Ecuador - Third Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3003 PROJECT PERFORMANCE AUDIT REPORT ECUADOR: THIRD POWER PROJECT (CREDIT 286-EC) May 30, 1980 FLE COPY Operations Evaluation Department 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.  PROJECT PERFORMANCE AUDIT REPORT FOR OFFICIAL USE ONLY ECUADOR: THIRD POWER PROJECT (CREDIT 286-EC) Table of Contents Page No. Preface (i) Project Performance Audit Basic Data Sheet (ii) Highlights (iii) Project Performance Audit Memorandum I. Project Summary 1 II. Supplementary Comments Supervision 3 Transfer of Distribution Network and Settlement of Debt 4 Studies 5 Operating Results 5 Least Cost Solution 6 Compliance with Covenants 6 III. Conclusions 7 Appendix: Comments from the Borrower 8 Attachment: Project Completion Report I. Introduction 11 II. Project Preparation and Appraisal 11 III. Project Implementation, Operation and Cost 13 IV. Financial Performance 17 V. Institutional Performance 18 VI. Project Justification 19 VII. IDA Performance 20 VIII. Conclusions 20 Annexes: 1. List of Contracts 21 2. Original and Final Allocation under the Credit Categories 22 3. Actual and Forecast Cumulative Disbursements 23 4. Project Cost 24 5. Actual and Forecast Income Statements 1971-1977 25 6. Actual and Forecast Sources and Applications of Funds 26 7. Actual and Forecast Balance Sheets 1971-1977 27 8. Major Covenants 28 9. Incremental Financial Rate of Return 30 Map 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.  (i) PROJECT PERFORMANCE AUDIT REPORT ECUADOR: THIRD POWER PROJECT (CREDIT 286-EC) Preface This report covers a performance audit of the Third Power Project in Ecuador, for which a credit of US$6.8 million was approved on February 1, 1972. The credit became effective on December 15, 1972, and was closed on December 30, 1977. The Project Performance Audit Report consists of a Project Perfor- mance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) prepared by the Latin America and the Caribbean Regional Office. A project completion mission visited Ecuador briefly in February 1978 and information gathered during that visit has been taken into account in writing the PCR. OED has reviewed the Appraisal Report and other documents in IDA files and discussed the project with IDA staff. No country visit was undertaken for this project by OED staff. The audit finds that the PCR covers adequately the project's main features, with the exception of four areas: the transfer of certain distribu- tion networks from Quito municipality to the Borrower; the settlement of outstanding accounts owed by Quito municipality to the Borrower; the various studies financed under the credit; and compliance with the financial cove- nants. The PPAM generally agrees with the conclusions in the PCR, except in the matter of the supervision effort devoted to the project; furthermore, OED was unable to take a position on the value of the village electrification study, where the Bank and the Borrower have reached quite different conclu- sions concerning its usefulness. Therefore, in addition to summarising the objectives and results of the project, the PPAM discusses the four areas mentioned above, including the village electrification study, and the question of supervision; the PPAM also provides some supplementary comments on the project's operating results and its selection as the least cost solution. Following normal OED procedures, a draft copy of this report was sent to the Government and the Borrower for comments. Those comments which were received have been taken into account in finalizing the report and have also been reproduced as an Appendix to the PPAM. t (ii) PROJECT PERFORMANCE AUDIT BASIC DATA SHEET ECUADOR: THIRD POWER PROJECT (CREDIT 286-EC) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 18.7 23.7 Overrun (%) 27 /1 Credit Amount (US$ million) 6.8/2 Disbursed ) - 6.8/2 Cancelled ) Repaid to - Outstanding to ) November 30, 1979 6.8/2 Date for Completion o Physical Components 6/74 12/77 3/ Proportion Completed by Appraisal Target Date (%) 100 85 Proportion of Time Overrun - 100 Incremental Financial Rate of Return (%) 8 6 Financial Performance Better / Institutional Performance Worse Cumulative Estimated and Actual Disbursements (US$ million) As of June 30: 1972 1973 1974 1975 1976 1977 1978 (i) Appraisal Estimate 2.2 5.6 6.7 6.8 6.8 6.8 6.8 (ii) Actual - 2.8 3.8 4.6 5.4 6.2 6.8 (ii) as % of (1) 0 50 57 68 79 91 100 OTHER PROJECT DATA Original Actual or Item Plan Revisions Current Estimate First Mention in Files or Timetable - - 5/29/64 Coverr.ent's %,plic;tion - - 1/8/68 Negotiations - /2/ 71 Board Approval 8/10/71 10/71 2/1/72 Credit Agreement Dare - - 2/15/72 Effectiveness Date 5/15/72 8/15/72 12/15/72 Closing Date 12/31/74 12/31/75 5/76 12/76 6/30/77 12/30/77 Borrower Republic of Ecuador Executing Agency Empress Electrica "Quito"(EEQ) Fiscal Year of Borrower Calendar year Follow-on Project Name None MISSION DATA No. of No. of Date of Item Month/year weeks persons Manweeks Report First preappraisal 11/68 1 2 2 12/4/(8 Second preappraisal 12/68 n.a. 2 n.a. 12/20/6& Appraisal 1-2/69 3 2 6 2/13/69 Post-appraisal 3/70 1 1 1 3/27/69 Pre-reappraisal 12/70 2 2 4 12/18/70 Reappraisal 1-2/71 3 2 6 2/18/71 Total 10 11 19 Supervision 1 11/72 2 1 2 12/72 Supervision II 2/73 1 1 1 3/73 Supervision III 4-5/73 1 1 1 5/73 Supervision IV 9-10/73 1 1 1 11/73 Supervision V 5/74 1 1 1 6/74 Supervision VI 7-8/74 4 1 4 P/74 Supervision VII 2-3/75 2 2 4 3/75 mr 0 T unT &/79 1 1 1 5/75 Supervision IX 6-7/75 1 2 2 7/75 Supervision X 5/76 1 1 1 6/76 Supervision XI 10/76 1 2 2 11/76 Supervision XII 12/77 1/2 1 1/2 12/77 Completion 2/78 1 1 1 3/78 Total 8 1/2 11 12 1/2 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Sucre (S/) Year: Appraisal Year Average Exchange Rate: US$1= S/25.00 Intervening Years Average US$1= S/25.00 Completion Year Average US$1= S/25.00 L1 Project was scaled up. /2 Plus exchange adjustment of US$0.2 million. 3 The date of final disbursement, for the completion of the various project components see PPAM paras. 3.5-6 and PCR paras. 11-14. /4 As measured by the rate of return on unrevalued assets during the 1971-75 period.  (iii) PROJECT PERFORMANCE AUDIT REPORT ECUADOR: THIRD POWER PROJECT (CREDIT 286-EC) Highlights Credit 286-EC was the last of three lending operations to Empresa Electrica Quito, S.A. (EEQ) and supported a project which helped to increase EEQ's generating capacity and extend and strengthen the transmission and distribution facilities of the Quito system. In making the Credit, the Bank also had important institutional objectives. Progress towards meeting these objectives has been slow and generally disappointing. Of the five studies to be financed under the credit, part of the village electrification study and the study of EEQ's future investment in generation capacity were never imple- mented. EEQ's earnings in terms of rate of return on unrevalued assets were in general better than envisaged at appraisal. This was partly due to a lower investment program than forecast with a consequent failure to satisfy suppressed demand. However, most of the financial and institutional covenants were not met. In part, the power sector's problems reflect the lack of planning in addition to the excessive turnover of both top management and lower level staff during the implementation of this project. These and other issues are being addressed by the Bank in connection with a US$11 million technical assistance loan to the Republic of Ecuador of which US$3.5 million has been allocated to the power sector (PPAM paras. 1, 21 and PCR para. 1). Some points of special interest are: - lengthy project preparation prior to negotiations, delay in Board presentation, and delay in making the credit effective (PPAM para. 6 and PCR paras. 5-6); - declaring the credit effective in spite of a condition of effec- tiveness not being met (PPAM paras. 9-11); - studies financed under the credit provided only limited benefits (PPAM paras. 5, 12-13, Appendix and PCR para. 14); - lack of planning resulting in suppressed demand not being met (PPAM paras. 13-14 and PCR para. 28); - Borrower's unsatisfactory compliance with financial covenants (PPAM para. 17 and PCR para. 21); and - need for more frequent supervision missions in the period 1973- 1975 (PPAM paras. 8 and 20 and Appendix).  PROJECT PERFORMANCE AUDIT MEMORANDUM ECUADOR: THIRD POWER PROJECT (CREDIT 286-EC) SECTION I PROJECT SUMMARY 1. The Bank Group has made two loans and one credit to Ecuador for power projects for a total amount of US$16.8 million. The loans were made to Empresa Electrica Quito, S.A. (EEQ), the publicly-owned power entity responsible for the supply of electricity in Quito and its surroundings. The credit which forms the subject of this audit (Credit 286-EC) was made to the Government in the amount of US$6.8 million equivalent and relent to EEQ. In addition, the Bank lent, in 1977, US$11 million to the Republic of Ecuador for a second technical assistance project (S-006-EC) to improve the efficiency of the Government's investment decision-making and implementation processes, of which US$3.5 million was allocated to the power sector (PCR para. 1). 2. Credit 286-EC was to cover part of the foreign exchange component of the Third Power Project which, at appraisal, had an expected total cost of US$18.7 million. The actual project cost is now estimated at US$23.7 million, mainly due to increases in the transmission and distribution components and additional inflation as a result of delays in construction. The project was originally appraised in early 1969, the credit was approved in February 1972 and became effective in December 1972 (PCR paras. 3-6). Credit disbursement was completed in December 1977, about three years later than expected at appraisal (PCR Annex 3), although the major component of the project, namely the Nayon hydroelectric plant, started producing benefits much earlier, about seven months later than the appraisal estimate. 3. The physical components of the project consisted of: the construc- tion of a 30 MW hydroelectric plant at Nayon, including a by-pass tunnel for the Cumbaya plant; an 18 MW diesel-electric plant; transmission lines; and improvement and extension of distribution networks. The generation capacity was needed to eliminate the existing suppressed demand and to help meet the growth in future demand for electricity. The transmission and distribution works were needed to meet additional energy sales and also to rehabilitate the Quito system, which was heavily loaded and in poor condition. As a result, transmission, distribution and other system losses were about 20% of total generation in 1971 and it was expected that these would be reduced to 18% after project completion. 4. The Nayon hydroplant was completed in July 1974, and has been operating satisfactorilyl/. The seven-month delay was due to geological 1/ On one occasion (March 1976), a 10 MVA hydro generator burned out at Cumbaya (upstream from the Nayon plant) causing a loss of 7.5 MVA of generating capacity at the Nayon plant due to the delayed construction of the Cumbaya by-pass. - 2 - difficulties necessitating additional work at the end opposite the intake. The construction of the Cumbaya by-pass tunnel only started in early 1976 and was completed in mid-1979 (PCR para. 10). The late start was due to the fact that the line of the tunnel was changed and additional works were included because of geological difficulties (PCR para. 10 and Appendix). According to IDA, the late start was also caused by some initial doubt on EEQ's part as to the justification of spending its limited funds on the by-pass tunnel. Nine MW of diesel units were completed in October 1971, about two months late. The other 9 MW were completed in December 1973, about 12 months behind schedule, due mainly to a late start on the civil works (PCR paras. 11-12). The diesel units have been working satisfactorily with the exception of one 3,025 KW unit which, for a couple of months during the guarantee period, was out of service due to electrical failure of the pole windings. The transmis- sion and distribution works were completed in December 1977, about four years behind schedule (PCR para. 11). Apparently, the two substations included in the project were completed only in late 1978. Nevertheless, EEQ has been able to reduce its losses from 20% in 1971 to 17% in 1976. The main reason for the delay in the transmission and distribution works was the increase in scope of this project component, delays in preparation of drawings and specifications, and unfamiliarity with the Bank Group's procurement procedures resulting, in one instance, in EEQ's calling for new prices (PCR para. 13). As a general remark, it should be pointed out that the completion date for the project had not been revised after negotiations, despite the unexpected delay of six months which occurred before the project was actually presented to the Board. 5. Attempts were made during credit preparation and appraisal to improve EEQ's institutional performance. For this reason, amounts were included in the Credit to finance: (i) the services of consultants to improve management methods; (ii) a study of the rehabilitation of the distribution network of Quito; (iii) studies of EEQ's next step in generation; (iv) a tariff study; and (v) a three-stage study of the social costs and benefits attributable to village electrification. The generation study and the second and third stages of the village electrification study were not implemented. In the case of the consultant assistance for management improvements, imple- mentation of the recommendations has been hampered by initial reservations on the part of EEQ and the excessive turnover of top management and lower level staff during the 1971-1977 period (PCR paras. 25-27). The tariff study was completed in 1974 but the Borrower and IDA have different views as to the significance of the role it played in the new tariff structure introduced in 1977 (PPAM para. 12). Thus of the five studies financed under the Credit, only the network study appears to have provided any clear benefit (PPAM paras. 12-13). 6. A major IDA objective was to improve the financial aspects of EEQ's institutional performance. The need for a tariff increase seriously complicated project preparation and resulted in an unusually large number of missions prior to negotiations (PCR paras. 5-6). In addition, IDA introduced certain conditions which had to be satisfied prior to Board presentation or Credit - 3 - effectiveness and included various covenants in the Credit documents (PCR para. 6 and Annex 8). It was expected that the appointment of management consultants (a condition of effectiveness) would help improve EEQ's financial planning and accounting system. Furthermore, the execution of contractual arrangements between EEQ and Ilustre Municipalidad de San Francisco de Quito (IMQ)A/ for the transfer of IMQ's distribution networks (a condition of effectiveness) was expected to bring about the settlement of IMQ's outstanding account (of about S/23 million) with EEQ for electricity service rendered. The implementation of the consultant's recommendation is only now beginning to show benefits (PCR paras. 19 and 25-27), and it was not until the latter part of 1975 that IMQ transferred its network and settled its debt with EEQ (PPAM paras. 9-11). The performance of EEQ in relation to the financial and insti- tutional covenants was not as good as expected at appraisal (PPAM para. 17). As measured by the rate of return on unrevalued assets, EEQ's financial posi- tion was better than the appraisal estimate during the 1971-75 period (PCR paras. 20-22). However, this was partly due to a lower investment program than forecast with a consequent failure to satisfy suppressed demand through- out the period. In 1976 EEQ revalued its assets, and the rate of return for that year was 3.5% and 5.2% for 1977; these rates are low for an electric utility. 7. The need for the project has been confirmed by the actual growth in energy sales, which compares favorably with the appraisal estimate (PCR Annex 5), although mainly due to outages of existing plants and lack of planning of further generation capacity, sufficient energy could not be produced to satisfy the suppressed demand. In retrospect, the Nayon plant probably was the least-cost way of generating the incremental energy attributable to the project as was demonstrated at appraisal (PPAM paras. 15-16). However, the incremental financial rate of return (IFRR) on EEQ's 1971-1976 expansion program has now been recalculated at about 6% compared with 8% calculated at appraisal (PCR para. 29 and Annex 9), principally because the capital and operating costs (i.e. salaries) were higher than expected. SECTION II SUPPLEMENTARY COMMENTS Supervision 8. The supervision effort exerted under the credit was not as adequate as the PCR would appear to indicate (PCR para. 30). Although supervision missions averaged about two per year, no supervision mission of the project by project staff took place between March 1973 and January 1975. The supervision effort that took place during this period was solely confined to the village electrification component of the project. However, during this period, EEQ was faced with serious management problems; the tariff and network studies were both completed in early 1974 but no action was taken; the study of EEQ's 1/ The Municipality of Quito (IMQ) holds about 44% of EEQ's subscribed capital. next step in generation was eliminated!/; the construction of the Cumbaya by-pass (originally to be financed under the credit and expected to be com- pleted by end 1973) had not started; ownership of IMQ's distribution network had not been transferred and outstanding electricity bills to IMQ remained a difficult problem. It was only in early 1975, when IDA decided to speed up its supervision effort, that most of these problems were acted upon. Although IDA, by that time, had more influence as EEQ needed to apply for an extension of the closing date, at least bi-yearly supervision of the complete project during the 1973-75 period was warranted. This view is shared by EEQ (Appendix). Transfer of Distribution Network and Settlement of Debt 9. Having received little or no return on its investment in EEQ, IMQ had not settled its outstanding account with EEQ for some years prior to the signing of Credit 286-EC. As of December 31, 1970, IMQ owed EEQ S/23 million (US$0.9 million). During negotiations, it was agreed that certain distribu- tion networks owned by IMQ and operated by EEQ should be transferred to the latter. Thereby IMQ's debt would be settled and stocks would be issued by EEQ to IMQ for the difference (about S/5 million). Since EEQ was not allowed, by decree, to increase its capital, extra time was required to complete the legal requirement for stock-issue. The execution of a satisfactory agreement on these lines was a condition of effectiveness of the Credit. 10. The original effectiveness date for the Credit was set for May 15, 1972, about three months after Board approval. After the date of effective- ness had been postponed three times, the credit finally became effective on December 15, 1972 although the distribution network had not been transferred. Since EEQ's need for funds was urgent, as equipment for the second stage of the diesel power station was being withheld in England pending payment, it was decided to waive the condition of effectiveness provided that it was fulfilled not later than March 31, 1973. In the meantime, disbursements under the Credit were to be limited to US$2.8 million. IDA realized that further delay in declaring the Credit effective would cause a financial hardship on EEQ. At the same time, IDA was prepared to make further concessions along the same lines if the condition was not met on the agreed date. 11. Apparently, this issue was not pursued until IDA resumed its super- vision effort in early 1975, but disbursements under the credit continued beyond the limit set at the time of Credit effectiveness. The distribution assets were transferred and the outstanding bills were eventually settled later that year. It is not clear what effect the delay in settling the outstanding bills had on EEQ's finances, as the company did not experience any shortage of cash during this period due to a decrease in the investment program. However, the purpose of this condition of effectiveness was to encourage the settlement of the outstanding bills and transfer the distribu- tion networks so that they would be included in EEQ's assets for the purpose 1/ It has not been possible to ascertain why the study was eliminated, but see para. 13. - 5 - of tariff and rate of return calculations.Y. In retrospect, it is not clear why IDA set a condition of effectiveness and then failed to pursue it, even acknowledging that a flexible approach towards EEQ's predicament would have to be adopted. Studies 12. At appraisal, IDA pointed out the need for a revision of EEQ's tariffs as there existed some imbalances between the various classes of consumers. IDA therefore included funds in the Credit to cover the cost of consultants for a study of EEQ's tariff structure. The study was carried out in accordance with the terms of reference approved by IDA and was com- pleted in 1974. A new tariff structure was eventually implemented in December 1977, based on marginal cost. The views of IDA and the Borrower differ as to the importance of this study in formulating the new structure (para. 5). The tariff study was completed in 1974 but according to IDA staff, did not play any significant role in the new tariff structure introduced in 1977. However, in spite of the delay in implementing the new tariff structure, EEQ feels that the study financed under this credit did play an important role and that the present structure is based on the recommendations of the consultant's report and conforms basically with the proposals of the study (Appendix). 13. A network study was carried out satisfactorily under the project and, apparently, has proved useful for EEQ in strengthening and extending its distribution network. No study was made of EEQ's future investment in genera- tion capacity, and consequently EEQ has installed, on an ad hoc basis, diesel units and gas turbines in trying to meet its energy requirements. In retro- spect, it may well be that the study should have been vested with Instituto Ecuatoriano de Electrificacion (INECEL) since at appraisal INECEL was already preparing a master plan with the objective of integrating the many utilities in the country. In addition, it was expected that INECEL would finance, construct and operate from 1975 or 1976 onwards practically all new generating and transmission facilities in the country (Appendix). As for the village electrification study, only the first stage was carried out. While IDA staff feel that part of the reason for the poor results was a lack of cooperation by EEQ, the Borrower has expressed the view that it gave all the assistance that it could in spite of its limited manpower resources (PCR para. 14 and Appendix). Furthermore, EEQ is of the opinion that the study served as a basis for the Electrification Plan for villages and the low-income suburbs of Quito, which is currently part of the National Rural Electrification Plan (Appendix). It appears that IDA was too optimistic at appraisal as to the result of this study and should have realized that EEQ had limited manpower to carry it out in spite of the assistance of consultants. Operating Results 14. The delay in implementing the project and the lack of timely instal- lation of additional generating units affected the power supply as sufficient 1/ Tariffs were only increased in 1977, and the rate of return calculation included the networks in question in 1975 onwards. - 6 - energy could not be produced to satisfy the suppressed demand. The situation became particularly serious in 1976, when EEQ had to shed 10-12 MW load of a total maximum demand of approximately 100 MW. As a result, EEQ was not able to connect about 20 MW of already installed industrial demand. A delay in installing a gas turbine and problems with other units (page 1 footnote 1), appear to have been the main reasons for this. Nevertheless, the completion of the Nayon project has helped alleviate some of the suppressed demand and the security of its generation has been increased by the completion of the Cumbaya by-pass. Least Cost Solution 15. On the basis of an anticipated load growth of 11.2%, the construc- tion of the Nayon hydro-plant was preferred to thermal plant for discount rates up to 15%. Other hydro alternatives were not considered since they could not be completed by the end of 1974 and EEQ was already forced into an expensive "crash" program of diesel generating capacity in order to meet requirements prior to the commissioning of Nayorl/. Gas turbines were not an economic alternative to installing diesel plant because they would operate at only 50-60% of normal (sea level) output at Quito's high altitude. Load shedding, as an alternative to installing diesel plant, was considered un- acceptable because it was expected to be even more costly to the economy in terms of lost industrial production. EEQ had estimated that already in 1970 about 4 GWh was not supplied to industry, which had to curtail production by an estimated 7%. Lost production was expected to be at least double this amount in the following years in the event that no generating additions were made and would have serious effects on the economy. 16. It would be difficult to reassess the least-cost solution in retro- spect. It seems clear that the Nayon plant was more economic than a thermal alternative, considering the present high cost of fuel. Furthermore, the advantage with Nayon was that part of the civil work had already been con- structed under the Cumbaya project (upstream of Nayon). The Nayon plant was therefore probably the least-cost way of generating an equivalent energy output (PCR para. 29). Based on actual sales of energy and the greater industrial demand than forecast at appraisal, there was a need, in retrospect, to install more generating units in order to meet the suppressed demand. The appropriate solution appears to have been the installation of more diesel units in the early 1970's since no other hydro alternatives existed which could have been completed by 1974. Compliance with Covenants 17. A major objective of IDA's participation in the power sector in Ecuador was to improve EEQ's financial and institutional performance. Many of the basic financial objectives were embodied in the loan covenants. EEQ's performance in relation to these covenants was not satisfactory. For example, audited statements which were to be sent to IDA no later than four months 1/ Contracts on 9 MW of diesel plant and the civil works part of the con- struction of the Nayon plant had already been let prior to credit approval with retroactive financing amounting to about US$1.4 million. - 7 - after the end of each year, were received only after delays of about fourteen weeks; assets which were to be revalued no later than December 31, 1973, were only revalued in 1976 (PCR para. 21); the Financial Director, to be appointed no later than six months after the date of the Project Agreement, was hired sometime in 1974. Collection of electricity charges has also remained a problem. The unsatisfactory performance can partly be explained by the disruption of the consultant's management services (PCR para. 27), EEQ's initial reservations over the consultant's recommendations and the excessive turnover of both top management and lower level staff in EEQ. SECTION III CONCLUSIONS 18. The physical objectives of the project were met, albeit with delays and cost overruns. The Nayon hydroplant is operating satisfactorily and together with the diesel units is contributing to meeting the previously supressed demand for electricity. The transmission and distribution com- ponents are completed and have contributed to the reduction in system losses. 19. Progress towards the institutional objectives of the project was disappointing, although improvements over the past couple of years have taken place. The study of EEQ's next step in generation was never implemented and should probably have been executed by INECEL; only the first stage of the village electrification study was completed. Although EEQ's earnings as measured by the rate of return on unrevalued assets during the 1971-75 period were in general better than the appraisal estimates, most of the covenants related to the financial aspects of the institution were not met. 20. One of the conclusions drawn by the PCR (para. 31) is that "supervi- sion will produce only minimal results if the beneficiary's management is not willing to do its share". The audit concurs but has added that supervision could have been more effective on the part of IDA in the period 1973-1975, when at least bi-yearly supervision of the complete project was warranted, a view also shared by the Borrower. 21. For the future, the Bank is maintaining its involvement in the power sector through a US$11 million loan to the Republic of Ecuador for technical assistance of which US$3.5 million is allocated to the power sector. This loan is permitting a comprehensive and thorough analysis of the sector's short-, medium-, and long-term program, including an evaluation of the coun- try's hydroelectric resources and a feasibility study of the Paute Mazar hydroelectric project.  Translation of Letter - 8 - Appendix Page 1 of 3 COMMENTS FROM THE BORROWER EMPRESA ELECTRICA QUITO S.A. Quito, Ecuador March 27, 1980 No. 3226 Mr. Shiv S. Kapur Director, Operations Evaluation Department World Bank Washington, D.C. Ref.: Project Performance Audit Report Ecuador: Third Power Project (Credit 286-EC) Dear Mr. Kapur: We have received, with your letter of February 27, 1980, the draft Performance Audit Report on the Third Power Project in Ecuador (Credit 286-EC). We have no comments on this document but would like to make some necessary clarifications, since for the rest we consider the conclusions to be very reasonable and correct. OED NOTE: (a) The late start on the Cumbaya by-pass tunnel was not due to See PPAM "some initial doubt on EEQ's part as to whether or not it should spend para. 4 its limited funds on this by-pass tunnel rather than on a new office building" but to the fact that because of geological difficulties the line of the tunnel was changed and additional works were included, bringing the cost to approximately three times that of the original project. (The original project included an auxiliary intake on the Rio San Pedro to increase generation capacity at Nayon.) Since the project as thus designed did not justify the level of investment EEQ proposed to the Bank a new project design, intended simply to maintain the Nayon plant in operation at 50% capacity even if the Cumbaya plant vent out of service, at a cost roughly the same as that of Appendix 9 - Page 2 of 3 OED NOTE: the original project. We would point out that these works were originally included in the Nayon project for financing by the Bank but were subsequently executed with EEQ's own resources. See PPAM (b) While it is true that the tariff studies made by the foreign para. 12 consultant had not been put into effect up to 1977, because in EEQ's opinion the time was not appropriate, nevertheless they played an important role in the new tariff structure. The present structure is based on the recommend- ations of the consultant's report and conforms basically with the proposals of the study. See PPAM (c) With regard to the supervision effort of the Bank, it may be para. 8 that it could be regarded as adequate, but we consider that there was a lack of continuity, since between March 1973 and January 1975 no supervision mission took place. In our view such missions were needed, given the internal problems EEQ was experiencing at the time. See PPAM (d) With regard to the comment that, following the Nayon project, para. 13 EEQ made no study of future measures relating to generation, we would point out that under national law INECEL is solely responsible for carrying out energy generation projects, the electricity companies being responsible only for distribution and marketing. See PPAM (e) As for the village electrification study, in our view, although para. 13 only the first stage was carried out, the study served as a basis for the Electrification Plan for villages and the low-income suburbs of Quito, which is currently part of the National Rural Electrification Plan to be financed by IDB. For the actual execution of the studies, EEQ in fact Appendix Page 3 of 3 - 10 - gave all assistance in its power in spite of its limited manpower resources. For the rest, we are very much aware that the period of implementation of the Nayon project was a very difficult time for EEQ, because of the continual turnover of both management and lower level staff, and specifically as a result of the introduction of the structural reorganization measures for which the studies were financed out of funds under Credit 286-EC. I should appreciate your taking due note of these points. Sincerely yours, /s/ Gualberto Hernandez M. General Manager  - 11 - ECUADOR: THIRD POWER PROJECT ATTACHMENT (CREDIT 286-EC) Project Completion Report I. Introduction Bank Lending to the Power Sector 1. Since 1956 the Bank Group has made two loans and one credit totalling US$16.8 million equivalent to Empresa Electrica "Quito," S.A. (EEQ), which is the publicly-owned concessionaire for Quito and its surroundings. The two loans, totalling US$10 million equivalent (1956: 137-EC; and 1957: 177-EC), helped in financing the 40 MW Cumbaya hydroelectric project on the San Pedro river, several diesel plants and extension to the distribution system. These works were completed by the end of 1961 and have been operating satisfactorily. IDA Credit 286-EC, for US$6.8 million equivalent (1972), helped finance the Third Power Project which included the 30 MW Nayon hydroplant and other works (para. 7) and which is the subject of this report. In addition to these loans and credit, the Bank lent US$11 million equivalent (1977: S-006-EC) to the Republic of Ecuador to improve the efficiency of the Government's investment decision making and implementation processes. Of these US$11 million, 3.5 million have been allocated to the power sector to prepare an integrated power development master plan through 1992, and to finance a feasibility study of one major hydroplant facility. The Power Sector 2. The Instituto Nacional Ecuatoriano de Electrificacion (INECEL), which is the state power company and sector regulatory agency which operates under the aegis of the Ministry of Natural Resources and Tourism, was created in 1961. In addition to INECEL, there are two major electricity companies: EEQ in Quito and the priva- tely-owned Empresa Electrica de Guayaquil (EMELEC). The rest of the sector is composed of hundreds of minor plants, both municipally-owned and captive, which cater to small communities and private industry. Between 1965 and 1975 Ecuador trebled its installed power capacity to 551 MW and in recent years national demand has been growing at more than 13% p.a.; however, it still has one of the lowest levels of both per capita output and consumption among Latin American countries 1/ and only 8% of the rural population has access to electricity. There have been perennial power shortages in Quito, where established industries have frequently been idle for lack of electricity and some new industries have been unable to start operations due to delays in the supply of electricity. Consequently, there is a need for continued expansion and improvement of generation capacity and trans- mission and distribution systems. II. Project Preparation and Appraisal 3. The Nayon Project was part of the third stage of the Cumbaya hydroelectric development and was conceived in the mid-1950's. As early as May 1964, the Empresa was actively seeking IDA's involvement in the project and keeping it informed on progress. In 1967, the Empresa requested IDA financing and in January 1968, it forwarded the feasibility study carried out by the Japanese consultant Electric Power Development Co. (EPDC). In March 1968, IDA recommended appraisal of Nayon subject to fulfillment of several conditions (see para. 4). 1/ For example, consumption in terms of kWh/year per capita stood at about 180-184 for 1973-76 in Ecuador, Bolivia and Guatemala; for Peru this indicator had a value of 507 in 1975, and for Venezuela 1,229. - 12 - 4. Between 1969 and 1971 the proposed project was the subject of two pre- appraisal, one appraisal, one post-appraisal, one pre-reappraisal, and one reappraisal missions. The major issues were the lack of: (a) agreement between the Municipality of Quito and EEQ on reciprocal pay- ments outstanding for more than 13 years; (b) adequate financing plans, particularly the lack of firm sources for the required local financing; and (c) adequate financial management (both staff and systems). 5. After the first pre-appraisal (January-February 1969), IDA requested an adequate financial plan for which it was necessary to increase tariffs by 10%. EEQ did not agree and, as a result, IDA decided not to continue processing the loan. About two years later, on the basis of EEQ's commitment to increase tariffs, the project was reappraised (January-February 1971), and in April 1971, the Govern- ment approved a 35% rate increase (which was required by then instead of the 10% needed two years before) to be introduced in May 1971. However, the tariff increase was rescinded after May and EEQ and the Government subsequently decided to raise tariffs in several smaller steps throughout 1971 so that the previously agreed 35% increase was not to be billed in full until January 1, 1972. This decision was not formally brought to the attention of IDA until December 1971. 6. As a precondition for Board presentation, EEQ was required: (a) to sign a loan agreement (US$850,000) to cover part of the local cost of the civil works contract: (b) to sign a supply and loan agreement with the Corporacion Financiera Nacional, the wholly Government-owned development finance company (S/ 65 million); and (c) to prepare a draft of the subsidiary loan agreement with the Government for relending the proposed credit to EEQ. As a consequence of EEQ's inability to fulfill these requirements, the Board presen- tation, which was originally planned for August 10, 1971, was postponed until February 3, 1972. A contributing factor was the Ecuadorians' unilateral reschedul- ing of the May 1971 tariff increase (para. 5). 7. The original project at the time of reappraisal included: (a) the 30 MW Nayon hydro power plant on the San Pedro river including a 1.7 km bypass tunnel for the Cumbaya plant; (b) construction of a new 18 MW diesel power station in the south of Quito; (c) transmission lines and substations to complete the 46 kV ring system for Quito, including conversion of some lines from 22 kV to 46 kV; - 13 - (d) equipment including transformers and streetlighting components for the Quito distribution system; (e) equipment for the electrification of a number of villages in the north- west part of the Canton Quito; and (f) engineering and construction supervision of the Nayon hydrcplant studies for EEQ's next step in generation; a network study; consultants' assistance to EEQ for management and administration; a study of EEQ's tariffs and a study of the social costs and benefits attributable to the village electrification. 8. The 30 MW Nayon plant was the least cost next step in EEQ's generation program (preferred to thermal plants for discount rates up to at least 15%). At the time of reappraisal, plans for the integrated development of Ecuador's power sector had not yet been finalized by INECEL; therefore, the Nayon project was not proven to be the least cost solution in a national electrification program. Pre- liminary studies of the plant were initiated in March 1966, preliminary works were started in 1967, and the main construction begun in 1968. Nayon was originally scheduled for initial operation in early 1972 but when IDA was unable to consider lending (para. 5) in 1969, EEQ had to slow down construction because of lack of funds and it was only about 10% completed at the time of reappraisal. The station, expected at the time of reappraisal (1971) to be completed by end-1973, was com- pleted in mid-1974. 9. The diesel expansion included, in addition to the 18 MW, 4MW purchased in 1969 with suppliers' credits (already being installed at the time of reappraisal) which were urgently required to compensate for the delays in Nayon. The appraisal mission studied as alternatives gas turbines and load shedding but found them less economical. III. Project Implementation, Operation and Cost Changes to the Project 10. The project was executed as envisaged at appraisal except for the following: (a) the original Cumbaya bypass tunnel design was simplified in January 1976, and moved to a different location, which resulted in lower costs (cur- rently estimated at US$1.3 million equivalent) 1/ than the then current estimate. Since the cost of the bypass is mostly local and EEQ had increased significantly its expansion program in distribution, the bypass was deleted from the list of items to be financed by the IDA credit and the funds reallocated to expansion of the distribution network. EEQ has financed the bypass entirely from its own resources and expects it will be completed by end-1978. 1/ At the time of appraisal, the estimated cost of the bypass was US$1.2 million equivalent. By October 1974 the estimated cost was about US$3.6 million equivalent due to the first redesign; prior to the second redesign in January 1976, the estimated cost of the bypass had been increased to US$5.0 million equivalent due to inflation and adverse geological conditions; however, the second redesign brought its cost down to US$1.3 million equivalent. - 14 - (b) the transmission and distribution system expansion was enlarged to meet demand beyond the original construction period; these increases were partly financed with the IDA funds originally allocated to the Cumbaya bypass; and (c) of the three stages of the socio-economic study of village electrification, only the first one was carried out (para. 14). Project Execution and Implementation 11. The project was completed 48 months behind schedule; this delay in completing the project has adversely affected EEQ's operations and resulted in failure to satisfy suppressed demand (para. 2). A breakdown by item follows: Completion Dates Additional Period Original Actual months Project Item Nayon Plant 12/73 7/74 7 Diesel Plant: 4 units of 2.18 MW each 7-8/71 10/71 2.5 3 units of 3.025 MW each early 1973 2/74 12 Transmission and Distribution 1/74 12/77 48 1/ Rural Electrification Study 6/74 1976/77 36 T/ 12. The seven-month delay for the Nayon plant was due primarily to increases in the amount of works and to adverse geological conditions in tunnel excavation. 13. The transmission and distribution works, including rural electrification, suffered delays mainly resulting from delayed credit effectiveness, unanticipated inefficiencies in the handling of procurement and enlarged scope of the works (paras. 5, 6 and 10(b)). 14. The socio-economic study of village electrification was originally conceived by the Bank Group as an important step toward the development of a data base, strategy and implementation experience in the field of rural electrifica- tion. The study consisted of the following: Stage I - Establishment of benchmark data for the rural electrifica- tion area through a household survey and carrying out an economic evaluation of the village electrification; Stage II - Monitoring of the most important developments affecting the area following electrification; and Stage III - Repeating the household survey of Stage I, allowing for a before-and-after measurement to identify the effects of the project. 1/ These project items were a portion of the 1971-1975 program; since they were drastically modified, these comparisons are possible in terms of IDA financing only. - 15 - Stage I was carried out by the Catholic University of Quito, with the assistance of two consultants (Annex 1) with very poor results due to: (a) complete lack of cooperation by EEQ, resulting in an inadequate economic evaluation; and (b) lack of capability and experience of the group formed by the Catholic University. For a long time EEQ stated that it had neither interest nor available manpower to carry out Stages II and III and by November 1978, it had no specific plans for proceeding with these two stages. Procurement 15. By February 15, 1972, the Credit signing date, EEQ had already contracted the following items: (a) the first stage of the diesel station; (b) the civil works for the Nayon plant; and (c) the equipment for the Nayon plant and its transmission and substation system. Additionally, transmission and distribution expansion was being carried out with EEQ's own funds and work for procuring the second stage for the diesel station had already been initiated. 16. The procurement of the goods financed by the Credit was carried out through ICB. There was a US$1.4 million equivalent retroactive financing to cover the foreign cost of the 4 diesel units of 2.18 MW each and of the Nayon civil works (para. 15). There were no reports of major problems in the procurement area other than the lack of familiarity of EEQ staff with IDA procedures which resulted in some delays (para. 13). - 16 - Costs and Disbursements 17. Actual total project cost exceeded appraisal forecast by about US$5 million equivalent (or 27%), as shown in the following table, which is a summary of Annex 4: Project Cost (in millions of US$) Appraisal Actual Total Local Foreign Total Local Foreign Total Difference % Nayon Plant-2/ 3.7 4.6 8.2 5.2 4.4 9.6 1.4 17 Diesel Plant 0.2 2.9 3.1 0.2 2.9 3.2 0.1 3 Transmission 0.5 1.6 2.1 1.2 3.3 4.5 2.4 114 Distribution 1.5 3.1 4.6 1.6 4.6 6.1 1.6 35 Studies 0.2 0.6 0.7 - 3/ 0.3 0.3 (0.5) (71) Total 6.0 12.7 18.7 8.2 15.5 23.7 5.0 27 Of the difference, about US$1 million equivalent was due to (a) larger than expected civil works quantity for Nayon and enlargement of the scope of civil works not originally included in the contract 4/; and (b) contract revision because of higher than expected local inflation rates. The appraisal estimated 39% cumulative inflation over 1971-74, while actual inflation, as measured by the Ecuador Consumer Price Index, was 73%. The rest of the cost overrun of about US$4 million equivalent was due partly to increases in the transmission and distribu- tion components of EEQ's expansion program and partly to higher than expected international and local inflation rates. A comparison between the estimated and the actual works in the transmission and distribution components is not possible due to the lack of specific data in the appraisal report. Operations 18. One of the three 3,025 MW diesel units financed by this credit was out of service for a while shortly after its commissioning but the manu- facturer repaired it under its guarantee. The project components have generally been working smoothly since their respective start of operations. However, there were several problems in 1976, with non-project items such as a 10 MVA step- up transformer (which failed in December 1975 and was repaired by September 1976), the insulation of a 10 MVA alternator at Cumbaya, and small initial problems in the commissioning of the INECEL-financed 24 MW gas turbine 5/. These problems 1/ Total may differ from the sum of the individual items shown due to rounding. 2/ Includes the US$1.2 million Cumbaya bypass. 3/ Although there were some expenses for these items, e.g., contract with the University of Quito, EEQ reported them as nil, possibly due to recording problems. 4/ Mostly in the tunnel and the powerhouse. In the case of the tunnel these works were necessary even though EEQ had built a pilot tunnel. 5/ This plant was installed to substitute for the energy from INECEL's Pisayambo plant, which construction had suffered delays. - 17 - were compounded by an unusually dry year (1976) which further decreased EEQ's energy output. This resulted in EEQ's inability to connect into the system some 20 MW of additional industrial demand, which EEQ started to connect in 1977, and to satisfy residential suppressed demand (para. 2). Performance of Consultants, Contractors and Suppliers 19. In general the lerformance of the consultants, contractors and suppliers that participated in the project (see Annex 1) was satisfactory. Unfortunately some of the recommendations of consultants had to be postponed due to internal problems at EEQ (see para. 27). IV. Financial Performance Financial Results 20. Over 1971-75, the period covered by appraisal estimates, EEQ's financial results were generally much better than anticipated, to the extent that the utility was not required to request the Bank agreement before incurring debt, as its net revenues exceeded the minimum of 1.5 times its maximum debt service requirements (see earnings test of Section 4.03(a) of the Project Agreement in para. 7 of Annex 8), a rare occurrence among power utilities. EEQ's cash position also remained adequate. However, the excellent financial health of EEQ was due basically to a low investment program which resulted in failure to satisfy suppressed demand throughout the period (para. 2). 21. Over 1971-75, actual energy sales were almost identical to the appraisal estimates for which forecasts were prepared on the basis of regression analyses. Average revenue per kWh was generally higher than expected while total revenues from connection fees and other operating revenues were always higher. Operating costs were lower than expected in 1971-72 and higher than expected in 1973-75. The difference in 1973-75 is explained mainly by higher than anticipated inflation rates. The rate of return on unrevalued assets 1/ was higher than the appraisal estimate. However, the rates of return on revalued assets of about 3.5% in 1976 and 5.2% in 1977 were low for a public utility 2/. EEQ revalued its fixed assets in 1976 (retroactive to 1975), instead of by end-1973 as the covenant required (see 9 of Annex 8); therefore, it was only in 1976 that IDA had a sound basis for requesting tariff increases under the covenants governing the Credit (see 1 and 8 of Annex 8). 22. Comparative flow of funds statements (Annex 6) show that because of the above, actual gross internal cash generation was higher than expected in 1971-72 and lower in 1973-75. Reduced borrowings, however, produced debt service much lower than expected throughout 1971-75 and the resultant internal cash generation net of debt service was higher than forecast during this period. Similarly, due to the delays in construction (paras. 10-12), construction outlays were lower than expected in 1971-72 but they were higher in 1973-75 as construction accelerated, inflation soared and the program was enlarged. During the forecast period the actual contribution to construction expenditures from internal cash generation (net of debt service) of 38% was substantially higher than the 23% forecast; this, accompanied by equity investment and consumer deposits and contributions which were in the aggregate much higher (140%) than expected, brought about a 1975 capitalization position of EEQ stronger than estimated (an actual debt/equity ratio of 37/63, vs. 41/59 estimated). 1/ Unrevalued assets were always lower than anticipated due to delays in the construction program. 2/ No figures are available for revalued assets for 1971-74. - 18 - 1976-1977 Results and Expansion Plan 23. In 1976 and 1977 total energy sales increased by 17% each year (industrial consumption by 26% each year), the number of customers by 9% and 13%, and maximum demand by 11% and 15%, respectively. EEQ was able to decrease energy losses and unaccounted for from 21% in 1975 to 16% in 1976; however, in 1977 they reached 18%. Despite the 1976 increase in sales, EEQ's rate of return on revalued assets decreased from 6.9% in 1975 to 3.5% in 1976; this was due to a 46% increase in cash operating expenses and almost a doubling of the depreciation charge over the 1975 values. Responsible for the increase in cash operating expenses were: (a) higher wages and other costs (as reflected in a 10% increase in the Quito Consumer Price Index); (b) the combined effect of the expenses (other than depreciation) related to the Pasochoa hydro plant (commissioned in August 1976) and to the Guangopolo gas turbine (commissioned in July 1976), less a decrease in the production of the Cumbaya and Nayon hydro plants, with a net increase in the fuel expenses; and (c) a 15% increase in salaries effective January 1976. The revaluation of EEQ's assets and the capitalization of the Pasochoa and Guangopolo plants were responsible for the increase in depreciation. Due to a dry 1977, EEQ had to purchase 68 GWh from INECEL (7.3 GWh in 1976); INECEL's cost is higher than EEQ's own generating cost. During 1977 tariffs were increased by 20% and produced revenues which offset the added cost of purchased energy and allowed an increase in the utility's rate of return from 3.5% in 1976 to 5.2% in 1977. 24. Because of the continuous capacity overloading of its system, EEQ launched in 1977 an "emergency" construction plan for 1977-80 with an estimated total cost of about S/1,400 million (US$56 million equivalent). The plan, which is fully financed 1/ and for which all materials have already been contracted, includes 60 km of 46 kV subtransmission lines, 160 MVA distribution substations, 1,400 52.275 kVA distribution transformers and 500 km of distribution lines. In addition, EEQ expects to install a 34.32 MW diesel (Bunker C) plant which would come on stream by early 1980. V. Institutional Performance 25. Over 1971-77 EEQ suffered from serious internal problems due to excessive turnover of both top management and lower level staff and the presence of an extremely powerful union. Discussions with the latter consumed much of management's time for an extended period. This kept EEQ in a state of permanent organizational change with management concentrating on solving crises, while no medium - or long- term planning was being carried out. The latest General Manager of EEQ, appointed in April 1976, has brought perspective and experience to the utility, and the company's long-standing problems are now being solved successfully through his overall direction, changes in the organizational structure and in the allocation of functions with particular attention to planning, execution of construction, service to customers and training. However, it is expected that the strengthening of EEQ's organization will take several years. 1/ By about 2/3 with suppliers and commercial credits and about 1/3 with internally generated funds. - 19 - 26. EEQ contracted, following IDA missions' recommendations, the full- time assistance of expatriates in the commercial area. The company and IDA missions have rated this assistance as having been instrumental in EEQ's improve- ments of the last two years. 27. In 1973-75, EEQ's management consultants carried out a diagnostic study and later proposed a reorganization of some of the departments of the utility. The consultants concentrated their services in the financial/administrative area where they conducted some training and developed various manuals. As a result of contractual problems (revision of fees), the training was discontinued and no follow-up was made; implementation of the new procedures contained in the manuals has just recently begun but still without the assistance of consultants. Because of the problems explained in para. 25 above, the company was not able to derive the full benefits from this interrupted consulting work. VI. Project Justification 28. At appraisal time, the project was justified because it was expected to eliminate demand suppression, lower energy losses, and meet demand growth. Even though the project is still economically justified (para. 29) and the expected sales increase was met, the additional energy it produced was not sufficient to satisfy suppressed demand due to lack of timely construction of additional plant (para. 2); and curtailment of energy losses was achieved in 1976, one year later than anticipated. Despite the 26% annual increase in energy sales to industry (para. 23),thiswas particularly affected by the energy capability gap with the consequent damages to the Ecuadorian economy; unfortunately, lack of data pre- vent a quantification of these losses to the economy. These lower than expected achievements cannot be attributed to shortsightedness in project preparation but to the lack of planning at EEQ during 1971-76 (para. 25), which was aggravated by the acceleration of economic growth during that period. Although some im- provements in the utility's financial/administrative systems were achieved, these were short of expectations and delayed (para. 27). Incremental Rate of Return 29. At appraisal an 8% internal rate of return was computed for the 1971-76 time slice of EEQ's expansion program. The rate of return is now estimated at 6 on the 1971-76 program as executed (Annex 9); the computations, however, have some degree of inaccuracy due to the poor quality of existing information; in addition, they include a transmission/distribution program which is larger (by an unknown amount) than the one envisaged during appraisal. Actual cost figures and current expectations for future costs reveal that the Nayon hydro plant is still the least-cost alternative for generating an equivalent energy * output 1/. 1/ The only feasible alternative would have been a steam or diesel thermal plant which would have had a higher (steam) or at least a similar (diesel) initial cost per kW installed (about US$290 for Nayon) but much higher expenses in operating costs and would have yielded, therefore, a much lower internal rate of return. - 20 - VII. IDA Performance 30. IDA invested a large amount of staff time in project preparation and subsequent processing. However, problems which were to develop during project execution (resulting from both physical and institutional factors) led to a need for heavier-than average subsequent manpower expenditure. In spite of the super- vision effort exerted (averaging in excess of two mission per year in 1972-76) and heavy correspondence IDA did not succeed in convincing EEQ to fulfill all its commitments under the credit and improve its management. In view of its performance, IDA decided, in 1975, to take a firmer stand by not approving post- ponements of the closing date of the credit unless results were forthcoming. This decision appears to have been appropriate, as it emphasized the need for strong action to improve EEQ's performance. VIII. Conclusions 31. Despite the supervision effort noted in para. 30, it was not until 1976 that EEQ started to move ahead. The appointment of a capable General Manager in April 1976 has produced a significant improvement in the utility's performance. If there is any lesson that can be learned from this experience it is that super- vision will produce only minimal results if the beneficiary's management is not willing to do its share. Conversely, good management can make even a seemingly hopeless project improve rapidly. 32- EEQ's failure to complete the rural electrification study is unfortunate, as it was expected that the study would provide useful information for further Bank Group lending in this field. 33. The lack of specific data on the transmission and distribution project items prevented a complete comparison between expected and actual works. It seems, therefore, that project monitoring and final evaluation could be improved if the appraisal reports contained more specific data on the principal lines and substations included as project items. Even with this data, however, the need to adjust dis- tribution planning as loads develop makes it difficult to monitor this type of project. Latin America and the Caribbean Regional Office December, 1978 - 21 - ANNEX 1 ECUADOR EMPRESA ELECTRICA "QUITO", S. A. Credit 286-EC List of Contracts Contract Amount Description (US$ '000) Engineering services N.A. Equipment inspection 31 Tariff study 3 Rural electrification - N.A. socio-economic studies N.A. Studies on telecommunication and protection N.A. N.A. Organizational studies 73 Distribution network studies N.A. Diesel #2 station - 1st stage 1,238 " " " - 2nd stage 1,246 Nayon - electromechanical and transmission equipment 8,840 Nayon - civil works 75,232 Distribution equipment 410.0 I "t 198.2 Rural electrification equipment 96.3 " " 24.5 1.8 " " "24.4 " " 42.6 33.7 Subtransmission 28.6 Transformers 74.2 176.5 Poles 193.8 Equipment for Epiclachima, Cumbaya and La Vicentina substations 1,492.7 Transport services 2,233.3 Miscellaneous equipment 231.3 13.7 5.3 August 1978 - 22 - ANNEX 2 ECUADOR EMPRESA ELECTRICA "QUITO", S.A. Credit 286-EC Original and Final Allocation under the Credit Categories (in US$) Original Final Category Amount Amount I -Civil works (a) Nayon plant 900,000 1,012,793 (b) Cumbaya by-pass 400,000 - (c) Equipment, materials and tools 100,000 - II -Diesel Plant Equipment,materials and associated services 2,600,000 2,708,469 III -Transmission and Distribution System 1,450,000 2,764,874 IV - -Consultants' Services (a) Engineering supervision for civil works 170,000 112,366 (b) Consultant services for studies and management assistance 580,000 146,671 V -Unallocated 600,000 - Subtotal 6,800,000 6,745,173 Unused portion 54,827 6,800,000 Increase due to US dollar devaluation 224,700 Total 6,800,000 7,024,000 August 1978 - 23 - ANNEX 3 ECUADOR EMPRESA ELECTRICA "QUITO", S.A. Credit 286-EC Actual and Forecast Cumulative Disbursements (in thousands US$) IDA Actual Actual Disbursement Fiscal Year Total Appraisal as a percentage of and Semester Disbursement Estimate Appraisal Estimate 1972 2nd - 2,200 - 1973 1st 1,257 4,350 29% 2nd 3,040 5,550 55% 1974 1st 3,551 6,250 57% 2nd 3,972 6,660 60% 1975 1st 4,457 6,800 66% 2nd 4,833 71% 1976 1st 5,295 78% 2nd 5,600 82% 1977 1st 6,000 88% 2nd 6,400 94% 1978 1st 7,019 103% 1 Change in total amount due to currency adjustment. April 1978 - 24 - ECUADOR ANNEX 4 EMPRESA ELECTRICA "QUITO". S.A. Credit 286-EC Project Cost 1/ (in thousands of US$) Appraisal Actual Difference Local Foreign Total Local Foreign Total Amount Z Nayon Plant (Including Cumbaya bypass) Civil Works 3,142 2,128 5,290 4,390 1,792 6,182 + 892 + 17 Hydraulical Works 152 1,118 1,270 119 1,240 1,359 + 89 + 7 Electro-Mechanical Works 91 1,086 1,177 217 1,297 1,514 + 337 29 3,385 4,352 7,737 4,726 4,329 9,055 +1,318 + 17 Administration & Engineering 303 203 506 451 96 547 + 41 + 8 Subtotal 3,688 4,555 8,243 5,177 4,425 9,602 +1,359 + 16 Diesel Plant Civil Works 108 - 108 89 18 107 - 1 - 1 Electro-Mechanical Works 58 2,900 2,958 145 2,905 3,050 + 92 + 3 166 2,900 3,066 234 2,923 3,157 + 91 + 3 Administration 24 - 24 10 - 10 - 41 - 58 Suntotal 190 2,900 3,090 244 2,923 3,167 + 77 + 3 Tranmission Lines 137 131 268 66 258 324 + 56 + 21 Switchyards 42 390 432 185 589 774 + 342 + 79 Substations 188 1,080 1,268 681 2,465 3,146 +1,878 +148 367 1,601 1,968 932 3,312 4,244 +2,276 +116 Administration 108 - 108 268 - 268 + 160 +148 Subtotal 475 1,601 2,076 1,200 3,312 4,512 +2,436 +117 Distribution Transformers 126 289 415 40 383 423 + 8 + 2 Conductors 434 801 1,235 171 909 1,080 - 155 - 13 Distribution Equipment 168 1,539 1,707 130 916 1,046 - 661 - 39 Poles 280 193 473 262 118 380 - 93 - 20 Cables 174 247 421 35 330 365 - 56 - 13 Subtransmission and others - - .- 818 1,930 2,748 +2,748 - 1,182 3,069 4,251 1,456 4,586 6,042 +1,791 - M/ Administration 315 - 315 104 - 104 - 211 - 67 Subtotal 1,497 3,069 4,566 1,560 4,586 6,146 +1,580 - 26z/ Studies La Mica (and thermal alternative) 48 150 198 6 112 118 - 80 - 40 Management 67 230 297 9 46 55 - 242 - 81 Tariffs 15 50 65 - 12 12 - 53 - 82 Network load study 11 74 85 - 70 70 - 15 - 18 Village electrification study 30 50 80 - 19 19 - 61 - 76 171 554 725 15 259 274 - 451 - TOTAL 6,021 12,679 18,700 8,196 15,505 23,701 +5,001 + 27 1/ In current prices; appraisal estimates include 8-9% expected price escalation p.a. 2/ Excludes the +2,748 difference in subtransmission and others. ECUADOR EMPRESA ELECTRICA "QUITO" S.A. ACTUAL AND FORECAST INCOME STATEMENTS 1971-1977 (in thousands of sucres) 1971 1972 1973 1974 1975 1976 1?17 Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Electricity sales (millions of kWh) 234 234 257 258 267 288 314 322 3E1 361 422 492 Average revenue per KWh (sucres) 0.585 0.581 0.646 0.667 0.725 0.679 0.727 0.678 0.739 0.675 0.738 0.980 Revenue: From sales 136,900 135,850 165,810 172,009 193,748 195,426 228,316 218,280 266,990 243,794 311,422 482,284 Connection fees, etc. 2,37 7 1 7 1 8 14 9 46' 14 917 IS -4 Total gross operating revenue 149,137 142,936 178,901 179,563 209,968 203,544 244,379 227,037 281,126 253,257 326,339 510,378 Operating expenses: Fuel, energy purchased and other operating expenses 58,079 70,190 72,363 75,420 98,398 85,950 97,148 82,310 101,741 97,530 147,107 273,086 W Administration and general 16,739 17,425 19,317 19,208 26,078 21,062 32,013 23,120 44,694 25,710 48,509 61,063 Depreciation 2,4 21,610 2 2 25,91 9 3 4 39,515 ..A 992 1/76,611 86.589 Total operating expenses 95,363 109,225 116,646 120,909 150,395 141,000 163,040 145,645 186,010 165,232 272,227 420,738 Net operating income 53,774 33,711 62,255 58,654 59,573 62,544 81,339 81,392 95,116 88,015 54,112 89,640 Net other income 2,600 1,989 (738) 806 4,649 870 1,547 941 378 1,018 3,815 7,244 Interest charged to income ) (6)774) ( (11,368 (5,803 (16,020) ) ( 9 (31,986) (18)743 (18,279 Net income 50 027 8,92 4 559 48,092 58,419 70j592 49844 73,795 57 017 39 184 Average net fixed assets in operation (in millions of sucres) /3 413.7 443.4 445.0 541.3 447.6 762.6 659.9 940.2 865.4 956.6 1,229.3 25% of operating and maintenance direct cost /2 25.4 36.8 Rate base 890.8 1,226.1 Rate of return (M) 13.0 7.6 14.0 10.8 13.3 8.2 12.3 8.7 10.7 9.2 4.3 Revalued average net fixed assets in operation (in millions of sucres) 1,345.5 1,498.7 1,655.3 25% of operating and maintenance direct cost /1 25.4 36.8 68.3 Rate base 1 5 Rate of return () 6.9 3.5 5.2 /1 Of which S/27,406 thousand due to asset revaluation. /2 According to Decree No. 684 of August 7, 1975. /3 Net fixed assets include distribution networks provided by urban developers and owned and operated by EEQ. ECUADOR EMPRESA ELECTRICA "QUITO" S.A. ACTUAL AND FORECAST SOURCES AND APPLICATIONS OF FUNDS 1971- 1977 a (in thousands of sucres) 1971 1972 19'3 1974 1975 1976 1977 Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual SOURCES Internal cash generation: Net operating income 68,172 33,711 62,255 58,654 59,573 62,544 81,339 81,392 95,116 88,025 54,112 86,640 Depreciation 20,645 21,610 24,966 26,281 25,919 33,988 33,879 40,215 39,575 41,992 76,611 86.589 Other income - net 2,60 128 738 806 4 870 941 378 1,018 3,815 7,244 Total Cash Generation 87,572 57,310 87,959 85,741 90,141 97,402 116,765 122,548 135,069 131,035 134,538 183,473 Borrowings: IDA Credit 286-EC - - - 113,959 89,124 58,558 22,126 27,483 - - 9,985 - Suppliers' credits - 91,084 121,587 69,216 53,785 - - - 21,414 - - CFN loan - 19,500 19,500 26,000 19,500 19,500 16,250 - - - - Other loans oig- - - 3 9,5 5 - - Total Borrowings - 110,584 141,087 20-9,1-75 162,409 83,239 38,376 62,055 31,164 51,586z 9,985 118,147 Equity contributions: Industrialists and others 2,705 3,165 1,160 4,248 - 5,322 - 6,170 13,091 7,140 (11,026)- - Municipality 8,250 8,044 20,000 21,500 10,748 9,500 4,500 9,500 1,781 1,500 1,322 - INECEL - - 7,040 8,268 - - 13,920 - 45,000 - 44,737 - Capitalized dividends and other credits 3/ - - - - - - - - - - - Total Equity Contributions 10,955 11,209 116,532 34,016 10,748 14,822 18,420 15,670 59,872 8,640 35,033 31,418 Sale of assets - 1,129 - 500 2,932 500 771 520 2,383 250 15,903 33,956 Consumer deposits contributions and others 1 2 6 3 094 1 1 89 10,380 98 4 17.052 39,986 Total Source of Funds 1132335 182 945 352,474 332,526 278j368 207j049 193,740 211,153 238,368 196,094 212,511 406.980 APPLICATIONS Construction expenditure (excluding interest during construction) 50,224 115,647 251,766 274,252 174,955 117,634 133,605 110,599 223,975 131,539 83,556 244,482 Debt service: Amortization 19,711 22,566 27,988 39,816 18,493 34,526 38,010 39,867 40,004 46,929 37,114 36,548 Interest 6 8,681 6 2 5 3 1 3 2 3 1 Total debt service 26,058 31,247 34,946 61,686 24,296 66,733 50,304 75,357 61,703 83,501 55,857 54,827 Participation to CNFE - - - - 2,052 - 2,186 - 2,919 - 1,132 2,591 Employees' participation 7,504 4,339 8,184 7,214 8,763 7,109 10,589 7,477 11,069 8,559 5,878 11,791 Dividends 29,015 289 - 481 316 474 584 498 - 571 738 392 Increase (decrease) in working capital and others 534 3,2 57,578 (1,17) 6 099 (3,528) 17)222 (61,298 (28,076) 65,35 92.897 Total Applications of Funds 113,335 182,945 352&474 332 526 278,368 207j049 193,740 11&153 238,368 196 94 212,511 W6.980 _ -~ .&._ _6 _-~* ~ / Source for actual figures: 1971: Completion Report of 3/8/77 prepared by EEQ; 1972-77: audited financial statements. 12 Correction to prior years. / Includes the S/29,015,000 dividends declared in 1971. 27 - ANNEX 6 Page 2 of 2 III. Revised Estimate For consistency and comparability, we employed the same procedures and same conversion factors for both the appraisal estimates and the actual data. We assumed that no further project cost was to be incurred after 1977 and incremental net cash flow from operations was constant after 1978 where we assumed that tariff rates would be adjusted to compensate for price escala- tions. We obtained the following tables: Incremental Net Cash Year Ending Project Cost Flow from Operations July 7 Estimate Converted Estimate Converted 1972 20 31 0 0 1973 685 1,c6 507 7.4 1974 11,080 15,335 1,089 1,507 1975 2,745 3.615 1,744 2,297 1976 710 862 2,105 2,555 1977 260 292 2,558 2,875 1978 0 0 3,093 3,093 (Values in 1978-2011 are zeros.) (Values after 1978 remain constant up to 2011.) Internal financial return is about 16% over 40 years. IV. Actual Incremental Net Cash Year Ending Project Cost Flow from Operations July 7 Actual Converted Actual Converted 1972 180 276 0 0 1973 536 787 997 1,66 1974 750 1,038 1,002 1,387 1975 8,582 11,302 -71 -94 1976 7,293 8,854 479 582 1977 6,063 6,815 1,380 1,551 1978 0 0 2,507 2,507 (Values in 1978-2011 are (Values after 1978 remain zeros.) constant up to 2011.) 7. Internal financial rate of return is approximately 9% over 40 years. ECUADOR EMPRESA ELECTRICA "QUITO" S.A. ACTAL AND FORECAST BALANCE SHEETS 1971-1977 (Ln thousand. of ~ucres) Year ending Deceber 31 1971 1972 1973 1974 1975 1976 1977 Actual AppraIal Actual Appraisal Actual AppraI.al Artual AppraIsal Ac l Appraisal Act..3 ASSETS F .ed asetstin operation 617,930 660,056 682,150 794,895 726,198 1,144,457 L 1,099,879 1,204,818 1,207,283 1,243,031 2,230,287 2,359,825 Le: depreciation 196 043 188 843 • 219 478 212 702 240 643 254 U22 273,838 290,698 312 675 328,858 683 793 755,489 Net fixed -sset. in operation 52, 14,120 ~~ !*i 914,73 1,546,494 1,604,336 Work in progres 2 tudies, etc. 40,002 39,010 225,209 235,805 350.665 69,221 109,262 112,426 211,993 206,638 84.106 137,266 General and other fixed assett 5,783 26,679 6,993 29,299 8,166 50,619 9,317 53,793 11,167 57,243 22,605 37,559 Le-: dere~ctation 3,465 18,589 3.867 21,011 4.343 28.055 4,851 31.594 5.489 35,426 10.933 12993 Total fixed as-et. 464,207 568,313 691,007 826,286 840.043 - 982,220 939,769 1,048,745 1,112,279 1,142,628 1,642,271 1,766,108 Currentar,d other as~et. 123 948 98,690 156,404 87,583 194,176 102,682 179 220 119904 146.729 91,828 234.978 347.03i Total asset58,155 667,003 847,411 913,869 13429 1,084,902 1,168,649 1~Y59W€ 1,234,456 1,877.249 2.113,246 LIABILITIES Equity: capital 221,000 343,165 427,040 377,181 437,788 392,003 437,788 407,673 437,788 416,313 437,788 768,452 rere77 29,066 56.234 69,463 9931 173 435 144 864 215,304 197.151 263 231 760281 -M,36 117.716it 29,06 _____ 924 _ __ _____ Total equit7 338,716 372,231 483,274 446,644 079 643 82,3 6227,977 634,939 679,544 1,198,069 1,40,490 Long-ter. debt: 18RD Other 7tal loog-term debt (not of crrent maturitie.) 100,139 189,784 206,811 364,435 3.9,581 407,805 3,7 422,931 320,885 434,731 301.237 392,155 Current and other liabilitiea Current portion of 10ng-term ebt 17,751 39,816 24,178 34,526 35,25 39,867 39,474 46,929 45,546 39,786 37,808 31.532 Other current liabilit,e 131.549 65,172 133 146 68,266 128 594 71,79 161066 75,812 257,638 80,395 340.135 288,669 Total current od other liabilitie. 149 300 104 988 157626 102792 163 919 111.659 2 122,741 930, 120,181 3793 320.201 Total liabilitie. 41 _1 u1 Dr!n 1973, 0/69,800,000 added on account of revaluation. 2 A.et. er revalued by S /844,169 thoouand and acunmlated depreiaton by S/305,220 tho.and; the nt rev,luation, S/538,949 thouoand, was recorded tn an~aet realuation re-erve. - 25 - ANNEX 8 Page 1 of 2 pages ECUADOR Empresa Electrica "Quito", S.A. Credit 286-EC Major Covenants Credit Agreement (1) Section 4.01. The Borrower shall take all steps necessary on its part to enable the Company to maintain such rates for the sale of electric power as shall be required for the Company to comply with the provisions of Section 4.05(a) of the Project Agreement (adequate rates to be set and maintained). Except as the Association shall otherwise agree, the Borrower shall not before June 30, 1974, cause the Company to reduce such rates for the sales of electric power as were in effect on January 1, 1972 (see para. 22). (2) Section 7.02. Decreto Supremo No. 86 (requiring that industry is to contribute to EEQ to the amount of 10% of its respective monthly bills) shall not be amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect the ability of the Company to carry out the covenants, agreements and obliga- tions set forth in the Project Agreement and the Subsidiary Loan Agreement. Project Agreement (3) Section 2.02(b). The Company shall consult with the Association on the specific actbns that the Company intends to take to implement the recommendations of the Company's Management Consultants ( see paras. 26-28 ). (4) Section 2.09. The Company shall carry out a study for determining and comparing the costs and the benefits of the Company's village electrification programs, under such terms of reference and in as many phases as shall be agreed between the Association and the Company not later than July 1, 1972 (see para. 14). (5) Section 3.01(c). The Company shall: (i) appoint in consultation with the Association not later than six months after the date of the Project Agreement, a qualified and experienced Financial Director; and (ii) consult with the Association on any appointment to the posts of General Manager, Technical Director and Financial Director of the Company to be made after the date of this Project Agreement. (6) Section 3.03. The Company shall: (a) submit to its shareholders a proposal to (i) delete the Sixth Clause of the Escritura; and (ii) amend the Estatutos in accordance with the principles set forth in Schedule 2 to the Project Agreement; and thereafter (b) not take or concur in any action which would have the effect of abrogating, terminating, amending or waiving the Estatutos or any provision thereof, except as the Association shall otherwise agree. - 30 - ANNEX 8 Page 2 of 2 pages (7) Section 4.03(a). Except as the Association and the Company shall otherwise agree, the Company shall not incur any debt, other than debt required to finance the carrying out of the project, unless the Company's net revenue from its operation for the fiscal year next preceding such incurrence or for a later twelve-month period ended prior to such incurrence, whichever revenue is the greater, shall be at least 1.5 times the maximum debt service requirement for any succeeding fiscal year on all debt incurred by the Company, including the debt to be incurred (see para. 21). (8) Section 4.05. Required the Company to cause its electricity rates to be set and maintained at such levels so as to produce a return of not less than 8% on the Company's average revalued net fixed assets in operation (see para. 22). Without limiting the generality of the foregoing, the Company shall not, before June 30, 1974, reduce such rates for the sale of electric power as were in effect on January 1, 1972. (9) Section 4.07. Required the Company, not later than December 31, 1973, to revalue its assets to such extent as shall be satisfactory to the Borrower, the Association and the Company (see para. 22). (10) Section 4.08. Required the Company, in respect of any fiscal year, to seek the Association's agreement before declaring or paying any dividend, or making any distribution on any shares of its capital stock, other than a dividend payable solely in shares of its capital stock, and before acquiring any shares of its capital stock for price, in excess of 1% of the Company's net revenue during such fiscal year. "Net revenue" was defined as gross revenue from the Company's operations less all operating expenses, including provisions for taxes, if any, and interest payments on the Company's debt but before provision for employees' bonus, legal reserves and dividends. During the period 1971-77 EEQ paid only negligible dividends and did not buy any of its shares. - 31 - ANNEX 9 ECUADOR EMPRESA ELECTRICA "QUITO", S.A. CREDIT 286-EC Incremental Financial Rate of Return I. Cost and Revenue Streams Capital Salaries Fuel Other Costs Total Costs Revenues Year Actual Appr. Actual Appr. Actual Appr. Actual Appr. Actual Appr. Actual Appr- -------------- ---------------------------------------in millions of Sucres---------------------------- 1971 50.2 216.8 1.3 1.3 0.2 9.0 9.0 7.3 60.7 234.4 15.7 23.7 1972 251.8 221.9 3.0 3.1 7.6 9.2 2.2 7.4 264.6 241.6 33.2 24.5 1973 175.0 88.7 7.6 7.5 18.8 12.4 6.7 10.8 208.1 119.4 46.5 44.7 1974 133.6 99.4 11.5 9.8 14.4 5.5 8.2 15.7 167.7 130.4 82.5 73.4 1975 224.0 136.3 15.6 12.0 6.6 10.9 17.3 19.3 263.5 170.5 116.1 94.3 1976 84.0 50.0 21.8 15.6 33.6 12.6 18.1 25.4 157.5 103.6 163.9 129.9 1977 25.6 16.7 7.6 7.6 18.6 26.1 51.8 50.4 66.2 157.0 1978 29.3 17.9 19.2 26.9 48.5 44.8 184.2 143.0 1979 30.2 18.4 19.8 27.7 50.0 46.1 184.2 143.0 1980 31.1 19.0 20.4 28.5 51.5 47.5 184.2 143.0 1981 32.0 19.6 21.0 29.4 53.0 49.0 184.2 143.0 1982 33.0 20.2 21.6 30.3 54.6 50.5 184.2 143.0 1983 34.0 20.8 22.2 31.2 56.2 52.0 184.2 143.0 1984 35.0 21.4 22.9 32.1 57.9 53.5 184.2 143.0 1985 36.1 22.0 23.6 33.1 59.7 55.0 184.2 143.0 1986 37.2 22.7 24.3 34.1 61.5 56.8 184.2 143.0 1987 38.3 23.3 25.0 35.1 63.3 58.4 184.2 143.0 1988 39.4 24.0 25.8 36.1 65.2 60.1 184.2 143.0 1989 40.6 24.8 26.6 37.2 67.2 62.0 184.2 143.0 1990 41.8 25.5 27.4 38.3 69.2 63.8 184.2 143.0 1991 43.1 26.3 28.2 39.5 71.3 65.8 184.2 143.0 1992 44.4 27.1 29.0 40.7 73.4 67.8 184,2 143.0 1993 45.7 27.9 29.9 41.9 75.6 69.8 184.2 143.0 1994 47.1 28.7 30.8 43.1 77.9 71.8 184.2 143.0 1995 48.5 29.6 31.7 44.4 80.2 74.0 184.2 143.0 II. Estimated Internal Rates of Return Actual 6% Appraisal 82 III. Assumptions 1. Capital Costs: computed for the 1971-76 time slice of the entire expansion program. 2. Salaries: estimated at appraisal to grow at the following rates: 1971 - 10% 1972 - 10% 1973 - 8% 1974 - 6% 1975 - 4% 1976 and thereafter - 3% Actual salaries were estimated by increasing the salaries considered in the appraisal report for 1970 by the 1971-77 actual percent salary increases, as follows: 1971 - 5% 1972 - 8% 1973 - 13% 1974 - 23% 1975 - 15% 1976 - 11% 1977 - 13% and estimating a 10% increase from 1978 on. The actual number of staff was assumed to grow a-3% p.a. 3. Fuel Cost: was estimated at appraisal by the formula: s/242,000/GWh x 0.9 x 0.838 + 24,000 - S/210,000/GWh x GWh generated each year. Actual figures were taken from the financial statements. 4. Other Costs: were estimated at appraisal by regression; actual figures were taken from the financial statements as the difference between total expenses and the above estimated expenses. Both appraisal and completion report estimatedan 8% growth rate p.a. from 1978 on. 5. Revenues: were estimated at appraisal by multiplying kWh incremental sales by the forecast average annual revenue per kWh. Incremental sales attributable to the program were calculated on the basis of the energy generated by the additional plant, and applying forecast losses. Actual incremental revenues were estimated by multiplying the actual kWh incremental sales by the actual Pverage anual revenue per kWh. Incremental sales attributable to the program were calculated on the basis of the energy generated by the additional plant, considering the actual percent losses. November 1978  0.. CC c Oo Z1