,628 4,755 4,874 Annual increase in retail sales per customer -6.8% -7.4% 2.4% 2.3% 2.4% 2.6% 2.7% 2.5% 2. EFFICIENCY INDICATORS Number of employees 5,402 5,350 5,300 5,300 5,300 5,300 5,300 5,300 5,300 1 Customer/employee 53 60 68 72 76 80 84 88 93 C Retail energy sold/employee (MWh) 258 272 286 309 334 361 389 421 454 1 System losses in percent 2/ 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 / Once Electroperu assumes its role as a holding company these indicators should apply to the regional utilities as a whole. 2/ Includes transmission and distribution.  - 51 - ANNEX 2.5 PERU SIXTH POWER PROJECT HIDRANDINA'S PERFORMANCE INDICATORS Actual Estimated 1. EFFICIENCY INDICATORS 1979 1980 1981 1982 1983 1984 1985 1986 1987 Installed capacity (MW) 135 135 135 135 135 135 135 135 135 Sales (GWh) 843 906 912 929 934 940 1032 1068 Number of employees 200 203 203 203 203 203 213 213 213 Installed capacity (MW)/employee 0.68 0.67 0.67 0.67 0.67 0.67 0.63 0.63 0.63 Energy sold (GWh)/employee 4,15 4.46 4.49 4.58 4.60 4.41 4.85 5.01 2. FINANCIAL INDICATORS Rate of return on rate base (%) 3.0 -0.2 3.6 6 12 12 12 12 12 Return on equity (net income 4 average equity - %) 4.8 -0.7 3.2 5 10 10 9 8 6 Debt-service coverage excluding interest charged to construction 2.7 6 11 5 2.3 1.1 0.6 Contribution to expansion - (%) 174 37 8 1 0 -9 -27 Debt/equity ratio (Dec. 31) 1/99 6/94 21/79 32/68 58/42 59/41 57/43 Year-end receivables from customers is % of revenue for year 10 10 10 10 10 10 10  ANNEX 3. 1 P_I; - SIXTH POWER PROJECT Oneax 3.1 Forecast Derend In the North-Certra I I nlirconrnerd Sysem: 1 381 -1990 1/ Ernergy (GWi) Awrage Estinaeed 2/ --------------------rFrecas----------------------------- 1981 -90 i980 1981 1982 1983 1984 1898 1986 1981 1988 1989 1990 Growth Rate Tumbes C (') 117) (19) (20) 122) (23) (25) (271 (29) 31 Piura (114) (1 31 (144) ( 56) ;1 173) (2161 1230) 248 264 280 Ta ara (265) (270) (272) (426) (459) (461 ) 1463) 464 521 550 Bayovar (23) (23) !29) 129) 129) (29) (144) 144 144 144 Onlclayo (79) (I6) (95) 103) 245 263 279 323 345 364 P3scasmayo ;7) 181 18) 19) 126 129 130 131 132 133 Cn ama- a (10) IItI ' 2) t'3) 113) (14) (151 16 17 239 TrujIlo 294 351 384 438 461 576 604 631 658 834 Ch8nbote 403 409 4'7 424 G42 673 663 694 928 938 HuanuLc f16) ;17) 118) i19) '21) 23 25 33 35 38 He I Ia,nca 65 67 68 69 70 83 119 266 268 279 Parogoea 363 397 412 422 430 438 444 578 714 721 Lina A/ 3791 4259 470C 4987 5292 5627 5997 6390 6812 7261 7741 7.4% Pisro 56 76 121 '56 181 194 207 220 252 267 ICra 44 49 75 79 211 231 236 241 247 253 'Ma colna 320 320 320 320 560 561 561 651 652 652 L0 Qroya (671) (724) t-?;9) 997 1009 1032 1)18 1143 1163 1220 Ce!-ro de Pasco (2441 (2481 (253) 294 299 274 457 463 468 474 Pdchachaca 1230) 12461 (2671 303 311 348 924 1098 1107 1281 H jancayo 45 54 60 68 77 86 98 105 112 119 Huanca,el ca 10 1(Cl 50 93 102 106 110 114 l'8 123 Hlansaro (0.5) 177 177 177 177 177 178 178 178 209 Tota! Incucldlg un- Con-ectid Iwds 7926 8386 89 7 9603 11,246 11934 13,440 14.579 158613 16,890 9.4% 5 grc,th o total 11.4% 6.23 10.0% 14.68 6.1% 12.6% 8.5% 7.1% 8.23 9.4% To-'a l Int-rconnecJed systen only 5060 3/ 5951 6600 7071 9032 10,529 11,233 12,578 14,552 15,584 16,890 Peak Demand tMh) A\erage Esi7)aited2/------------------------------------------Forecast19----------------------------------------------- 81-90 1980 1981 1982 1983 1984 1385 1966 1987 1988 1989 1990 Growth Rate 'arrr1s (6) (6) (6) (7) (8) (8) (9) (9) (10) (11) II 'i Vra (17) (261 130) 134) 136) (39) (57) (60) 64 68 72 Talara 141) (42) (43) 144) (671 (72) 172) (73) 73 82 86 bayovar l1) (8) (8) 18) (81 110) (23) 23 23 23 23 I ci ayo (19) (23) 125) (27) (30) 57 60 64 74 79 84 pacasrayo (0.5) (0.6) (0.6) (0.61 (0.61 26 29 29 29 30 30 Can"maro3 (31 (3) 13) (1) (4) 14) (4) 13 14 14 43 Truj I l'o 83 91 99 105 122 128 145 152 160 167 199 Ch I 1 2ote 130 105 107 109 179 180 186 188 235 238 240 HGanucl11o (3) (31 (4) (4) (4) (7) 8 8 11 12 13 H,i)a I72 I5 15 16 16 17 17 20 26 50 50 53 Pararrong,i 50 54 56 66 69 73 76 77 97 115 118 Lira 4/ 694 782 831 881 933 991 1056 1126 1200 1280 1364 7.0% 0)sco 4 16 40 42 49 55 58 63 64 68 70 Ica 10 11 12 15 16 43 46 47 48 49 51 Mar co.-a 48 46 46 46 48 86 86 86 100 100 100 4a Oroya t911 193) (98) (991 131 146 150 162 166 169 178 ^erro e 4asco (26) 132) 133) (33) 39 50 61 62 62 62 63 pacharhaca 126) 129) 131 (341 39 40 45 121 146 147 172 Hu-acyo 13 14 17 is 21 23 25 28 30 32 33 Husarcaval'ca 10) 10) 10.9) 8 16 16 17 17 18 19 19 M4an aro 0.3 0.3 21 21 21 21 2 21 21 21 32 -roa includ ng un- conr-&ced loads 1270 3/ 1402 '530 1623 1898 2092 2254 2455 2695 2836 3054 9.2% To-a Interconnected sysite only 1027 1136 1247 1329 1700 1952 2089 2313 2685 2825 3054 System ond facror (1) 56.2 58.8 60.4 60.7 60.7 61.6 61.4 62.1 61 .9 63.0 63.t Sou,ca: Mnlstry of Energy 4 Mines' January 1982 teriand foreaast 1/ This Is lemard at the generation level, (c)udlng distrlbution and transmIss)on losses. Load centers shown In parentheses are not cornecte c to the system. 21 rFf0u1-qs fcr l Ima ir 1980 and 1981 ere aciuals. Figures lor o-lher od centers are estimates. 3/ Chlmbora I,terccnoected In 1980. 4/ CorresDoods to Electrollmas 5 er-V-air reculr-emnt, See ASne 3.4  - 53 - ANNEX 3.2 Page 1 o-f 2 PERU - SIXTH POWER PROJECT Central-north System 1981-1987 Pcwer and Energy Balance A. Power Balance (MW) Capacity (MW) 1981 1982 1983 1984 1985 1986 1987 Utility Plant Type Installed Available 2/ MW MW MW MW MW MW MW 1/ HIDRANDINA Moyopampa H 63 58 58 58 58 58 58 58 58 Huampani H 31 26 26 26 26 26 26 26 26 Cahua H 40 26/38 26 26 26 26 26 38 38 ELECTROLIMA Huinco H 258 240 240 240 240 240 240 240 240 Matucana 3/ H 120 75/105/12C 75 75 75 105 105 120 120 Callahuanca H 68 55 55 55 55 55 55 55 55 Santa Rosa Gas Turbine T 52 43 43 43 43 43 43 43 43 New Gas Turbine T 110 110 110 110 110 110 110 110 110 Auto- *Centromin Plants 4/ H 183 146/157 146 157 157 157 Producers Yuncan H 126 108 108 and Other San Nicolas Steam T 54 54 54 54 54 54 54 54 54 Utilitues Paramonga Steam T 22 22 22 22 22 22 22 22 22 Trupal Steam T 15 15 15 15 15 15 15 15 15 Cartavio Steam T 10 10 10 10 10 10 10 10 10 Trujilo Gas Turbine T 21 21 21 21 21 21 21 21 21 *Several Steam 5/ T 34 34 34 34 34 *Pacasmayo Diesel T 26 26 26 26 26 *San Jacinto & Laredo Steam T 5 5 5 5 Cajamarca Diesel T 6 6 6 ELECTROPERU Canon del Pato 6/ H 150 91/105/45 91 91 91 91 105 105 145 Mantaro 7/ H 798 625 448 448 625 625 625 625 625 Restitution H 217 197 197 197 197 197 Carhuaquero H 75 70 70 70 70 Gallito Ciego H 26 21 21 21 Pampa Blanca H 63 53 53 Sheque Units 1 and 2 H 300 280 280 Chimbote Gas Turbine T 90 65 65 65 65 65 65 65 65 *Chiclayo Diesel T 29 29 29 29 29 New Steam Plant T 150 150 150 150 Hydro 2,518 2,193 1,019 1,019 1,196 1,569 1,664 1,712 2,193 Thermal 624 590 230 340 340 340 429 584 590 Total 3,142 2,783 1,249 1,359 1,536 1,909 2,093 2,Z96 2,783 System Demand 1,136 1,247 1,329 1,700 1,952 2,089 2,313 Reserves (MW) 113 112 207 209 141 207 470 Reserve (M) 10 9 16 12 7 10 20 * = additions to system through interconnection. 1/ H = Hydro; T = Thermal. 2/ During the dry season, which coincides with the annual peak demand. 3/ Matucana expansion in late 1983 will add 30 MW of capacity curing the dry season from 1984 onwards. The Yuracamayo dam will add another 15 MWT from late 1985 onwards. 4/ Includes Yaupi, Malpaso, Pachachaca and La Oroya. 11 MW are added to Yaupi in 1985. 5/ Chiclayo, Pascasmayo, Pomalca, Tuman and Pucala. 6/ Derivation of the Quitaracsa River and construction of Recreta reservoir in 1985 and 1987, respectively, increase the capacity of Canon del Pato. 7/ 1981-1982 considering transmission constraints. The plant las 7 x 114 MW units, of which only six may be used at any one time.  B. Energy Balance for Average Hydro Energy Condition (GWh) 1981 1982 1983 1984 1985 1986 1987 Utility Plant HIDRANDINA Moyopampa 455 455 455 455 455 455 455 Huampani 194 194 194 194 194 194 194 Cahua 257 257 257 257 257 292 292 ELECTROLIMA Huinco 915 915 915 915 915 915 915 Matucana 658 658 658 658 658 718 1/ 718 Callahuanca 497 497 497 497 497 497 497 Auto- Centromin plants 2/ 983 1,023 1,023 1,023 producers Yuncan 910 ELECTROPERU Canon del Pato 1,184 1,184 1,184 1,184 1,235 1,235 1,302 Mantaro 3/ 3,536 3,536 5,126 5,126 5,126 5,126 5,126 Restitution 1,657 1,657 1,657 1,657 Carhuaquero 516 516 516 Gallito Ciego 157 157 Pampa Blanca 503 Sheque Units 1 and 2 - 488 4/ Total 7,696 7,696 9,286 11,926 12,533 12,785 14,753 System Demand 5,851 6,600 7,071 9,032 10,529 11,233 12,578 Hydro Surplus (GWh) 1,845 1,096 2,215 2,894 2,004 1,552 2,175 % 32% 17% 31% 32% 19% 14% 17% 1/ Yuracmayo dam in service. 2/ Includes Yaupi, Malpaso, Pachachaca and La Oroya. 3/ 1981-82 takes into account transmission contraints between Mantaro and Lima. 4/ Energy gain prior to entry of Mantaro Transfer in 1988. MP t3 x HI 3 U)  PERU - SIXIH POWER PPrJECI Annex 3.3: Electrolina - Historical Sales, Generation Requirenent and Peak Dennid Statistics 1971-81 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Average Energy and Power Sales ((qh) 1812.4 2001.4 2140.8 2309.9 2489.5 2663.4 2858.5 2962.3 3000.9 3147.6 3392.7 3817.7 Losses and Unaccounted for (GOh) 181.9 202.7 204.9 229.9 237.0 305.8 299.8 335.1 352.5 355.0 398.2 440.8 Total = Generation Requiraient 1994.3 2204.1 2345.7 2539.8 2726.5 2969.2 3158.3 3297.4 3353.4 3502.6 3790.9 4258.5 Peak Demand (N) 391 423 442 486 516 569 587 597 609 645 694 782 Indicators Losses anl unacconted for (% of generation requirencnt) 9.12 9.20 8.74 9.05 8.69 10.30 9.49 10.16 10.51 10.14 10.50 10.35 System load Factor 1/ (%) 58.23 59.48 60.58 59.66 60.32 59.57 61.42 63.05 62.86 61.99 62.36 62.16 Growth Over Previous Years Sales (%) 8.48 10.42 6.97 7.90 7.78 7.00 7.33 3.63 1.30 4.89 7.79 12.33 7.01% 1 Peak Demand (%.) 10.8 8.2 4.5 9.9 6.2 10.3 3.2 1.7 2.0 5.9 7.6 12.7 6.5% (, Gross Dcestic Product (%) 7.3 5.1 5.8 6.2 6.9 3.3 3.1 -1.2 -1.8 J.b 3.i 3.4% 2/ Source: Electrolima 1/ (Generation Requirement)/(Peak lm1 x 8760 hours). 2/ 1971-0 average growth. February 1982  PERU - SIXTH POWER PROJECT A-.nex 3.4: Elect-olima - Forecast Sales, Generation Requirement and Peak Demand Energy (GWh) -Actual--