Peru - Second Huinco Hydroelectric Power Project

RESTRICTED Report No. TO-383a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE SECOND STAGE OF THE HUINCO HYDROELECTRIC PROJECT PERU November 13, 1963 wpartment of Technical Operations CURRENCY EQUIVALENTS US $1 = 27 Soles 1 Sol = $0.037 1 Million Soles = $37, 037 APPRAISAL OF THE SECOD STAGE OF THE HUINCO HYDROELECTRIC PROJECT TABLE OF CONTENTS Page No. SUMARY i - ii I. INTRODUCTION 1 II. THE BORROWER 2 General 2 Organization and Management 2 Associated Company 3 Existing Installations 3 III. P0WER MARKET 4 IV. CONSTRUCTION PROGRAM 5 V. THE PROJECT 6 Marcanomacocha Diversion Scheme, Second Stage 6 Huinco Hydroelectric Plant, Second Stage 6 Distribution System Expansion 1963-1966 7 Design and Engineering 8 Construction 8 Schedule of Construction 8 Cost Estimates 8 VI. FINANCIAL ASPECTS 10 Electric Power Legislation 10 Present Financial Position 10 Earnings Record 13 Financing Plan 13 Estimated Future Earnings 16 Future Financial Position 16 Performance Under Debt Limitation Tests 16 VII. CONCLUSIONS 16 LIST OF ANNEXES Annex 1 Records and Forecasts of Operations Annex 2 Actual and Forecast Sales of Energy 1958-1967 Annex 3 Installed Capacity vs. Estimated Peak Load Annex 4 Huinco Hydroelectric Project Second Stage. Details of the Project Annex 5 Huinco Hydroelectric Project. Cost Estimate - Second Stage Annex 6 Main Provisions of Electric Industry Law Annex 7 Typical Monthly Electricity Bills Annex 8 Actual and Forecast Balance Sheets 1958-1967 Annex 9 Details of Funded Debt Annex 10 Actual and Forecast Income Statements 1958-1967 Annex 11 Forecast Sources and Anplications of Funds 1963-1967 MAP APPRAISAL OF THE SECOND STAGE OF THE HUINCO HYDROELECTRIC PROJECT PERU SUMMARY i. Lima Light and Power Company - Empresas Electricas Asociadas (Lima Light) has asked the Bank to consider a loan of $15 million equiva- lent to help finance the construction of the second stage (120 YW) of the Huinco hydroelectric plant, the second stage of the associated Marcapoma- cocha diversion scheme, and expansion of its distribution system. The total cost of this project is estimated at $30 million equivalent. The first stage of the project was financed by a Bank loan of $24 million in 1960 and construction is proceeding on schedule. ii. Lima Light is a privately owned public utility responsible for supplying power to the Greater Lima area and with its head office in Lima. It is controlled by a Swiss Group of public utility holding companies and Banks. iii. The management and organization of Lima Light are good. As of March 1963, Lima Light and Hidrandina, a company controlled by the same financial group, operated generating olants with a combined capacity of 229 MW. Total power sales were 869 million kwh in 1962. Based on reasonable forecasts sales are expected to reach 1326 kwh in 1967. iv. To meet the increase in power demand Lima Light has prepared a construction program for the years 1963 through mid-1966 and the proposed loan is to help finance this program. Because the Government is giving serious consideration to the construction of a very large hydroelectric project in Peru, which would supply power to Lima, it has not been practical for Lima Light, at this stage, to prepare plans beyond 1966. However, the program they have prepared is reasonable. v. The project proposed for Bank financing consists of extensions to the Marcapomacocha diversion scheme, the installation of two more 60 NW units in the Huinco hydroelectric plant and appurtenant work, and the expansion of the distribution system in the Greater Lima area during the years 1963 to mid-1966. The project is technically sound and satis- factory arrangements have been made for its execution. Its estimated cost is reasonable. vi. The present financial position of Lima Light is sound. Its power rates are satisfactory. Its earnings record is good. Under its proposed financing plan, it would finance about 44% of its requirements for the next 4 years from its own resources and sales of new share capital and the balance from borrowings including the proposed Bank loan. Financial - ii - forecasts show that based on conservative assumptions and present rate levels, the sound financial position of the Company would be maintained in future years. vii. The project would be suitable for a Bank loan of $15 million equivalent with a term of 25 years including a grace period of 3 ,ears. APPRAISAL OF THE SECOD STAGE OF THE HUINCO HYDROELECTRIC PROJECT PERU I. INTRODUCTION 1. Lima Light and Power Company, Empresas Electricas Asociadas (Lima Light), has asked the Bank to consider a loan of $15 million equiva- lent to help finance the construction of the second stage of the Huinco hydroelectric project having a total estimated cost of $30 million equiva- lent. In this stage 120 MW of additional generating capacity would be installed in the Huinco hydroelectric plant, additional water would be diverted through the associated Marcapomacocha trans-Andean tunnel and the distribution system of Lima would be strengthened and extended to meet the needs of the city to mid-1966. The appraisal of the project and Lima Light's operations and finances is based on comprehensive documentation prepared by Lima Light and on information obtained by a Bank mission which visited Lima in April 1963. 2. The first stage of the project was partially financed by an earlier Bank loan of $24 million made to Lima Light in June 1960. The loan was for a term of 25 years with a grace period of five years with interest at 6%. The undisbursed balance at the end of Septeiber 1963 amounted to 07.6 million. 3. This first stage is being constructed on schedule. The Huinco plant with the initial 120 Md installation should be completed and be in operation as scheduled by the end of 1964. The Marcapomacocha diversion scheme including the main 10 km long tunnel was completed and placed in operation in November 1962 and the expansion of the distribution system has been carried out as planned. 4. Power demand has increased at a faster rate than estimated in 1960 and this has required an acceleration of the Company's construction program. A new 22.5 MW gas turbo generator unit was installed, and work on the second stages of Huinco and Marcapomacocha has to be started about one year earlier than anticipated. 5. The financing plan for the first stage of the project called for the issue, largely in foreign capital markets, of about $17 million worth of new stock and debentures, in addition to the Bank loan and substantial self-financing. Of this, about $13 million were raised, or covered by firm commitments from Lima Light's Swiss holding group, before the Bank loan was made effective late in 1960. This amount was estimated to cover the Company's cash requirements until 1963, when further issues totalling about $4 million were expected to be placed to comlete the Company's financing plan through 1964. Anticipating the larger requirements resulting from the accelerated construction program the Company attempted to raise addi- tional funds abroad as early as 1961. As public foreign issues were not - 2- possible because of uncertainties created by political developments in Latin America, Lima Light has depended in the last two years on sales of shares in limited amounts to the local capital market and interim loans and credits from its Swiss holding group (see paragraph 9) and other sources to meet its additional cash requirements. II. THE BORROWER General 6. The Borrower would be Lima Light and Power Company, a privately owned public utility corporation responsible for supplying power in the Greater Lima area, with head office in Lima. 7. The Company was originally incorporated in accordance with Peruvian Laws in 1910, under the name "Lima Light Power and Tramway Company". The name was changed in 1935 to "Lima Light and Power Company" when the streetcar operations and associated properties were transferred to a new company, fully independent from Lima Light. 8. Lima Light's present concession was granted by the Peruvian Government in 1956. It is valid for a period of 50 years and it gives the Company the exclusive right for generation and distribution of power within its area of operations. This area, which was originally 336 sq. km. was increased on several occasions and by the end of 1962 covered 623 sq. km. 9. In April 1963, Lima Light had about S/. 595 million of common and about $9 million of preferred stock outstanding. About 56% of the share capital is owned by a Swiss group of public utility holding companies and banks. The balance of the shares is widely distributed with a large number held by shareholders in Peru. Organization and Management 10. There is a Board of Directors of 15 members, including the two General Managers, and two alternate directors. A majority of the Directors is resident in Lima. 11. The General Managers, one concerned chiefly with engineering and the other with finance, are jointly responsible for the operation of Lima Light. They are assisted by seven managers, in charge of departments for planning and new works, operations, commercial services and general secretariat, general services and expansion works administration, and company administration. At the end of 1962, the Company had a total of 1,000 employees and 1,280 monstruction workers. 12. The Company has a good and experienced management and efficient organization. Its relationship with Peruvian authorities is good. -3- Associated Comoany 13. The financial group which controls Lima Light also hold a con- trolling interest in the associated Company "Energia Hidroelectric Andina (Hidrandina) S.A." This Company was established in 1946, with head office in Lima, for financing, construction and operation of power plants. The installations owned by Hidrandina are part of the Lima Light power system. Pursuant to a long term renewable contract, Lima Light purchases all power generated by Hidrandina and pays amounts sufficient to cover the total cost of operations as determined by the Peruvian Electric Industry Law. 14. The contract renews itself automatically and gives Lima Light an option to purchase the assets of Hidrandina. Its terms are reasonable and adequately safeguard the interests of Lima Light. Existing Installations 15. The generating capacity of the system in March 1963 was 229 NW, installed in three hydro plants and one thermal plant as follows: Plant Caacil Owner Santa Rosa thermal 67.6 NW Lima Light Callahuanca hydro 67 MW Lima Light Huampani hydro 31.4 MW Hidrandina Moyopampa hydro 63 NW Hidrandina There are also two small old hydro plants totalling 10 MW. 16. The Santa Rosa Thermal plant consists of a steam plant and a gas turbine plant. The steam plant, with a capacity of 14 MW, includes a new boiler, two turbine units of 5.5 1W each, built in 1925 and recently c7er- hamled and a 3 MW turbine. The gas turbine plant consists of four groups with a total rated capacity of 53.6 NW. The first group of 10 MW started operation in 1949. In 1960 and 1961, two additional groups of 10.7 NW each were installed. In 1962 a fourth unit, with 22.2 MW capacity, started operating. The Santa Rosa thermal plant is within the area of the city of Lima. 17. The three hydro plants are located on the Santa Eulalia and Rimac Rivers. Seasonal regulation of the Santa Eulalia River is provided by a number of upstream reservoirs with a total capacity of 75 million cu.m. The water volume for the above-mentioned hydro plants was increased in 1962 by the water caught and regulated on the eastern slope of the Andes and led to the Santa Eulalia River through the tunnel which forms part of the first stage of the Marcapomacocha project. The first stage of the Huinco hydro- electric plant of 120 4, also on the Santa Eulalia River, is currently under construction. 18. The transmission network consists of 314 km of 64 kv lines and 60 km of 30 kv lines. The primary distribution system consists of 69 km of 64 kv overhead lines and 16 km of 64 kv underground three-phase cable, -4- supplying the transformer stations which have a total capacity of 239 MVA. The secondary distribution network consists of: Overhead Lines Underground Cables Voltage 69 km - 30 kv 394 km 812 km 10 and 2.3 kv 781 km 1946 km 220 v It includes six transformer stations, 538 substations, 94 cabins and 493 pole transformers. 19. A part of the distribution network is defined by law as public property but it is operated and maintained by Lima Light. This applies to certain primary lines, distribution transformers, low tension feeders and house connections excluding meters. These wcrks are financed partly from direct payments by consumers and partly from an extension fund administered by the Company. Lima Light is permitted under present rate legislation to charge as operating costs its annual contributions to this extension fund. 20. Total energy production by the Lima Light system in 1962 amounted to 995 million kwh. Losses in the system including the Company's own consumption, were 12.6%. The yearly average load factor of the system was 54.42%. The system is well maintained and operated. III. POWER MARKET 21. In 1961 the population of greater Lima was 2,140,000 with a rate of growth that would bring it to three million in 1968. The area served by Lima Light contains about 20% of the total population of Peru. It is the main administrative, commercial and industrial center of the country. The total number of consumers at the end of 1962 was over 226,000. The main industries served include plants producing cement, rubber goods, vegetable oil, textiles, paper, metallurgy, fertilizers, to which, in the last few years, the very important fishmeal industry has been added. 22. Total power sales during the last four years were as follows: % increase 1959 619 million kwh 9.79 1960 697 million kwh 12.64 1961 788 million kwh 13.09 1962 869 million kwh 10.28 The peak load during the same period increased from 155 NW to 208 MW. (See Annex 1.) 23. A breakdown of sales by categories during 1962 is as follows: -5 - 39.05 industrial 36.51 residential 16.5% commercial 4,8% public lighting 2.2% traction 1,0% miscellaneous 24. In the forecast of sales prepared by Lima Light (see Annex 2) an increase of 10% per year is assumed for 1963 aid 1964, and of 85 for the following years up to and including 1967. On this basis sales would increase from 869.6 million kwh in 1962 to 1,326 million kwh in 1967, and the necessary generation in 1967 woud reach 1,516 million kwh. In 1967 peak load would reach 324 MW. The forecasts of future sales, energy requirements, and system peak load are reasonable. IV, CONSTRUCTION PROGRAM 25. The proposed loan would help finance the construction program planned for the years 1963 through mid-1966. This program would be in addition to the one now in progress and scheduled for completion at the end of 1964. The two programs correspond to the first and second stages of the Huinco hydroelectric plant and the associated M1arcapomacocha diversion scheme together with appurtenant transmission and distribution facilities. Forecasts of capacity requirements show that completion of the first stage will keep the relatively expensive thermal generation in reserve for only about a year (see Annex 3). First stage distribution expansion completed in 1962 must be continued without pause through mid-1966. 26. The program is a reasonable one. The installation of the fourth unit at Huinco, which is part of the program, might be deferred but studies carried out by Lima Light's consulting engineers show that it would be most economical to install the third and fourth units at the same time. The resulting generating capacity of the system should be adequate to meet demand until sometime in 1969. 27. For expansion beyond 1969 Lima Light has made preliminary studies of two hydroelectric projects: (a) a 60 34 plant (1atucana) an the Rimac River in the vicinity of its present plants, and (b) a 330 11 plant which can be developed in two steps on the Huaura River 150 km north of Lima. Another possibility for expansion lies in the recent discovery of a large natural gas deposit (Aguaytia) 400 km northeast of Lima. Preliminary studies indicate that the gas could be brought to Lima at an attractive price by 1968. 28. The Government is doing preliminary work on the large Hantaro hydroelectric project, 200 km east of Lima, which could be developed up to an ultimate capacity of 2,000 4,W. Even if the project were developed in stages, the first stage would provide substantial capacity which Lima, as the largest market in Peru, would largely have to absorb. The first stage of Mantaro could possibly be in operation by 1969. No comprehensive study - 6 - has yet been made to establish whether it would be economically justified to start construction of the Mantaro project at the present time. If the Mantaro project were to be built by the Government, Lima Light would have to limit new construction to expansion of its distribution system. 29. The management of Lima Light is aware of the difficulties of raising the ever increasing amounts of capital necessary for continuous system expansion. Since the management believes that the Mantaro project is too large for the present power market, it has approached the Government regarding the possibility of developing the Huaura project jointly with the Government. 30. Because of the uncertainties regarding Lima Light's long range operations it has not been practical to consider any steps for expansion beyond the present construction program which will be completed in 1966, V. THE PROJECT 31. The project, part of which is proposed for Bank financing, con- sists of the following main items (see Annex 4 for technical details): (a) :Marcapomacocha Diversion Scheme, Second Stage. (b) Huinco Hydroelectric Plant, Second Stage. (c) Distribution System Expansion 1963 to mid-1966. Mlarcapomacocha Diversion Scheme, Second Stage 32. Second stage construction would serve to collect the natural outflow of Lakes Marcapomacocha and Antacoto, by means of a 12.5 km long canal from the two lakes to the entrance of the existing diversion tunnel. Another canal would be built in the Tuctu area in order to lead the water flowing from this zone to the tunnel (see map). In order to increase the total useful storage capacity to about 90 million cu.m., concrete gravity dams would be built to regulate the outflow of the Lakes Marcapomacocha and Antacoto. The two lakes would be connected by a 200 meter long tunnel. In addition, a 4.5 km long canal would divert into Lake Antacoto, the natural outflow of Lakes Yantac, Ancococha, Capicancha and Mjarcacocha. After the second stage is completed the minimum diversion flow through the main tunnel would be increased from 2 cu.m./sec. to 6 cu.m./sec. 33. The second stage of the Marcapomacocha Scheme would increase generation in existing power plants by 450 million kwh yearly. At the same time, it would also increase the drinking water supply to Lima and make possible the irrigation of 5,000 hectares of arid land south of Lima. Huineo Eydroelectric Plant, Second Sta,e 34. The first stage of the Huinco Hydroelectric Plant is being built on the Santa Eulalia River, 65 km east of Lima. Its principal features are a conveyance tunnel 13.5 km long and an underground powerhouse. It will be equipped with two generating units operating under a net head of 1,200 meters and rated at 60 1M1 each. The Sheque Da-, which was intended to provide daily regulation of flows to the plant, was not built on account of poor geological conditions at the dam site. 35. The proposed second stage of construction is intended to utilize the full ootential of the Santa Eulalia River flow as increased by the diversion of waters from the eastern slope of the Andes after completion of the second stage of the THarcapomacocha Scheme. The third and fourth generating units would be installed at the Huinco powerhouse, with identical characteristics as those installed during the first stage and total generating capacity of the plant would reach 240 11IT. The plant would also be equipped with six additional step-up transformers, each with a capacity of 28.3 MVA. At the Santa Rosa receiving station in Lima, six additional step-down transformers would be installed, each of 28.3 141A and additional load dispatching and communication equipment would be provided. 36. This stage would also include the construction of a rockfill dam at Sheque near the original site to provide daily regulation and another snall dam at the tailwater of the plant to reregulate flows. These facilities would enable Huinco to operate as a peaking plant at its full 240 IW capacity during dry seasons and make possible release of water so that downstream plants could use the largest possible volume of the flows for base load operations. The upstream reservoir of about 500,000 cu.m., would be formed by an earth and rock dam about 27 m. high. Due to the pervious nature of the stream bed the entire area of the reservoir may have to be lined with asphalt and the estimates are made to reflect this contingency. Plans for the doi-nstream reservoir are less well developed pending completion of foundation explorations, but the dar would be low and no serious problems are foreseen. Extensive lining may also be required for this reservoir. Distribution System Expansion 1963 to mid-1966. 37. The strengthening and expansion of the Lima distribution system is a continuous operation and the work contemplated for the years 1963 to mid-1966 which is part of the proposed project, would consist of the following principal items: (a) Six transformer stations at 64/10 kv with total installa- tions of 117 JIVA. Four of these would be new stations and the others would be enlargements of existing stations. (b) One new main transformer station at 220/64 kv, 85 1VA, to be the first step in a 200 kv ring circuit. (c) Two new main substations totaling 13 INA. (d) About 120 new substations at 10 kv/220 v, averaging 275 kva. (e) Nine km of 220 kv transmission lines. (f) 20 km of overhead and underground 64 kv feeder lines. - 8 - (g) 400 km of 10 kv overhead and underground cables. (h) Improved communication system. (i) Connections for 45,000 new customers including watt-hour meters. Design and Engineering 38. The design of all items of the proposed project have been prepared by Lima Light's own engineering staff, a small group of experienced and well qualified engineers. Because of the size of the Huinco plant, the company retained the services of the Swiss consulting firm Motor Columbus to review the plans, prepare the detailed design and assist in the super- vision of construction works. Motor Columbus will have the sane responsi- bilities in connection with the second stage. Geological surveys, drillings, and other studies have been started and will continue in order to reach the final decisions regarding foundation treatment for the two reservoirs. It is the intention of Lima Light to employ a specialized firm for the final interpretation of the drillings. Motor Columbus will prepare the final plans. The design of the Harcapomacocha works and the distribution system expansion is carried out by Lima Lightts own engineering staff. Construction 39. The Company's chief engineer, would continue to have responsibility for the execution of the works and for supervision of construction assisted by the resident engineer of Motor Columbus. The civil works would be carried out bylocalcontractors chosen m the basis of competitive bidding. All construction equipment amd materials required for the project would be purchased by Lima Light. For important items of machinery and equipment purchase arrangements would be made by Motor Columbus. International bidding procedures would be used for machinery and equipment except for the two alternators, for which contract has already been placed and a credit obtained from the supplier. Schedule of Construction 40. The construction schedule prepared by Lima Light shows the coordination of the second stages of the arcapomacocha scheme and of the Huinco plant and the completion of both by mid-1966. The last generating unit in the powerhouse would be tested and on the line by about the middle of 1966. Expansion of the distribution system would be carried out at a uniform rate through the years 1963 to mid-1966. The construction schedule is reasonable. Cost Estimates 41. The cost of the project is estimated as follows (see Annex 5 for details): - 9 - Foreign Exchange Local Currency Total Million $ Million Soles Million $ Marcapomacocha Second Stage Civil Works 1.13 104.00 4.99 Contingencies 0.12 18.60 0.81 Total 1.25 122.60 5.80 Huinco Second Stage Civil Works 1.11 78.90 4.03 Equipment 3.31 20.46 4.07 Alternators 0.96 3.00 107 Contingencies 0.7 16.20 1,17 Engineering Fees 0.40 - 0.40 Total 6.35 118.56 10.74 Distribution System 1963-1966 Civil Works and Equipment 6.75 102.60 l0.5 Contingencies 0.65 9.72 1.01 Total 7.40 112.32 11.56 Interest During Construction 1.00 27.00 2.00 Grand Total 16.00 380.48 30.10 42. The proposed loan of $15 million would cover total foreign exchange costs, except for the two alternators. In addition, the loan would cover estimated interest charges on the Bank loan during the construction period. 43. The estinated costs of the civil works are based on wages and prices of construction material in effect at the end of 1962. Equipment costs are based on quotations obtained from qualified manufacturers and include allowances for freight, insurance and other charges. Contingency allowances have been considered both on foreign exchange costs and on local currency costs. The allowances have been computed at various rates, with a maximn of 201o for the two Huinco reservoirs for which detailed geological data have yet to be obtained. The estimates were prepared by Lima Light which has had extensive experience in this type of work. The work on the first stage of the project provided an unusually good basis for the estimates. They are adequate and reasonable. 44. The unit cost of the Huinco project, including both stages, would be $264 per installed kilowatt. This is a reasonable cost considering that the Huinco plant would provide firm peaking power for the system and increase the output of existing installations downstream. 45. The cost of power produced by the project and delivered to the main substation in Lima would be S/. 0.20/kwh (7.5 mills/kwh) based on - 10 - operation and maintenance costs of Lima Lightts existing hydro plants, straightline depreciation at 35, and an average cost of capital of 85. VI. FINANCIAL ASPECTS Electric Power Legislation 46. The supply of electric power in Peru is regulated by the Electric Industry Law of July 1955. The laws provisions regarding power rates and financial policies are sound, in accordance with its stated purpose to stimulate private investment in the industry. (A summary of the main provisions is given in Annex 6.) 47. Power rates are established by the National Tariff Commission, 1hich consists of seven members appointed by the President according to rules designed to ensure the competence of the members and a reasonable degree of independence of the Commission. Rate revisions and revaluations of assets are made every three years or, at shorter intervals, at the request of either the Minister of Development and Public Works or the Concessionaire, if existing rates generate more or less than the permitted return. 48. Installations are revalued by appraisal on the basis of replace- ment costs. Corresponding adjustments are made in the Concessionaire's accounts for depreciation reserves, foreign currency obligations and equity. 49. Costs which can be charged to operations include all operating expenses, purchased power, straightline depreciation at rates established by the National Tariff Commission (with a maximum of 5' annually), interest, taxes, and exchange losses on amortization of foreign debt, if any. The permitted return is 11 on common share capital and reserves invested in the business. This return consists of an 8i dividend to be distributed to the shareholders, and of a 3% "commercial profit". Preferred share capital is entitled to a dividend of 80 and a commercial profit of 1 2. Dividends and interest are tax exempt. The commercial profit is subject only to taxes in existence when the law became effective, in fact a 20% profit tax. 50. The present rates of Lima Light, last increased in April 1962 by about 25%, are satisfactory. Over the last few months they resulted in an average revenue of about S/. 0.60/kwh (US mills 22.2/kwh). (Details of present rates and typical monthly bills are given in Annex 7.) Present Financial Position 51. The financial statements of Lima Light are audited by Price, Waterhouse, Peat and Company. 52. Condensed balance sheets for the years ended December 31, 1958 through 1967 are shown in Annex 8. As of December 31, 1962, fixed assets valued at replacement cost totalled S/. 2,581 million (95.6 million). Deducting the depreciation reserve of S/. 671 million (j`2h.9 million), net - 11 - fixed assets were S/. 1,910 million (70.7 million), After the Electric Industry Law became effective, assets in operation have been revalued three times; in 1955-1956 by almost 100c, in 1959 by 27i and in 1961 by 141. 53. The capitalization at the end of 1962 resulted in a debt/equity ratio of 48/52, as shom below (in millions): Percent Equity Equivalent Soles Dollars of Total Share Capital: 28,035,114 ordinary shares Soles 20 par 560.7 20.8 899,30 preferred shares Dollars 10 par 241.2 8.9 Provisional Certificates for Capital Increase 22.5 0.8 Retained earnings (net of dividends payable) 77.5 2.9 Exchange Equalization Account 65.0 2.6 Total 966.9 35.8 52,0 Debt Dollar Sinking Fund Debentures Series A, 7%, due through 1972 130.6 4.8 Series B, 7%, due through 1973 144.5 5.4 Series C, 7%, due through 1975 157.0 5.8 Series D, 6, due through 1989* (IBRD Loan 260 PE) 384.0 14.2 Sub-total: funded debt 816.1 30.2 less: current portion 27.6 1.0 788.5 29.2 42.4 Swiss Banks' credits, 6c, due 1964 and 1965 31.9 1.2 Advances from Associated companies, 7% to 8% 48.3 1.8 Suppliers' credits due 1964 through 1967, 6 f% 24.2 0.9 Sub-total: other debt 104.4 3.9 6.4 Total debt 892.9 33.1 48.0 Total Capitalization 1,859.8 68.9 100.0 * Includes amount of loan drawn down but not fully covered by issuance of debentures (see paragraph 58). - 12 - 54. In the three year period through December 31, 1962, ordinary share capital increased by S/. 183.8 million to S/. 560.7 million. This increase resulted from the sale of new shares, S/. 33.1 million in 1960, the distri- bution of stock dividends out of surplus, S/. 31.7 million in 1962, and the 1962 revaluation, amounting to S/. 51.5 million; the s/. 67.5 million balance reflected the conversion into ordinary shares, at the rate of S/. 22.5 million a year, of provisional certificates issued for the anount of the 1956 revaluation. The last tranche of provisional certificates has since been converted into ordinary shares. The ordinary shares are quoted in Lima. 55. The 8% preferred shares were sold in Switzerland and Peru in two issues, I6 million in 1960 and 33 million in 1962. They are quoted in Zurich and Lima. 56. Reserves and surplus totalled about S/. 142.5 million consisting of S/. 77.5 million of free reserves and surplus and of a S/. 65 million credit balance in an exchange equalization account. This credit represents the amount by which surplus from revaluations of assets exceeded exchange differences having arisen from the restatement of foreign currency liabilities at current exchange rates. 57. The funded debt, entirely in foreign exchange, was issued under an indenture dated July 1, 1957 (Series A), and supplemental indentures dated November 1, 1958 (Series B), !Tarch 1, 1960 (Series C) and September li, 1960 (Series D). A summary of the main provisions is given in Annex 9. The first three series, A to C, were placed in Switzerland, largely with the holding group controlling Lima Light, and, to a lesser extent, in Peru where they are widely distributed. They are quoted in Zurich and Lima. The third supplemental indenture covers the issue of Series D debentures for the amounts withdrawn under IBRD Loan 260 PE. 58. All issues, including the existing Bank loan, are secured by a first floating charge on all property, present and future. The same security would be obtained in connection with the new Bank loan (Series F). The issue of additional debentures is limited, under the indenture, by earnings and assets tests which require (a) that actual net income for a recent twelve month period be at least 150% of annual interest charges on existing and proposed debentures, and (b) that net tangible assets at the time of the proposed issue be not less than 150% of debentures and other funded debt outstanding and proposed. Under the present arrangements for Loan 260 PE Lima Light delivers debentures meeting these tests as required from time to time by the Bank. The same procedure would be followed in connection with the proposed loan. 59. Other debt included: (a) a Sw.F. 5 million (S/. 31.9 million) loan obtained in 1962 from a group of Swiss banks, at 6% interest, repayable in two equal tranches September 1, 1964 and 1965, unless funded by issues of debentures, (b) advances from associated companies of about S/. 48.3 million, at 7% to 8% interest which were converted to Series E debentures earlier this year and (c) a 620 credit from Brown Boveri and Company, for Sw.F. 3.9 million (S/. 24,2 million), covering the purchase of turbo gas generating equipment, and payable in installments over a five year period starting 1962. - 13 - 60. Lima Light's current position has deteriorated in the last two years, reflecting difficulties experienced in obtaining the long term financing required in connection with its program. As of December 31, 1962, current assets were S/. 165.5 million and current liabilities were S/. 189 million, re3ulting in a negative position of about S/. 23.5 million. This situation, which is not serious in view of the availability to the company of short term credits from local and foreign Banks as well as the Swiss holding group, should improve substantially starting 1963, as provided for in the proposed financing plan. Earnings Record 61. Lima Light's earnings record is good, as evidenced by the summarized income statements for the year 1958 through 1962 shown in Annex 10. Straightline depreciation was charged at conservative rates of about 4% annually on the replacement value of assets. Net income before interest rose from S/. 45.5 million in 1958 to S/. 111.0 million in 1962, reflecting increases over the four year period of 55% in sales and about 23% in average revenues per kwh sold. The return on net fixed assets in operation ranged between 10.4% and 13.2%. It was 10.4% in 1962, based on assets revalued in 1961 and on net income not yet fully reflecting the April 1962 rate increase (see paragraph 50). 62. The Company has a long record of dividend payments. Up to 1956, cash dividends of 7% on the par value were paid for several years. Starting in 1956 dividends were paid net of taxes at the rate of 8-2'o, in accordance with the provisions of the Electrical Industry Law. In addition stock is distributed from time to time to incorporate into share capital the revaluations of assets and retained earnings (see paragraph 54). Financing Plan 63. A forecast of sources and application of funds for the five years through 1967 is shown in Annex 11. In the four year period ending 1966, during which the two stages of Huinco and the second stage of Marcapomacocha would be completed, capital expenditure, including interest during con- struction, would total about S/. 1,296 million. Providing for additional working capital of about S/. 127 million, as further discussed in paragraph 72 below, would bring the period's requirements to about S/. 1,423 million as follows (in millions): 1963 196 1965 1966 121t kears, -----------Soles------------ Soles $ eguiv. Huinco Stage I 264.0 55.0 4.0 - 323.0 12.0 Huinco Stage II 25.0 60.0 178.0 27.0 290.0 10.7 hrcapomacocha Stage II 14.0 70.8 71.8 156.6 5.8 Distribution 86.4 89.5 93.0 110.0 378.9 14.0 Interest during construction 46.8 62.3 29.6 8.4 147.1 5.5 Additions to plant 436.2 337.6 376.4 145.4 1,295.6 48.0 Net additions to working capital 92.7 22.5 (22.2) 34.0 127.0 4.7 Total 528.9 360.1 354.2 179.4 1,422.6 52.7 - 14 - 64. Under the proposed plan, Lima Light would finance about 44% of its requirements from its own resources, contribution from customers, advances from Hidrandina and sales of share capital; the balance, of 56%, would be from borrowings. This plan is summarized below (in millions): 1963 1964 1965 1966 Total 3 years % of ----------- Soles $ equiv. Total Internal cash generation 212.6 237.1 332.9 361.5 1,144.1 42.4 less: interest charged to operations 30.2 24.8 62.2 85.0 202.2 amortization 27.6 52.3 70.5 76.2 226.6 cash dividends and bonus 75.6 85.3 87.2 90.0 338.1 taxes and financial expenses 15.7 13.7 11.6 11.9 52.9 Sub-total: deductions 149.1 176.1 231.5 263.1 819.8 30.4 Net internal cash generation 63.5 61.0 101.4 98.4 324.3 12.0 22.8 Contributions from customers 28.8 34.8 32.7 36.0 132.3 4.9 9.2 Advances from Hidrandina 14.8 14.7 14.5 44.0 1.7 3.2 Sales of shares: common 95.0 95.0 3.5 6.7 preferred 27.0 27.0 1.0 1.9 Sub-total: own resources 134.1 205.5 148.6 134.4 622.6 23.1 43.8 Borrowings Existing IBRD Loan 260 PE 208.5 52.0 5.0 265.5 9.8 18.6 Proposed IBRD Loan 77.1 102.6 180.3 45.0 405.0 15.0 28.5 Series E, 6% debentures 157.5 157.5 5.8 11.1 less: funding of holding group advances (48.3) (48.3) (1.8) (3.4) Supplier's credit 20.3 20.3 .8 1.4 394.8 154.6 205.6 45.0 800.0 29.6 56.2 TOTAL 528.9 360.1 354.2 179.4 1,422.6 52.7 100.0 65. The borrowings contemplated are: (a) about $9.8 million (S/. 265.5 million), the balance of Loan 260 PE still available at the end of 1962; (b) the proposed new Bank loan of $15 million (S/. 405 million), assumed for forecast purposes to carry interest at 520 and a term of 25 years, including a 3 year grace period; - 15 - (c) a credit fron rrown Boveri, of about 9/. 20 nillion covering the purchase of two alternators and repayable through 1967 (see paragraph 39); (d) an issue of Series E, 61%, 15 year debentures totaling SW.F. 25 million (,$!.8 million). 66. The Swiss Group has already taken up or placed about Sw.F. 23 million of the Series E debentures; the Sw.F. 2 million balance is expected to be placed in the near future. Of the Sw.F. 23 million already subscribed about Sw.F, 13 million were sold for cash; the balance was used to fund advances (S/. 48 million) and short term credits (S/. 7 million) from the Swiss Group, which were made in anticipation of new issues of debentures or stock. The amount funded also includes advances from the Group to Hidrandina which Lima Light had assumed in 1962 in exchange for cash contributions as indicated in paragraph 68 below. 67. Internal cash generation, net of interest chargeable to operations, amortization and cash dividends would amount to S/. 324 million or slightly under 23% of total requirements. 68. By contract, signed September 1960 as a condition of effectiveness for loan 260 PE, Hidraldina is obligated to make available to Lima Light all of its net internal cash generation through 1965, first to repay earlier advances from Lima Light, and second to make long term advances to Lima Light to aid in financing the first stage of the Huinco and Marcapomacocha projects, Lima Light received about S/. 22.5 million in 1960, as settlement of earlier advances and about S/. 15 million in 1962, against take over of an equivalent amount of Hidrandina's liabilities to the Swiss Group (to be funded this year along with most of Lima Light's short term debts to the Group as indicated in paragraph 70 below). Another S/. 44 million are expected to be provided, as long term advances, in the three years through December 31, 1965. 69. Connection charges from customers are expected to generate about S/. 132 million, or about 9% of the period's requirements. 70. New share capital would be issued for S/. 122 million: S/. 27 million ($1 million) in the form of 8% dollar preferred stock and S/. 95 million ($3.5 million) in the form of common stock. The preferred stock issue was sold recently, entirely in Peru. The management of Lima Light expects to be able to sell the common stock next year: about one third to local investors in Peru, the balance to the Swiss Group. 71. It is not unreasonable to expect that Lima Light can raise the 83. million equivalent of common stock still required to complete its financing plan. This view is based on the Company's good financial record, made possible by a satisfactory implementation of the Electrical Industry Law, and on past experience including the sale, within the last twelve months, of $9 to $10 million of preferred stock and debentures to the Swiss Group and local investors. - 16 - 72. Furthermore, as already indicated in paragraphs 60 and 63, the financing plan contemplates substantial additions to the Company's working capital, starting with about S/. 93 million in 1963 and accumulating to a net increase of S/. 127 million in 1966. As a result, a positive current position would be restored starting this year, with current assets exceeding current liabilities by at least S/. 21 million (in 1965) and up to S/. 49 million (in 1964) in each year through 1966. This, together with the increased amount that the Company could borrow prudently from the various foreign and local sources available, should provide an adequate contingency against possible delays in raising the common stock or a shortfall in revenues. Estimated Future Earnings 73. Forecast income statements for the five years through 1967 are shown in Annex 10. Net income before interest is expected to increase from S/. 111 million in 1962 to S/. 223 million in 1967, based on existing rates and a conservatively assumed increase in power sales. The return on net fixed assets in operation, at replacement value, would average about 8.6%. It would decrease from 13% in 1963 to 7.3% in 1964, reflecting the commissioning of Huinco I, and would gradually increase after 1965 to reach 9.2% in 1967. These returns are satisfactory. 74. Net income before interest would be at least twice the interest charges of the corresponding year except in 1963 and 1964, when the coverage would be 1.8 times and 1.7 times respectively. Similar coverages of debt service by internal cash generation would be obtained (see Annex 11). Future Financial Position 75. The debt/equity ratio would change from 48/52 at the end of 1962 to 55/45 in 1963 and 56/44 in 1965. It would gradually improve after completion of the program, reaching 53/47 in 1967 as shown in Annex 8. Performance Under Debt Limitation Tests 76. Based on the past financial results and the forecasts used in this report, the new debentures to be issued from time to time in connection with Lima Light's present program will meet the 150% earnings and net tangible assets tests in the indenture. VII. CONCLUSIONS 77. The project to be carried out by Lima Light and proposed for Bank financing, is technically sound. The estimated cost of the project is reasonable. 78. The project is necessary to provide the capacity required to meet the conservatively estimated increase in power demand in the area served. - 17 - 79. The management of Lim Light is good. Its staff with the assistance of the consultants already retained, is well qualified to execute the project. 80. The earnings of Lima Light are good and its financial position is sound. Tha forecasts prepared show that this satisfactory situation would be maintained in future years. The financing plan for the period through 1966 is based on reasonable estimates of internal cash generation and on sources of funds firmly assured, except for about $3.5 million equivalent of common stock expected to be issued next year, and for a relatively small balance still to be raised under an issue of debentures presently under way. It is reasonable to expect that the funds still required to complete the financing plan will be raised as required. The expected improvement of its current position and the ready availability of short term credit facilities, provide Lima Light with adequate contingencies for a satisfactory completion of its financing plan. 81. The project would form a suitable basis for a Bank loan of $15 million equivalent with a proposed term of 25 years, including a grace period of 3 years. November 13, 1263 AA.NEX 1 LIMA LIGHT AND POWER COMPANY Records and Forecasts of Operations RECORDS 1958 I 1 Total Sales (million/kwh) 564 619 697 788 870 Losses including own consumption 90 100 111 113 125 Total Generation 654 719 808 901 995 Hydro 633 707 795 864 911 Thermal 21 12 13 37 84 Peak Load (MW) 140 155 173 192 208 Lead Factor (%) 53.3 52.7 53.2 53.2 54.4 FORECASTS 1Q63 1064 1945 1966 67 Total Sales (million/kwh) 957 1053 1137 1228 1326 Loss including own consumption 138 151 163 176 190 Total Generation 1095 1204 1300 1404 1516 Callahuanca hydro 390 390 340 340 350 Mloyopampa hydro 370 370 335 340 350 Huampani hydro 150 150 120 120 130 Huinco hydro 60 505 604 686 Santa Rosa thermal 185 234 - - - Peak Load (MW) 233 257 278 300 324 Load Factor () 53.2 53.8 53.0 53.8 53.2 Note: The hydro generation has been estimated on the basis of average stream flow and a reasonable program of operation of individual units. LIA LIGHT AND POIJER COIPANY Actual and Forocast 5,7loo of Ener 1950-1967 RECORDS 1958 1959 1960 1961 1962 % 1962 (in millions ofk2ub) Residential supply 228.7 249.1 280.1 306.5 317.0 36.5 Commercial supply 48.3 55.6 62.4 96.6 143,4 16.5 Industrial supply 229.4 258.5 291.0 319.4 338.8 39.0 Traction 25.2 21.6 24.2 21.0 19.2 2.2 Public lighting 31.3 33.4 37.5 41.0 41.9 4.8 Various 1.1 1.6 1.8 3.5 8.7 1.0 Total 564.0 619.8 697.0 788.0 869.0 Annual Increase (%) 7.2 9.8 12.6 13.1 10.3 FORECAST 1164 1965 1966 1967 (in millions of kwh) Residential supply 366 403 435 470 508 Commercial supply 190 205 218 232 247 Industrial supply 330 270 407 445 486 Traction 20 20 18 17 17 Public Lighting 49 53 57 61 65 Various 2 2 2 3 3 Total 957 1053 1137 1228 1326 Annual Increase (%) 10 10 8 8 8 MW Annex 3 550 500 - - TOTAL CAPACITY- 450 HYDRAULIC CAPACITY 400 02% 350 2nd Stage ..- PEAK LOAD 200 0. 250 u THERMAL CAPACITY 0 -o Sta Rosa 67.5MW e 150 - Callahuanco 67 MW Moyopompo 63 MW Huampani 31.5 MW 161.5 MW PERU 100 _ Total 229 MW LIMA LIGHT AND POWER CO. NSTALLED CAPAGTY ESTMATED PEAK LOAD I I I B 1963 64 '65 '66 '67 68 '69 70 '71 '72 JULY 1963 IBRD-1 169R ANNEX Page 1 LI4A LIGHT AJD PO'vER COMPAN'4Y Huinco Hydroelectric Project Second Stage Details of the Project Marcapomacocha Diversion Tuctu Canal / Concrete lined 4 km long from Tuctu Creek to Antacasha intake which was built in the first stage. Conveying Canal Concrete lined 12.5 km long with 12 cu.m./sec. capacity from Marcapomacocha Reservoir to the entrance well of the trans-Andean tunnel which was built in the first stage. Marcanomacocha Dam Concrete gravity type, 47 m long, 11 m high with two bottom outlets and spillways at each end. Antacota Dam and Tunnel Five concrete gravity type dams totaling 344 m long and varying from 2.5 to 16 m high; and a lined tunnel 160 m long and 2.2 m diameter connecting the reservoirs formed by Antacota and Marcapomacocha Dams. Marcacocha-Antacota Canal Concrete lined 4.5 km long with 12 cu.m./sec. capacity carrying the outflows of four lakes into the Antacota reservoir. Huinco Hydro Plant Powerhouse Equinment 2 twin Pelton turbines, horizontal axis, flow volume 6.25 cu.m./sec. 2 alternators, 85 MVA, power factor 0.76, generation voltage 12.5 kv. 6 transformers, 28.3 MVNA, 12.5/220 kv with protection equipment. Santa Rosa Receiving Station Equipment 6 transformers 28.3 MVA, 220/60 kv with appurtenant equipment. ANNE 4 Page 2 Comoensation Reservoir at Intake 500,000 cu.m. volume formed by dam 27 m high. Type of dam still under study but probably will be rockfill type with grouted cutoff or with asphalt lining over entire reservoir area. Reregulating Reservoir Design still under study but probably will be a low concrete gravity type with grouted cutoff. Distribution System Transformer Stations Santa Marina: Existing station fed at 10 kv to be changed to a 64/10 kv station with a new 64/10 kv, 25,000 KVA transformer. La_Regla: New station with one 64/10 kv, 17,200 KVA transformer. Garagay: Initial construction to feed La Regla. Later will be developed to 220 kv. Mirones: Dismantle old 30/10 kv installation and expand existing 64/10 kv installation. Miraflores: Existing 10 kv station developed to 64/10 kv with 2 new 25,000 KVA transformers. Galvez: New station, 64/10 kv, 25,000 KVA transformer. New Main Station: 220/64 kv, 85 MVA transformer. Transmission and Other Work Barsi-Santa Marina: 4 km overhead line, 64 kv, on wooden poles. Balnearios-Miraflores: 7 km, underground oil cable, 64 kv. Santa Rosa-Galvez: 8.4 km underground oil cable, 64 kv. Santa Rosa-iew Main Station: 9 km overhead line on steel towers and 40 km underground oil cable, all 220 kv. Other Work: Two main substations (Maranga and Barranco) fed at 10 kv and 30 kv respectively with top demands at 3,000 and 10,000 KVA respectively; 120 new substations, 10kv/220 v averaging 274 KVA; 150 km underground cable at 10 ky; 240 km underground cable at 220 v; cables for 30 ky, 2.3 kv, and 220 v overhead lines; communication system including six emergency mobile units; underground and overhead connec- tions for 45,000 new customers; 45,000 watt-hour meters. ANNEX -5 LIMA LIGHT AID POOER COMPANY Huinco Hydroelectric Project Cost Estimate - Second Stage Foreign Local EKchange Currency Total Million $ Million Soles Million - MarcaDomacocha Diversion Preliminary Studies 0.04 1.00 0.08 Access Roads 0.09 2.70 0.19 Camps and Installations 0.27 10.15 0.65 Transport Equipment 0.05 0.15 0.05 Dams 0.33 25.00 1.26 Canals 0.35 65.00 2.76 1.13 104.00 4.99 Contingencies 0.12 18.60 0081 TOTAL 1.25 122.60 5,80 Huinco Hydro Plant Construction Equipment 0.13 3.50 0.26 Transport Equipment 0.06 0.19 0.07 Compensation Reservoir 0.55 48.35 2.34 Reregulating Reservoir 0.37 26.86 1.36 Powerhouse Equipment 1.54 10.20 1.92 Alternators 0.96 3.00 1.07 Receiving Substation 1.77 10.26 2.15 5.38 102.36 9.17 Engineering Fees 0.40 - 0.40 Contingencies 0.57 16.20 1.17 TOTAL 6.35 118.56 10.74 Distribution System Transformer Stations 1.32 34.83 2.61 220 kv and 60 kv Feeder Lines 1.01- 16.74 1.63 Main Substations 0.09 2.16 0.17 Substations 0.68 10.26 1.06 Distribution Nets 1.68 19.44 2.40 Communication System 0.18 1.62 0.24 New Connections 1.03 15.66 1.61 Meters 0.76 1.89 0.83 6.75 102.60 10.55 Contingencies 0.65 9.72 1.01 TOTAL 7.40 112.32 11.56 GRAND TOTAL CCST 15.00 353.48 28.10 Page 1 LIMA LIGHT AND POWER COMPANY Main Provisions of Electrical Industry Law National Tariff Commission Tariffs for sale of electricity are established by the National Tariff Commission which consists of seven members. The Chairman is appointed by the President of Peru for a term of four years. The other six members are appointed for two year terms and represent respectively the Department of Industries and Electricity (Ministry of Development and Public iorks), the Department of Taxes, the National School of Engineering, the National Society of Industries, the Electrotechnical Association of Peru and the Association of Peruvian Electrical Companies. The terms of appointment may be extended. The members must be professionally qualified and, with the exception of the member representing the Association of Electrical Companies, must not have a direct or indirect financial interest in electric public utility enterprises. Regular tariff revisions are carried out every three years. Addi- tional revisions can be made at the request of either the Department of Industries and Electricity or the Concessionaire. The Commission shall reach a decision within a period of 60 days. This may be extended to 90 days in complex cases. Tariffs established by the Commission become effective after a period of 15 days unless an application for reconsideration has been made either by the Department of Industries and Electricity or the Conces- sionaire concerned. The Commission must act on any such application within 30 days. Revaluation of Assets The assets of a Concessionaire are defined to include all fixed and movable property necessary for the operation of the concession, intangible assets like promotion, surveys, options, contracts and other expenses related to the organization of the concession, interest and other financial charges during construction and working capital in an amount not exceeding three months revenues from sale of power. At the time of each tariff revision the assets are revalued on the basis of an appraisal made by the Commission to determine the replacement value of fixed and movable property and intangible assets. Experts nomi- nated by the Ministry of Public dorks and the Concessionaire shall present to the Commission independent appraisals. The adjustments to be made in the Concessionaire's accounts to reflect the new value of the assets shall be made in the following order: (a) Depreciation reserves are adjusted in the same proportion as the assets are revalued. Page 2 (b) Foreign currency obligations expressed in Peruvian currency are adjusted in the same proportion as the assets are revalued. The difference between the amount obtained and the obligation converted at the current rate of exchange shall be reflected in an "Exchange Equalization Account". (c) The balance remaining is used to adjust the Concessionaire's equity capital. Determination of Tariffs The tariffs are established at a level sufficient to produce revenues to cover all operating costs and a return of 11% on the capital invested by the Concessionaire. The returg consists of an annual dividend of 8)-% and a "commercial profit" of 3%. J1 Operating costs include salaries, wages, social benefits, admini- stration, cost of fuel and materials used for maintenance, cost of purchased power, interest, foreign exchange losses, depreciation allowance, contri- bution to Extension Fund and all taxes. The depreciation allowance shall be based on the useful life of the individual pieces of property. Total depreciation shall not exceed 5% of the total value of the property. Tax and Other Privileges Public utility companies enjoy the following privileges: (a) Interest on bonds and the fixed dividend of 8j% are exempt from existing and future taxes. (b) Dividends paid out of the 3% commercial profit are subject only to the income and unemployment taxes which were in effect in 1955. (c) Equipment and materials to be used for public electric services shall be exempt from customs duties unless the articles are produced in sufficient quantity and quality in Peru. (d) If free exchange is not available to meet foreign currency obligations, the Government shall provide the necessary foreign currency at the official exchange rate. 1/ On the preferred share capital a return of 9% has been established, consisting of a 8% dividend and a 11? "commercial profit". LI.A LIGHT AND POUER COi:PANY Typical Monthly Electricity Dills Average Consumption Load Bill Average Rate Class of Consumer kwh kw Soles Soleskwh $ mills/kwh Domestic 20 - 10.00 0.50 18.5 Domest.ic 150 - 106.30 0.71 26.3 Domestic 500 - 253.80 0.51 18.9 Comiercial 85 - 132.45 1.56 57.8 Commercial 500 - 767.40 1.53 56.7 Small Industrial 1,180 20 731.00 0,62 22.9 Industrial 14,500 60 6,743.60 0.46 17.1 LLE4A LIGHT AND POWER COMPANY Actual and Forecast Balance Sheets 1958-1967 (in millions of Solos) ------------------ Actual ------ -- - -- -- ---- - --Forecast-- ----- Fiscal year ending Decenber 31 1958 l 1960 1961 1962 11964 1967 ASSETS Fixed assets in operation 1/ 808.9 1,068.7 1,109.0 1,321.5 1,736.1 1,819.6 2,811.7 3,464.8 3,570.2 3,676.2 less: accumulated depreciation 377.8 502.8 540.9 615.6 670.7 736.3 820.3 960.4 1,102.1 1,260.2 Net fixed assets in operation 431.1 565.9 568.1 705.9 1,065.4 1,083.3 1,991.4 2,504.4 2,468.1 2,416.0 Work in progress 2/ 93.0 209.9 475.6 809.9 844.6 1,162.5 466.2 147.8 142.8 112.8 Total net fixed assets 524.1 775.8 1,043.7 1,515.8 1,910.0 2,245.8 2,457.6 2,652.2 2,610.9 2,528.8 Current assets 213.5 113.6 130.2 121.8 165.5 227.1 242.6 220.4 254.4 277.2 Deferred assets 37.1 15.1 12.7 9.0 5.4 6.0 6.0 6.0 6.0 6.0 TOTAL ASSETS 774.7 904.5 1,186.6 1,646.6 2,080.9 2,478.9 2,706.2 2,878.6 2,871.3 2,812.0 LIABILITIES Capital and reserves Ordinary shares 262.2 376.9 432.5 455.0 560.7 620.0 730.0 750.0 800.0 825.0 Preferred shares 160.6 160.9 241.2 270.0 270.0 270.0 270.0 270.0 Provisional certificates for capital increase .3/ 112.5 90.0 67.5 45.0 22.5 Reserves and surplus A/ 32.0 42.5 68.5 184.8 142.5 124.0 131.3 134.1 108.0 110.0 Total 406.7 509.4 729.1 845.7 966.9 1,014.0 1,131.3 1,154.1 1,178.0 1,205.0 Debt Debentures, Series A, B, C, E 306.7 329.5 309.0 453.8 432.1 562.0 532.5 492.9 450.4 405.0 IBRD Loan 260 PE 182.0 384.0 592.5 644.5 641.3 624.1 605.8 Proposed IBID loan 77.1 179.7 360.0 405.0 395.1 Other debt 47.0 104.4 70.9 62.8 74.9 58.4 45.7 Total debt 306.7 329.5 309.0 682.8 920.5 1,302.5 1,419.5 1,569.1 1,537.9 1,451.6 less: current portion 4.0 8.5 16.7 45.6 27.6 52.3 70.5 76.2 86.3 80.0 Net long term debt 302.7 321.0 292.3 637.2 892.9 1,250.2 1,349.0 1,492.9 1,451.6 1,371.6 Current liabilities 47.9 46.7 147.4 147.8 188.9 182.5 193.7 199.4 209.5 203.2 Deferred liabilities and provisions 17.4 27.4 17.8 15.9 32.2 32.2 32.2 32.2 32.2 32.2 TOTAL LIABILITIES 774.7 904.5 1,186.6 1,646.6 2,080.9 2,478.9 2,706.2 2,878.6 2,871.3 2,812.0 Installations financed by Customers 171.8 316.5 376.6 443.1 516.9 551.7 593.5 635.2 680.2 734.2 Debt/Equity ratio 43/57 9/61 29/71 43/57 48/52 55/45 54/46 56/44 55/45 53/47 / Revaluations of fixed assets in operation were S/. 219 nillion in 1959 and SI. 158 million in 1961. The 1961 revaluation was applied in approximately equal shares to (a) the credit of the exchange equalization account, which reflects the restatement of foreign currency liabilities and preferred stock at current exchange rates, (b) the revaluation of accrued depreciation and (c) the increase of surplus available for distribution to shareholders. 8/ Also includes construction inventories and advances to suppliers end contractors. / Issued in 1956 for the additional equity resulting from the first revaluat on of assets under the Electrical Industry Law of 1956, converted into-ordinary shares at the rate of S/. 22.5 million annually through 1963. / Includes, in addition to retained earnings, a credit balance in the exchan7e equalization account of S/. 65 million at Decenber 31, 1962. This reserve is set aside, in accordance with the ;1ectrical Iniistry Laa, to provide for possible future rvoaluations of foreign currency liabilities. ANNEX 9 LIMA LIGHT AND POWER COMPANY Details of Funded Debt Series A Series B Series C Amount issued $6,000,000 $6,000,000 $6,000,000 Amount outstanding March 31, 1963 04,870,000 $5,387,900 $5,704,500 Date of issue July 1, 1957 November 1, 1958 March 1, 1960 Maturity July 1, 1972 November 1, 1973 March 1, 1975 Interest At 7%. Principal and interest payable in US currency at Schroder Trust Company, New York or, at the option of the holder, in such dollars or the equivalent thereof in Swiss francs at prevailing apnropriate rate of exchange at .rivatbank and Verwaltungsgesellschaft, Zurich, Switzerland. Trustee Schroder Trust Company, New York: Privatbank and Verwaltungsgesellschaft, Zurich, Switzerland, co-trustees. Denominations Coupon, $100, $500 and $1,000. Callable As a whole or in part on any interest date on at least 90 days notice, at a premium from 1959 to 1967 including (Series A) and from 1960 to 1968 including (Series B); and from 1962 to 1970 (Series C) and thereafter at 100. Callable for sinking fund on at least 10 days notice at 100. Sinking Fund Semi-annually beginning November 30, 1959 (Series A), March 31, 1961 (Series B), July 31, 1962 (Series C) equal to 355,233 for interest and principal of each series. Security Secured by a first floating charge on all property present and future. Additional Debentures May be issued provided opinions and certificates are supplied that the following tests are met: (1) "The net income of the Company before interest and income taxes for the twelve months ending with any calendar month (not more than four months prior to ANNEX 9 Page 2 the date of the application for the authentication and delivery of additional Debentures) specified in such certificate, has been not less than 150% of the aggregate amount of the annual interest charges on all Debentures outstanding under this Indenture on the date of such application and the additional DebentuLres applied for and all other funded indebtedness of the Company;" (2) "The net tangible assets of the Company, computed as at the end of the twelve-month period specified in such certificate pursuant to subdivision (1) above, are at least equal to 150% of the aggregate principal amount of all Debentures outstanding under this Indenture on the date of such application and the additional Debentures applied for and all other funded indebtedness of the Company." It should be noted that assets and income must be trans- lated into dollars for the purpose of these tests. Dividend Restrictions Company may not pay cash dividends in excess of net income after December 31, 1956. Purpose Series A Series B Series C Refund outstanding Expansion Expansion debentures and bonds program program Tax status Free from Peruvian taxes. Series D (reserved for IBRD loan 260 PE) Amount: $24,000,000 Interest 6% Date: Sentember 15, 1960 Maturity: From September 15, 1965 to September 15, 1985 Debentures delivered as of December 31, 1962: US$6,661,614,23 Consisting of: D-1 US$3,639,000 D-2 Sw.F, 5,402,000 D-7 DM 7,067,000 Dolivered during 1963: US$7,301,520.76 Consisting of: D-1 US$5,792,000 D-2 Sw.F& 4,332,000 D-7 DM 2,006,000 LIMA LI3HT AND POWER COMPANY Actual and Forecast Income Statements 1958-1967 --------------------- Actual--------------------- --------------------Forecast-------------------- Yo ended December 31 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 Sales increase in percent 7.16% 9.77% 12.64% 13.09% 10.28% 10% 10% 8% 8% 8% Sales (Rillions of kuh) 564 619 697 789 870 957 1,053 1,137 ,228 1,326 Average Revenue per kuh sold (cent. of Soles) 44.7 47.0 47.5 48.9 55.9 59.0 59.0 59.0 59.0 59.0 OPERATING REUIES 252.4 291.2 331.2 385.6 486.0 565.8 622.3 671.8 A75.5 783.3 OPEATING 00STS opergting Expenses 112.4 117.4 134.4 161.6 211.1 254.2 283.2 233.9 07.0 283.0 Goet of Purchased'tper(Hidrandina S.A.) 54.6 59.8 71.0 82.0 87.3 90.0 92.0 94.0 '16.o P8.0 Doeciskion 3[.0 42.6 46.0 52.9 65.3 65.6 84.0 140.1 1.7 3e.2 Depreciation of Customers installations 2/ 0.9 3.3 3.8 4.3 5.3 6.0 7.0 7.0 7.0 7.0 Extension Fund 3/ 5.0 0.6 0.6 0.6 6.0 9.0 10.0 13.0 13.0 16.0 Total Operating Costa 206.9 223.7 255.8 301.4 375.0 424.8 476.2 488.o 51j.7 560.1 NET INCOME BEKRE INTEREST 45.5 67.5 75.4 84.2 111.0 141.0 146.1 183.8 aD.8 223.2 Interest Payable 12.0 23.1 25.1 39.7 57.5 77.0 87.1 91.8 93.4 89.7 Interest Charged to Construction (Credit) (4.6) (7.h) (16.0) (35.0) (60.1) (46.8) (62.3) (29.6) (8.4) Financial Upenses 2.6 4.4 4.5 13.2 7.6 10.4 8.3 6.1 6.1 6.1 Taxes 1.6 2.6 2.7 0.8 3.6 4.7 5.4 5.5 .$.8 6.0 Total Income Deductions 11.6 22.7 16.3 18.7 28.6 45.3 38.5 73.8 96.9 101.8 NET PROFIT 33.9 44.8 59.1 65.5 82.4 95.7 107.6 110.0 L.9 121.4 LESS: Cash Dividend 23.6 32.0 41.9 51.5 60.6 74.1 83.8 85.7 88.2 92.6 Commercial Profit 9.2 11.5 15.9 12.5 20.3 20.1 22.3 22.8 23.9 27.0 Directors Bonuses 1.1 1.3 1.3 1.5 1.5 1.5 1.5 1.5 1.8 1.8 1/ The decrease in 1965 is due to the elimination of fuel costs as a result of the commissioning of Huinco in late 1964. 2/ In accordance with its exclusive purchase contract with Hidrandina, Lima Light pays for power purchased the total of the operating costs, interest and fixed charges and net profit of Hidrandina as determined by the tariff legislation. The substantial increase after 1959 of the cost of purchased power reflects the operation of Hidrandina's Huampani plant commissioned in 1960. / Represent depreciation charges on distribution works financed by customers, owned by the public and supervised by Lima Light. The depreciation cash is used, under control by the Ministry of Industry, for meeting Lima Light costs of supervision, administration and maintenance of the works, and for reinvestment in distribution. 4/ Includes also the 8-1/2% dividend on free reserves which is not paid in cash. LIMA LIGHT AND PO%ER COMPANY Forecast Sources and Applications of Funds 1963-1967 (in millions of Soles) Sub-total Total 16 194 1965 1966 1967 1963-196 1963-1967 SOURCES OF FUNDS Internal Cash Generation Net income before Interest 141.0 146.1 183.8 210.8 223.2 681.7 904.9 Depreciation 65.6 84.0 140.1 141.7 158.1 431.4 589.5 Net Cash from Extension Fund 6.0 7.0 9.0 9.0 11.0 31.0 42.0 Total 212.6 237.1 332.9 361.5 392.3 1,144.1 1,536.4 Borrowings IBPJ Loan 260 PE 208.5 52.0 5.0 265.5 265.5 Proposed IBED Loan 77.1 102.6 180.3 45.0 405.0 4C5,0 Debentures (Series E) 157.5 157.5 257.5 Supplier's Credit 20.3 20.3 20.3 Total 443.1 154.6 205.6 45.0 848.3 848.3 Contribution from Customers 28.8 34.8 32.7 36.0 43.0 132.3 175.3 Advances from Hidrandina 14.8 14.7 14.5 44.0 44.0 Capital Increases: Common Shares 95.0 95.0 95.0 Preferred Shares 27.0 27.0 27.0 TOTAL SOULCES OF FUNDS 726.3 536.2 585.7 442.5 435.3 2,290.7 2,726.0 APPLICATIONS OF FUNDS Construction Program Huinco stage I 264.0 55.0 4.0 323.0 323.0 Huinco Stage II 25.0 60.0 178.0 27.0 290.0 290.0 karcapomacocha Stage 11 14.0 70.8 72.8 156.6 156.6 Distribution 86.4 89.5 93.0 110.0 130.0 378.9 508.9 Total 389.4 275.3 346.8 137.0 130.0 1,148.5 1,278.5 Interest Debentures (Series A B, C) 30.0 28.0 25.9 23.6 21.2 107.5 128.7 Debentures (Series E) 10.2 10.2 10.1 9.6 9.0 40.1 49.1 IBD Loan 260 PE 30.5 37.3 38.7 38.1 37.1 144.6 181.7 Proposed IBRD Loan 1.4 8.6 15.6 21.6 22.1 47.2 69.3 Other 4.9 3.0 1.5 .5 .3 9.9 10.2 Total 77.0 87.1 91.8 93.4 89.7 349.3 439.0 Amortization Debentures (Series A, B, C) 27.6 29.5 31.6 33.9 36.3 122.6 158.9 Debentures (Series E) 8.0 8.6 9.1 16.6 25.7 IBRD Loan 260 PE 8.2 17.2 18.3 25.4 43.7 Proposed IBRD Loan 9.9 9.9 Supplier's Credit: Gas turbine 7.0 7.0 7.0 3.2 21.0 24.2 Generators 9.5 9.5 9.5 19.0 Associated Companies 48.3 48.3 48.3 Swiss Banks 15.8 15.7 31.5 31.5 Total 75.9 52.3 70.5 76.2 86.3 274.9 361.2 Cash Dividends and Director Bonuses 75.6 85.3 87.2 90.0 94.4 338.1 432.5 Taxes 4.7 5.4 5.5 5.8 6.0 21.4 27.4 Financial Expenses 11.0 8.3 6.1 6.1 6.1 31.5 37.6 Additions to Working Capital 92.7 22.5 (22.2) 34.0 22.8 127.0 149.8 TOTAL APPLICATIONS OF FUNDS 726.3 536.2 585.7 4.2.5 435.3 2,290.7 2,726.0 Number of times Total Interest covered by Net Income before Interest 1.8 1.7 2.0 2.3 2.5 Number of times Total Debt Service covered by Internal Cash Generation 2.0 1.7 2.0 2.1 2.2 tfl r01VIDE Cosopolco Son Mateo. AObombo0 MATUCANA - ~~- ique CA NTA eSurco Hchop~mpo LIMA LIGH and SOrgeCOTPnN AVsn S-.TkOCocochocra EXISTI-GPenstock DiversionTirnoelsH MP I I1G1 sager2 Stag 1 CALLAHUANCA ConcessonAron. PERUk\ LIMA LIGHT and POWER COMPANYK. MOYOPAMPAI CHOslCA EXISTING PROPOSED Hydro Plants mYANA COT-ý- CLm B iA Diversion TunnelsHAlmMIANIX ./, I Choclcayo EUADORI Canals - - Transforer Stations BRAZIL Tr ansmission Lines- Concession Area -..... LIMA Catchment Area V 1> Reservoirs e 0 5 10 I 20Km * Atocongo ALURIN NTA < (Th rma/) SALNEARIO det SU R \CHORILLOS ARS/ CA L LAO JULY 1963 \BRD-669R(