Peru - Sixth Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3339-PE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO ELECTROLIMA, S. A. WITH THE GUARANTEE OF THE REPUBLIC OF PERU FOR A SIXTH POWER PROJECT May 24, 1982 This document has a restricted distribution and may be used by recipients only in the perfrmnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS The exchange rate is being adjusted daily roughly in line with the differential between domestic and international inflation. The exchange rate and currency equivalents in 1981 and as of May 1, 1982 were as follows: Currency Unit = Sol (S/.) Calendar 1981 May 1, 1982 US$1 S/. 426.60 S/. 609.20 S/. 1 US$0.0023 US$0.0016 S/. 1,000 US$2.34 US$1.64 FISCAL YEAR January 1 to December 31 ABBREVIATIONS bpd - Barrels per Day COFIDE - Corporacion Financiera de Desarrollo (State Development Finance Bank) DGE - Direccion General de Electricidad (General Directorate of Electricity) ERP - Economic Recovery Program ELECTROLIMA - Electrolima, S.A. (Lima Power Company) ELECTROPERU - Empresa Electricidad del Peru, S.A. (National Power Company) GW - Gigawatt (1,000 MW) HIDRANDINA - Energia Hidroelectrica Andina, S.A. (Andean Hydroelectric Energy Company) IDB - Inter-American Development Bank MEM - Ministry of Energy and Mines MW - Megawatt (1,000 kW) PETROPERU - Petroleos del Peru, S.A. (National Petroleum Company) UNDP - United Nations Development Programme USAID - United States Agency for International Development  FOR OFFICIAL USE ONLY REPUBLIC OF PERU SIXTH POWER PROJECT LOAN AND PROJECT SUMMARY Borrower: Electrolima, S.A. (ELECTROLIMA) Guarantor: Republic of Peru Beneficiaries: Empresa Electricidad del Peru, S.A. (ELECTROPERU) and Energia Hidroelectrica Andina, S.A. (HIDRANDINA) Relending Terms: ELECTROLIMA would onlend part of the proceeds of the loan to ELECTROPERU (US$12.3 million) and HIDRANDINA (US$3.6 million) on the same terms and conditions as those of the proposed loan. Amount: US$81.2 million equivalent, including a capitalized front-end fee. Terms: Repayable in 17 years, including 4 years of grace, with 11.6 percent interest per annum and a front-end fee of 1.5 percent. Project Description: The proposed project is designed to (i) strengthen the major institutions in the power sector by supporting management and financial reforms; (ii) assist in the financing of investment needed to expand production and distribution of electricity; and (iii) support the carrying out of priority engineering studies. The project would be executed by three institutions: ELECTROLIMA, ELECTROPERU and HIDRANDINA. ELECTROLIMA would be responsible for the largest component of the project comprising the 1982-1986 expansion plan for its distribution system, construction of the Yuracmayo dam (which would increase hydropower production), three engineering studies and a training program. ELECTROPERU would carry out engineering related to the preparation of the Mantaro transfer project (designed to provide both power and water for Lima), would receive technical assistance in financial management and would carry out a training program. The HIDRANDINA component would consist of engineering related to preparation of the high-priority Mayush hydroelectric project. Project Risks: The project faces no special physical risks except that the Yuracmayo dam would be located in a seismic region. In order to protect against the risk of the dam failing due to an earthquake, the engineering design would be executed in accordance with a special seismological analysis. 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.  - ii - Estimated Costs: The estimated cost of the project, including taxes and duties which would amount to about US$25 million or 10 percent of the total, is as follows: Local Foreign Total -----US$ millions------ A. ELECTROLIMA 1982-1986 Distribution Program 89.3 40.0 129.3 Yuracmayo Dam Construction 16.1 7.4 23.5 Engineering 2.5 4.1 6.6 Training Program 2.1 3.6 5.7 110.0 55.1 165.1 B. ELECTROPERU Mantaro Transfer Project Engineering 4.4 5.0 9.4 Technical Assistance and Training Program 3.0 4.0 7.0 7.4 9.0 16.4 C. HIDRANDINA Mayush Hydroelectric Project Engineering 1.0 2.5 3.5 Baseline Costs 118.4 66.6 185.0 D. Physical Contingencies 13.3 7.9 21.2 E. Price Contingencies 32.2 16.9 49.1 Total Costs 163.9 91.4 255.3 F. Front-end Fee on Bank Loan - 1.2 1.2 Total Financing Required 163.9 92.6 256.5 Financing Plan: Local Foreign Total ------US$ millions------- Bank - 81.2 81.2 Cofinancing (Supplier Credits) - 11.4 11.4 ELECTROLIMA, ELECTROPERU and HIDRANDINA 163.9 - 163.9 163.9 92.6 256.5  - iii - Estimated Disbursements: 1983 1984 1985 1986 1987 1988 (US$ millions by Bank FY) Annual 7.2 12.4 17.7 18.2 13.9 11.8 Cumulative 7.2 19.6 37.3 55.5 69.4 81.2 Rate of Return: About 17 percent Staff Appraisal Report: Staff Appraisal Report No. 3743b-PE, dated May 18, 1982.  a  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO ELECTROLIMA WITH THE GUARANTEE OF THE REPUBLIC OF PERU FOR A SIXTH POWER PROJECT 1. I submit the following report and recommendation on a proposed loan to ELECTROLIMA with the guarantee of the Republic of Peru for the equivalent of US$81.2 million to help finance a sixth power project. The proposed loan has a term of 17 years, including 4 years of grace, with interest at 11.6 percent per annum. US$15.9 million of the proceeds of the loan would be relent by ELECTROLIMA on the same terms and conditions as the Bank loan to the two other utility companies which would execute parts of the project. PART I - THE ECONOMY 1/ 2. An economic report entitled "Peru-Major Development Policy Issues and Recommendations" (Report No. 3438-PE) was distributed to the Executive Directors on May 4, 1981. This part is based on the report's findings and on those of economic missions to Peru in June and September 1981. Country data sheets are attached as Annex I. Natural and Human Resources 3. Peru, the fourth largest country in Latin America, is divided by the Andes mountains into three distinct regions: the coastal region (Costa), with 46 percent of the population and most of the country's modern economic activity; the mountain region (Sierra) with 44 percent of the country's population; and the sparsely populated tropical rain forests east of the Andes (Selva). The country's rugged topography limits trade between the three regions. 4. Peru's natural resources include large deposits of minerals-- particularly copper, iron, silver, and zinc--located mainly in the Sierra and the southern Costa. There are also large phosphate deposits, located in the northern Costa. Petroleum resources found in the jungle areas and offshore are also substantial, but their full extent has not yet been ascertained. Another major natural resource is the large fishing potential in coastal waters, although the magnitude of the catch is subject to sharp fluctua- tions. Only a small portion of Peru's total land area is arable, and most of the soils suitable for intensive agriculture are already being farmed. 5. Although Peru's energy resource base is relatively diverse, with scope for expanding hydro and coal based power generation, petroleum is expected to remain the major energy source in Peru through the rest of this century. Peru's domestic oil production more than doubled between 1977 and 1981 to over 190,000 barrels per day (bpd), and it became a net exporter of about 60,000 bpd. To enable Peru to remain a net petroleum exporter, the Government has embarked on a strategy of accelerated secondary recovery and exploration efforts to increase production and of rational 1/ This part is substantially unchanged from Part I of the Agricultural Research and Extension Project President's Report of April 28, 1982 (Report No. 3292-PE).  - 2 - pricing policies to contain demand growth. Prices for domestically consumed petroleum products have been increased at regular intervals. In addition, new legislation was enacted offering special tax incentives to domestic and foreign investors, and the response has been positive. The Government strategy is already bearing fruit with petroleum output expected to increase in 1982 to an average level of 207,000 bpd. 6. As a result of three decades of rapidly falling mortality rates, Peru's population growth accelerated during the 1930-1960 period. Since the early 1960s, birth rates have fallen gradually, mainly caused by the urbanization process and improved education. But with declining death rates, population has continued to grow at about 2.7 percent p.a. and is currently estimated at about 17 million. The country's urban population is increasing at 4.3 percent p.a. and about a quarter of all Peruvians live in the Lima area. Given the structure of Peru's population, the labor force is expected to grow in excess of three percent per year during the next 20 years. Over the same time frame, it is expected that overall population growth will fall only slightly, to about 2.4 percent p.a., unless an effective population control policy is adopted. The Government is conscious of the need to slow down Peru's demographic growth rate and is now developing a primary health care program which would contain a family planning component. Past Development Policies and Performance (1968-78) 7. Two successive military Governments, in office from October 1968 until July 1980, followed a development strategy aimed at promoting economic growth and improving distribution of income and wealth, not only between individuals but also between regions. The pattern of asset ownership in the economy changed drastically through nationalization and a sweeping land reform. The Government took direct control of key economic sectors and imposed complex legislation to control the private sector. Many of the policies carried out after 1968 had an excessive cost, and their implementa- tion was inefficient. 8. Between 1968 and 1977, Peru's Governments followed expansionary fiscal and credit policies. As a result, aggregate demand considerably exceeded aggregate supply resulting in strong inflationary pressures and widening external gaps. Inflation accelerated from five percent per year in 1970 to 38 percent in 1977. Interest rates, however, remained substantially negative in real terms, discouraging financial savings and stimulating capital flight. Moreover, the exchange rate remained practically constant between 1968 and 1975, thus contributing to the overall disequilibrium. 9. The growing disequilibrium was reflected in the balance of pay- ments. The current account deficit averaged US$1.1 billion per year in 1974-77, equivalent to nearly nine percent of GNP. To finance this deficit, Peru accumulated a massive external debt, which at year-end 1977 stood at almost US$8.4 billion (including short-term indebtedness), equivalent to two-thirds of GDP and almost four times annual exports of goods and non-factor services. 10. Following the 1968-74 period of rapid expansion, during which GDP grew by more than six percent per year, the growth rate dropped progressively and became negative in 1977 and 1978. In this two-year period, GDP per capita dropped by over six percent, and unemployment and underemployment rose to almost 60 percent of the labor force, up from less than 50 percent during the early 1970s.  Stabilization Policies and the Economic Recovery Program (1978-80) 11. Between 1975 and 1977, several unsuccessful attempts were made to cope with Peru's deteriorating economic situation. By mid-1978 the economic crisis had reached grave proportions, with a drop in real GDP and inflation approaching 100 percent on an annual basis. Moreover, the private sector was finding it increasingly difficult to open letters of credit for new imports, and the banking system's net international reserves had dropped to a negative level of US$800 million. 12. Beginning in May 1978, the Government adopted a number of important measures aimed at strengthening public finances, improving the balance of payments and curbing inflation. The Government also negotiated a stand-by arrangement with the IMF in support of the stabilization program. Peru's debt outstanding to the IMF as of December 31, 1981 amounted to SDR 578.9 million. 13. Major debt-relief operations carried out through the Paris Club and with the Soviet Union and commercial banks in 1978 enabled Peru to reduce the debt service burden for 1979 and 1980 by postponing repayment of about US$1 billion to the 1982-1986 period. In view of the strong balance of payments performance in 1979 and 1980 (para. 15), the Government decided to forego parts of the rescheduling options in exchange for slightly better conditions for new loans from commercial sources. 14. To overcome the economic recession, in the second half of 1978 the Government adopted a comprehensive Economic Recovery Program (ERP), which, in addition to the above-mentioned stablization actions, included measures to open up the economy, promote non-traditional exports, strengthen the tax system by broadening its base, and generally improve the efficiency of resource allocation in the private and public sectors. These policy changes-- together with a declining domestic market because of the recession-- resulted in a major reorientation of industrial development, with a large increase in the value of manufactured exports which rose from about US$200 million in 1977 to the US$750-800 million range in 1980-81 (equivalent to about eight percent of industrial output). The Government also drew up a public sector investment program that aimed at redirecting investment towards projects of clear economic priority and with positive effects on production and employment. In support of the ERP, the Bank approved a US$115 million Program Loan in May 1979. 15. The Government's stabilization-cum-economic recovery program resulted in a strong improvement in public sector finances in 1979. Public sector current account savings rose from -0.5 percent of GDP in 1978 to about 3.7 percent of GDP in 1979, and the overall deficit was reduced from 5.7 percent of GDP in 1978 to 1.7 percent in 1979. In spite of Peru's improved fiscal performance, inflationary pressures remained strong with a consumer price increase of 67 percent in 1979. The more careful management of public finances also had a positive impact on the balance of payments. Moreover, an increase in petroleum exports and a substantial improvement of Peru's terms of trade contributed to high overall surpluses of the balance of payments in 1979 and 1980. At year-end 1980, the country's net reserve position had improved to about US$1.3 billion, equivalent to about four months of imports. Peru also made greater use of assistance from official bilateral and international sources, thus improving the structure of its  - 4- external debt. Real GDP growth rebounded to 3.7 percent in 1979; in 1980, however, external debt. Real GDP growth rebounded to 3.7 percent in 1979; in 1980, growth dropped to 3.1 percent owing, in part, to a drought which affected the agricultural sector. Moreover, because of a relaxation in fiscal discipline, the public sector deficit increased in 1980 to six percent of GDP, helping keep inflation for the year at a high level--59 percent. Recent Developments and Outlook 16. In July 1979, the military Government promulgated a new constitu- tion, written by a popularly elected constituent assembly. Elections were held in May 1980 and, following his electoral victory, President Fernando Belaunde was inaugurated on July 28, 1980. His Government faced a challeng- ing economic and social situation with a number of acute problems which had been disguised by the apparently solid financial situation. These included: high levels of under- and unemployment, particularly in urban areas; higher underlying inflation than had been reported because of price controls and deferred price adjustments for public goods and services; a public sector deficit that had been reduced by freezing expenditures for economic and social services (including education, health and housing); a balance of pay- ments with a substantial surplus, which, however, was partly due to unusually high commodity prices and to the fact that import levels were depressed and manufacturing exports high owing to the recession; and, finally, deteriorated income distribution over the past several years resulting in increased social unrest. 17. The Government includes an economic team committed to economic efficiency, decontrol of the economy (including divestiture of some of the State-owned enterprises), promotion of the private sector (including foreign investment), and policies aiming at a more equitable sharing of the benefits of development through job creation and specifically targeted social programs. Its reliance on, and promotion of, private initiative, particu- larly distinguish the present Government's philosophy and economic program from that of its immediate predecessors. 18. The Government has made important headway in a number of areas. It was successful in accelerating import liberalization by eliminating non- tariff barriers and lowering tariffs. At the same time, export incentives were streamlined and revised to eliminate abuse and make the system more responsive to exports of products with high manufactured content. The Government also enacted new legislation for the agricultural, mining and petroleum sectors offering greater financial incentives to investors. Finally, it made significant institutional changes in the financial sector, revised the interest rate structure through substantial upward adjustments, and is preparing a new banking law which would allow further rationalization and liberalization of the financial system. 19. In an effort to improve resource use, the Government made progress in correcting major price distortions. Food subsidies were greatly reduced and most controlled agricultural prices were adjusted to international levels. The marketing of agricultural products was liberalized, and public utility and petroleum prices were adjusted at regular intervals. Moreover, the Government endeavored to rationalize public investment and its financing -- an effort that was supported by a Bank-sponsored Consultative Group meeting in May 1981.  20. The above efforts were complemented by measures to strengthen public sector institutions. Companies in the important public enterprise sector, for example, were transformed into more autonomous State-owned limited liability corporations operating under private law. This measure gives these companies, inter alia, greater freedom in fixing staff compensation and, thus, helps them to recruit and retain capable personnel. Many of the above measures have already had positive short-term effects, and they have laid the ground for medium-term structural adjustments of the Peruvian economy. 21. In spite of the above-mentioned policy initiatives, economic performance inl981 lagged behind expectations. GDP grew only at about four percent, and employment generation was also sluggish. The balance of payments deteriorated substantially as a result of declining export prices, high interest rates on the country's debt with commercial banks, and a rapid expansion of imports. The loss in net reserves amounted to about US$700 million, equivalent to about three percent of GDP. A major factor in the deterioration of the balance of payments was the large public sector deficit, which reached about eight percent of GDP. On the positive side, some progress was achieved in reducing inflation: while inflation on a December 1980-December 1981 basis reached 73 percent, during May-December 1981 it decelerated to an annual rate of about 50 percent, mostly because of the openness of the economy, the price dampening effects of an increase in imports, and--to some extent--to a deceleration of the mini-devaluations. The Government is aware that this level is still too high, however, and is following actions which it expects will result in a further drop in inflation in 1982. 22. Reducing the public sector deficit has, once again, become the major challenge facing Peru's economic managers. While the deteriorated export situation has had a negative impact on tax revenues, the deficit is mostly the result of steep increases in expenditures and somewhat lagging adjustments of petroleum and rice prices. Excess expenditures over initial budget allocations were incurred mostly for investment projects of lesser priority. To tackle the difficult public finance situation, the Government is drawing up a restrictive financial program for 1982 with tight credit ceilings and limits to foreign indebtedness. It is also expected that the Government will trim the public investment program in line with its investment priorities. The Bank has an ongoing and frank dialogue with the Peruvian Government on these issues. Moreover, it is expected that the IMF will consider a sizeable EFF in the near future to support Peru's stabilization efforts. 23. Based on cautiously optimistic assumptions with regard to economic management, through the medium term the country is expected to have economic growth of about 4-5 percent per year and a manageable balance of payments situation. Peru's balance of payments could, however, become precarious if the exportable surplus of oil declines. While measures are being undertaken to speed up petroleum exploration and to increase manufactured exports, the results of these endeavors may not come in time to countervail the potential foreign exchange shortfalls. Against this background, there is a continuing need for official development assistance. Taking the above factors into account, considering an expected debt service ratio hovering around the 35 percent mark and assuming that the authorities continue the initiated course of economic policies, Peru is creditworthy for Bank lending.  PART II - BANK GROUP OPERATIONS IN PERU 24. The Bank has approved 48 loans to Peru for a total amount of US$1,139.9 million, net of cancellations. About 33 percent of the Bank's lending to Peru has been for transportation (mainly highways and ports), 20 percent for agriculture, 14 percent for the energy sector, 15 percent for mining and industry, about 8 percent for education and urban development (including water supply) and 10 percent for a program loan in support of the ERP in 1979. 25. Annex II contains a summary statement of Bank loans and their disbursement status as of March 31, 1982 and notes on the execution of ongoing projects. As of this date, US$440 million was undisbursed. Disbursements on Bank-financed projects moved slowly in the late 1970s, primarily because of weak project execution capacity and a shortage of counterpart funds that worsened as the economy deteriorated during this period. Disbursements have improved, however, with vigorous efforts by the Bank and Government to correct the situation by, inter alia, (i) opening a Bank resident mission in Peru; (ii) restructuring a number of slow moving projects; (iii) Government provision of adequate counterpart funds; and (iv) Government creation of a special commission to monitor loan execution and resolve administrative problems. These actions are bearing fruit. About US$44 million was disbursed on project loans in FY80 and US$70.5 million during FY81. This compares with average yearly disbursements of US$27.5 million during FY77-79. 26. The main objectives of Bank lending to Peru are to assist in (i) the creation of the physical infrastructure needed to sustain and foster economic development; (ii) the expansion of productive capacity in crucial sectors, i.e., petroleum, agriculture and mining; (iii) the strenghening, through technical assistance loans and regular operations, of local capacity to prepare, implement and operate projects effectively; and (iv) the improve- ment of living conditions for the urban and rural poor. In the past, Bank lending concentrated on infrastructure in the transportation and power sectors. More recently, the Bank's emphasis has shifted to more directly productive fields--mining, petroleum, agriculture and industry--to help Peru to strengthen its balance of payments. Lending for social projects has also grown and will be further stepped up in the future. As part of its assis- tance strategy, the Bank convened a Consultative Group Meeting for Peru on May 25-26, 1981 to help the Government arrange financing for its public investment program. The next operations that would be ready for the Executive Directors' consideration include projects in petroleum production and rural development. These would be followed by projects in health and education. The Bank is also considering a loan to help strengthen public sector management. 27. Bank loans constituted an estimated 5.8 percent of Peru's total public external debt outstanding and disbursed at the end of 1980, and absorbed about 2.6 percent of the country's public external debt service in 1980. Assuming increased recourse to long-term bilateral and multilateral aid by Peru, the Bank's share in the country's outstanding public foreign debt by 1985 could reach about 10 percent, and its share of debt-service would be around 4.5 percent.  28. IFC commitments as of March 31, 1982 were US$37.3 million (including US$15 million to the Southern Peru Copper Corporation for the Cuajone Copper Mining Project) of which US$18.9 million is held by the Corporation. A summary statement of IFC investments as of March 31, 1982 is presented in Annex II. In addition, a palm oil project was recently approved, and a venture capital company is now being considered. 29. The other principal lending agencies active in Peru are the Inter-American Development Bank (IDB) and the United States Agency for International Development (USAID). Their total commitments as of December 31, 1981 were US$849 million and US$348.8 million, respectively, and their shares of public debt service as of end-1980 were estimated at 0.6 percent and 0.5 percent, respectively. In its future lending, IDB is expected to emphasize lending for agriculture, industry, mining, roads, and small scale irrigation. USAID is expected to stress rural development and health. PART III - THE ENERGY SECTOR The Energy Resource Base and Balance 30. Peru has relatively large, diverse energy resources consisting of hydroelectric power, oil, coal, natural gas, some geothermal power and renew- able resources such as firewood and bagasse. Known (proved and probable) oil reserves total about 800 million barrels while estimates of undiscovered reserves range from two to twenty billion barrels. Some coal deposits suit- able for thermal power generation or for metallurgical coke have been iden- tified but most of the country has not been adequately explored. Gas reserves are estimated at only one to two trillion cubic feet. Warm and boiling springs exist in many parts of the country but the Government is only now beginning to study the geothermal resources systematically. 31. Oil currently provides about 70 percent of the country's commercial energy requirements and 52 percent of total energy requirements. Despite this heavy dependence on oil, Peru's most significant potential sources of primary energy are its hydropower resources. A recent survey of the country's hydroelectric potential enumerated about 100 technically feasible hydroelectric projects with a combined average output of 60 GW or 390,000 GWh/year -- an annual output roughly equivalent to the country's known oil reserves. About 85 percent of this potential is in the country's Atlantic watershed east of the Andes. Of this total only 1,654 MW are presently being used. 32. Total energy consumption amounted to just over thirteen million tons of oil equivalent in 1980. According to a recent study, the gross energy balance for that year was as follows: Primary Energy Source % Share End Use % Share Oil 51.6 Residential and Commercial 31.2 Firewood and dung 22.5 Industry and mining 18.9 Hydroenergy 15.6 Transportation 17.0 Natural gas 8.1 Agriculture, livestock 5.0 Coal and other 2.2 Other 27.9 100.0 100.0  33. Until recently, the hydro potential of the Pacific watershed, west of the Andes, and the northern coastal oil reserves were sufficient to satisfy demand for energy in urban areas. These sources are no longer adequate. In the future, therefore, hydroelectric, oil and biomass resources of the Atlantic watershed will have to be tapped. Since these are far from the demand centers and more difficult to develop, energy will become more expensive. 34. Oil. Peru is one of the world's oldest oil producing countries and was self-sufficient in petroleum for many years. During the 1950s, however, with domestic prices for petroleum products as well as producers' margins at low levels, domestic consumption began to outstrip lagging production. As a result, Peru became increasingly dependent on crude oil imports in the 1960s and 1970s. In the late 1970s, following the discovery of petroleum in Peru's jungle, oil output began to increase substantially. By mid-1978 Peru was once again self-sufficient in oil and production had climbed to 190,000 bpd in 1979, a third of which was exported. Domestic demand, however, is likely to increase as the economy recovers from the severe recession of the late 1970s and the country could again become an oil importer by the late 1980s. 35. To spur petroleum exploration efforts, the Government is promoting investment by foreign companies, under production-sharing arrangements with PETROPERU -- the State-owned national petroleum company. To attract foreign companies, the Government put into effect a reinvestment tax credit and eliminated restrictions on foreign companies' participation in secondary recovery projects. As was noted previously (para. 5), these actions are already beginning to pay off with oil output in 1982 expected to increase to 207,000 bpd. PETROPERU's administration, staff and operations are being upgraded with support from the Bank's (i) US$32.5 million Petroleum Rehabilitation Loan (Ln. 1806-PE of 1980); and (ii) US$5.3 million Petroleum Refineries Engineering project approved on March 25, 1982. This support would be continued under a petroleum production enhancement project to be presented to the Executive Directors later this year. 36. In order to promote conservation, the Government has been periodic- ally raising domestic petroleum prices so as to permit these to reach inter- national levels in the medium term. In 1981, oil derivative prices were increased by 25 percent in real terms. Moreover, in mid-December 1981, the Peruvian congress passed a law authorizing increases in the domestic price for regular gasoline from US$0.95/gallon at the end of December 1981, to US$1.25/gallon by June 30, 1982. The prices of other petroleum products would be raised in line with regular gasoline prices. Three consecutive monthly increases, averaging approximately 4.5 percent in real terms, were enacted in the first quarter of 1982. 37. Coal. Coal was mined in Peru until 1973 when the rising costs of mining and competition from oil, which was sold at subsidized domestic prices, led to a cessation of coal production. Coal deposits are known to be widely spread throughout Peru but are generally low in quality. Moreover, most deposits are considerably less than a meter thick, although some thicker (and therefore potentially more economic) seams are known to exist in northern and central Peru. No reliable estimate of the size of total coal reserves exists and there has been no attempt to classify them appro- priately. IDB has recently financed an engineering project aimed at defining more clearly Peru's coal resources.  - 9 - 38. Other Resources. Most of the energy needs of the rural population are met from biomass sources, with firewood being the dominant contributor. Although 60 percent of Peru's land surface is covered by natural and cultiv- ated forests and the annual gross primary potential available from this resource has been estimated to be greater than the gross primary energy currently consumed in Peru, 99 percent of the forest is located in the sparsely populated Selva. Despite this fact, biomass accounted for over 22 percent of total gross energy supply in 1980. Sector Organization, Planning and Strategy 39. The Ministry of Energy and Mines (MEM) has responsibility for coor- dinating all energy planning activities, for making sectoral policy and for initiating pricing action, which must then be approved by the Minister of Economy and Finance. Operational responsibility is divided among various public enterprises which report to MEM. PETROPERU is responsible for all phases of production and distribution of petroleum and petroleum products. In the electric power subsector, the two most important operating entities are ELECTROPERU, the national power company, which is the main institution in the sector and is responsible for developing power generation projects, and ELECTROLIMA, the State-owned company serving the Lima metropolitan area (accounting for about 60 percent of the market). 40. In recent years, MEM has received a considerable amount of technical assistance in the energy planning field. This assistance has included an energy balance study completed in 1976 by the UNDP and an assessment of resources and planning done in 1979 by the U.S. Government. The German Government financed a survey of hydroelectric potential in 1979 and has, together with the Bank under the Fifth Power Project (Loan 1215-PE of 1976),financed a power sector master plan, completed in 1980, in order to develop a least-cost program for the sector. 41. The principal objectives of Government policy in the energy sector are to continue to satisfy domestic requirements for electric power and oil-- through increasing hydroelectric capacity and expanding petroleum production --and to maintain oil exports while reducing the growth of domestic demand for petroleum derivatives by using adequate pricing and other conservation measures. The Electric Power Subsector 42. Electric Power Facilities. Despite Peru's hydroelectric potential, national electric energy production remained at a fairly constant 70/30 hydro-thermal ratio throughout the 1970s. As the hydro-dominated national system is extended to isolated regions and to mining companies where thermal generation now predominates, the hydroelectric component is expected to increase. 43. Public power companies meet about 70 percent of Peru's total electric energy demand. The remainder is supplied by captive plants mainly serving industrial and mining installations. The country's principal power grid is the Central-North Interconnected System, which comprises about 1,500 MW of hydroelectric and 300 MW of thermal generating capacity. It represents 63 percent of the total 2,860 MW of generating capacity in Peru and about 85  - 10 - percent of the public service system. The latest extension of the Central- North system consists of a 220 kV transmission line, which was completed in early 1981, linking Lima with Chimbote and Trujillo, two important cities on Peru's northern coast. This system will be extended as far north as Piura during this decade, incorporating in the process the hydro installations of CENTROMIN, a State-owned mining company, by the end of 1982 and various cities in the northern coastal zone by 1987. By 1990, the only large systems that would remain outside the main power grid would be those serving the southwest (Arequipa-Tacna), the southeast (Cuzco) and the major cities of the Selva (e.g., Iquitos and Pucallpa). 44. Electric Power Demand. Because of Peru's economic difficulties in the late 1970s, the growth in power demand dropped from an annual growth rate of eight percent in the early seventies to four percent at the end of the decade. Given Peru's rebounding economic performance in recent years, future growth prospects and the plans for increased service levels, demand in the Central-North system is projected to grow at over nine percent p.a. through 1990. The Government is committed to meeting this demand and recognizes that, in order to do so, a major investment program will have to be executed. 45. Rural and Low-Income Electrification. Until the late 1970s, rural electrification did not have a high priority in Peruvian power planning and, as a result, less than 10 percent of the rural population has access to public-service electricity. The Government has now declared rural electrification to be a major priority for the sector and has launched a program focused on developing small hydro systems. This makes sense because: (i) hydropower resources are generally available in many rural areas; (ii) the topography makes grid interconnection uneconomic; and (iii) the poor road network increases the cost of supplying fuel to isolated diesel plants. Since this program was begun, ten plants have been completed, and work is now underway at over 60 other locations -- 28 of which are being financed through a US$28 million loan from USAID. 46. A low-income urban electrification program focuses on bringing electricity to the "pueblos jovenes" areas of the major cities, in which low-income rural immigrants have concentrated. In 1981, about 23 percent of Lima's population (and 27 percent of the population of the other major cities) lived in these areas. This program was started in 1956 and has been successful in raising service levels in these areas -- by 1981 over 60 percent of "pueblos jovenes" inhabitants had electricity. The program was previously supported under Loan 1215-PE of 1976 and further support would be provided under the proposed loan. 47. Subsector Organization. Prior to 1972, the public utility portion of the subsector was composed of private, municipal and State entities serving concession zones or regions. No national sector planning or coordination existed and captive plants, serving large mining and industrial installations, accounted for about 40 percent of total electricity generation and were not generally interconnected with public-service systems. 48. The Electricity Law of 1972 made the State the principal authority in the sector. Under this law, MEM was given responsibility for power sector policy formulation, for the authorization of investments, and for regulation and tariff setting. The Ministry's General Directorate of Electricity (DGE) was charged with carrying out these functions. The law also created a new State-owned company, ELECTROPERU, responsible for planning, engineering,  - 11 - construction and operation of all new generating facilities larger than 10 MW and for development and construction of the transmission network. Finally, the law provided for State participation in existing private utilities, the largest of which was the predecessor to ELECTROLIMA. 49. This structure proved to be ineffective because, through most of the 1970s, DGE was a weak entity and ELECTROPERU was poorly managed. Both experienced excessive turnover of high-level personnel because of low salaries and thus did not provide needed leadership for the sector. As a result, tariff increases were slow in coming and sectoral institutions became dependent on Government financial support. A power sector master plan, for which DGE was responsible, was not completed until late 1980 -- well behind schedule -- and a number of important hydroelectric projects, which were needed to avoid generation of electricity by new thermal plants, were delayed. 50. Given the past difficulties with the sector, the Government intends to strengthen its organization. Organization studies were carried out in 1979 and 1980, financed by the Bank under Loan 1215-PE, and by the IDB. With input from these studies, the Government has submitted to congress a draft general electricity law which should improve the subsector's institutional framework. Under this law, ELECTROPERU would share responsibility for public service electricity supply with a number of regional utilities. The intention is to provide these utilities with the opportunity to expand their operations from the cities they now serve to surrounding regions. The bill also gives ELECTROPERU responsibility for (i) execution of most large (500 MW and up) generation and transmission projects; (ii) execution and operation of inter-regional connections; and (iii) acting as a holding company for the Government's shares of all sector entities. In addition, it gives ELECTROPERU responsibility for national power system planning and leaves DGE to concentrate on sector policy and regulation. At the same time, the Government has made a substantial effort to improve ELECTROPERU by strengthening its management and raising salaries to lower staff turnover (para. 67). 51. The law is expected to be passed by congress in mid-1982. While it provides a sound framework for improving the sector through decentraliza- tion, it leaves two aspects of importance to the implementation of the new organizational arrangements undefined. These are: (i) identification and establishment of the regional utilities and definition of the areas which they would serve; and (ii) preparation of a timetable for implementing the sector's reorganization. Since delays in resolving these issues would prejudice the subsector's development, agreement that the Government would establish these regional utilities and furnish to the Bank the timetable for the subsector's reorganization, both by December 31, 1983, was reached during negotiations of the proposed loan (Section 3.02 of the draft Guarantee Agreement). Subsector Finances 52. Based on the net income-to-equity ratio traditionally used in Peru to measure the financial performance of electric utilities, the subsector's results have been unsatisfactory. Since 1974, the return on equity of sector entities -- in real terms -- rarely exceeded four percent per annum, well below the level required to provide the resources necessary to finance the large investment program that needs to be undertaken in the future. However, because of the low level of investment over recent years, the contribution to  - 12 - expansion of the major utilities has been good -- the average over the last five years was 35 percent -- and the financial position of the major utilities is strong -- ELECTROPERU and ELECTROLIMA have debt-equity ratios of 17/83 and 27/73, respectively. 53. Investment in the sector will have to increase to about US$500 million/year -- well above historical levels -- if the utilities are to meet anticipated increases in demand while providing greater service coverage -- at present only 35 percent of Peru's population receive electricity. In order to generate these funds, the Government is improving the profitability of the utilities. The Government's objective -- reflected in the draft law discussed in para. 50 -- is that the publicly-owned utilities as a whole should have a rate of return on revalued assets of 12 percent. This objective would be supported by the proposed loan (para. 71). In addition, the Government has introduced a 25 percent energy tax which will further increase the effective rates of return by 4 to 5 points. Most of the revenues from this tax are to be assigned to ELECTROPERU for system expansion and about half of the total is expected to be invested outside the main system in rural electrification and small hydro installations. Although the Bank would not finance this rural program under the proposed loan, since the proposed amounts to be invested are substantial and since ELECTROPERU does not yet have a clearly defined plan for this program, the company would draw up such a plan for the 1984-87 period and obtain Government approval to it. ELECTROPERU would also present the plan to the Bank for comment by December 31, 1983 (Section 4.05 (a) of the draft Project Agreement with ELECTROPERU). Previous Bank Lending for Power and Bank Strategy 54. The Bank has made six loans amounting to US$127.5 million for power development in Peru. Three loans, totaling US$56.5 million, were for hydro- electric projects for the Lima area and two, totaling US$46.0 million were for expansion of the Lima distribution system. ELECTROLIMA and its predeces- sor company, Empresas Electricas Asociadas, were the beneficiaries of all these loans. The most recent loan, US$25.0 million for a Power Engineering project, was made to ELECTROPERU in 1981 and aimed at preparing preinvestment studies for a number of important hydroelectric projects and at supporting improvement in ELECTROPERU's planning capacity. A portion of this loan was on-lent to HIDRANDINA -- the State-owned public utility, which is a conces- sionaire for the generation of electricity in parts of the Rimac and Pativilca rivers -- to assist in evaluating the Mayush hydroelectric project. 55. Execution of the first four power projects was generally satisfac- tory. A Project Performance Audit Report (PPAR) has only been done for the Fourth Project (Ln. 511-PE of 1967). This report (SecM75-682 of September 23, 1975) indicates that the project was completed about a year late and with a small cost overrun. The delay arose from Empresas Electricas Asociadas' initial financial problems; these were resolved during project execution. Performance during project execution was good. The project's economic rate of return was above the 12 percent expected, primarily because of the increase in oil prices in 1973. The report also noted that the project did not sufficiently address sectoral weaknesses. More recent power loans, including the loan recommended in this report, have placed increased emphasis on supporting sectoral development.  - 13 - 56. The Bank's strategy for the power sector focuses on (i) strengthen- ing the management and organization of the key institutions, particularly ELECTROPERU, so that the Government's policy of promoting decentralization and increasing institutional autonomy can be implemented effectively; (ii) promoting the introduction of rational tariff policies so that the sector's large investment needs can be financed without dependence on the national budget; and (iii) supporting and assisting in the preparation and execution of the hydroelectric projects -- most of which are complex -- which are needed to expand power generation without recourse to thermal schemes burning costly petroleum. This project would reinforce these objectives through its support for institutional improvements -- including more rational tariff levels -- and for preinvestment studies. PART IV - THE PROJECT Background 57. The project was identified in January 1981 and its principal compo- nent was prepared by ELECTROLIMA during the first half of 1981. The engineering components have been prepared in connection with the previous Power Engineering loan (para. 54) and the Water Supply and Power Engineering project (Ln. S-li of 1978). The project was appraised during August/ September 1981. The appraisal mission's report entitled "Staff Appraisal Report - Peru Sixth Power Project" (No. 3743b-PE, dated May 18, 1982) is being distributed separately. Annex III contains a supplementary data sheet. Negotiations were held in Washington from April 29 to May 7, 1982 and the Peruvian Delegation was headed by Mr. Ignacio Soto, the Director General of Electricity. Project Objectives and Description 58. The project is designed to support the Government's decision to give high priority to improving the power sector by: (i) assisting in strengthening the major institutions in the sector, particularly ELECTROPERU; (ii) assisting in the financing of priority investments in the distribution of electricity so that unsatisfied demand can be met; and (iii) supporting the preparation of priority projects for the sector, particularly the Mantaro Transfer project. 59. The project would include three components to be executed by ELECTROLIMA, ELECTROPERU and HIDRANDINA. These are: (a) construction of ELECTROLIMA's 1982-1986 electricity distribution program and of the Yuracmayo dam; final design and preparation of bidding documents for expanding the Transandean tunnel, needed in order to carry out the Mantaro Transfer project; feasibility studies of two hydroelectric projects; and the carrying out of ELECTROLIMA's 1982-1986 training program; (b) preparation of final design and bidding documents for the Mantaro Transfer project; technical assistance to improve ELECTROPERU's financial management; and the carrying out the utility's 1982-1986 training program; and (c) preparation of final design and bidding documents for HIDRANDINA's Mayush hydro project.  - 14 - 60. ELECTROLIMA's component would account for about US$165.1 million (or 89 percent) of project costs excluding contingencies. Most of this expenditure would be for financing the company's 1982-1986 distribution program, which would permit the connection of 130,000 new clients, mostly residential, to the power system. More specifically, the component would include construction or expansion of 19 electrical substations, construction of 700 km of high- and medium-voltage lines, and installation of about 2,000 transformers as well as of about 480 km of low-voltage distribution lines. The ELECTROLIMA component also includes financing for constructing the Yuracmayo dam, which would regulate the water needed to generate power at the 120 MW Matucana plant -- thus increasing its output by 88 GWh/year of dry season energy. Final engineering for the Yuracmayo dam will not be complete until late 1982. The current estimate of about US$24 million, however, indicates that there could be up to a 100 percent increase in the cost of the dam without jeopardizing its economic attractiveness. Nevertheless, disbursements would not be made against this component until its economic viability, based on final design, is confirmed -- to the Bank's satisfaction -- by a feasibility study being carried out under the ongoing Power Engineering project (para. 4 (b) of Schedule 1 of the draft Loan Agreement). 61. Three additional studies related to utilizing the additional water made available by the Mantaro Transfer scheme would also be included under the ELECTROLIMA component. These are: (i) a feasibility study and, if justified, preparation of bidding documents for the expansion of ELECTROLIMA's Huinco hydro plant through addition of a fifth 60 MW unit (present installed capacity is 240 MW); (ii) a feasibility study of the Salto Bajo scheme. This study would select the most economic development alternative for using the increased water from the Mantaro Transfer scheme to generate power by expanding hydroelectric production from three existing plants downstream from Huinco or by developing one or more new hydro installations; and (iii) preparation of final design and bidding documents for the expansion of the Transandean tunnel. This is an existing tunnel which provides water to the Huinco plant. This work is actually a part of the Mantaro Transfer scheme but falls under ELECTROLIMA's responsibility because it owns this tunnel. Finally, ELECTROLIMA's component would include a training program, which would focus on improving the utility's training center through equipment acquisition and technical assistance. 62. ELECTROPERU's component would account for about US$16.4 million (or 9 percent) of project costs excluding contingencies. It would include about US$10 million to finance a contract that has been signed with a British consulting firm (Binnie and Partners) to prepare bidding documents and complete engineering design of the Mantaro Transfer project whose feasibility was established under the Bank-financed Water Supply and Power Engineering project (para. 57). Its objective is to increase the water in the Rimac river -- upstream from Lima on the western side of the Andes -- by diverting water to the Rimac from the Mantaro basin -- on the eastern side of the  - 15 - Andes. The water diverted would be used to (i) increase energy production in the existing hydroplants on the Rimac basin; (ii) develop a new hydroplant at Sheque; and (iii) supply Lima's incremental water needs in the late 1980s. In view of ELECTROPERU's large borrowing needs over the next few years, it would also include technical assistance to help strengthen the utility's financial planning capability. The remainder of this component would cover the costs of ELECTROPERU's 1982-1986 training program. This program was prepared with the assistance of Bank staff and would focus on strengthening plant operation and maintenance procedures, on expanding ELECTROPERU's train- ing office through the acquisition of equipment, technical assistance and fellowships and on improving procurement and inventory control procedures. 63. HIDRANDINA's component would cost about US$3.5 million (or 2 per- cent of total costs) excluding contingencies. It would consist of final design and preparation of bidding documents for the Mayush hydro project. This project, with an installed capacity of up to 130 MW, would complement the existing 40 MW plant at Cahua on the Pativilca River. The Mayush proj- ect's feasibility is currently being studied with the help of funds provided under the Bank's Power Engineering project (para. 54) and this further engi- neering work would only go ahead if Mayush's technical and economic feasibil- ity is confirmed in a manner satisfactory to the Bank (para. 4(d) of Schedule 1 of the draft Loan Agreement). The Borrower and Beneficiaries 64. The borrower for the proposed loan would be ELECTROLIMA, since it has responsibility for the largest share of the project. ELECTROLIMA is the State-controlled public utility concessionaire for generation and distribu- tion of electricity in metropolitan Lima. The other two beneficiaries would be ELECTROPERU and HIDRANDINA. 65. ELECTROLIMA is a formerly private company which was nationalized in 1973 and has been controlled by the Government since then. With nearly three quarters of a million clients, 1981 sales of over 3,800 GWh and assets of nearly US$400 million, ELETROLIMA is one of the largest companies in Peru. Eighty-eight percent of its shares belong to the Government, four percent to ELECTROPERU and eight percent to private investors. ELECTROLIMA's board of directors is composed of ten members, seven of whom are appointed by ELECTROPERU, two by the employees of the company and one by COFIDE, the State development finance bank. ELECTROLIMA is well organized and well managed. The board and president decide on policy matters while the general manager is responsible for day-to-day operations. 66. ELECTROLIMA's total staff is just under 3,000 people, which is reasonable for a utility of this size. The quality of this staff is high. The company's information, reporting and financial systems are also good; the only areas of weakness are in the company's time consuming, bureaucratic acquisition procedures and in its uncoordinated demand forecasting prac- tices. With regard to acquisitions, the main problem has been that procure- ment decisions by the technical department have been subjected to excessively slow reviews by the utility's administrative units. Agreement has been reached on the use of less time consuming review procedures for items to be acquired under the proposed loan (Schedule 4 of the draft Loan Agreement); at the same time, technical assistance services financed under the proposed loan's training component, would help ELECTROLIMA to implement more efficient procurement procedures generally. With respect to demand forecasting, ELECTROLIMA is in the process of improving the annual preparation of demand  - 16 - forecasts with the help of technical assistance provided under the Bank- financed Fifth Power project (Loan 1215-PE of FY76). By December 31, 1982 the utility would present to the Bank an acceptable plan of action for improving its forecasting techniques. In addition, by that date -- and annually thereafter -- the utility would submit its ten-year demand forecast to the Bank for comment (Section 4.07 of the draft Loan Agreement). 67. As discussed earlier in this report (para. 49), ELECTROPERU has been a weak institution. While the Government has recently started taking action to strengthen the company, these measures are complicated by ELECTROPERU's size -- it has over 5,000 employees -- and the fact that it has offices spread throughout Peru. Like ELECTROLIMA, it has a ten-man board of directors, which formulates policy together with the president. Operational responsibility lies with the general manager. Until recently, the general manager had about 20 working groups reporting directly to him -- a fact which over-centralized decision making and meant that there was insufficient dele- gation of authority. In order to improve the situation, the Government has focused on increasing the quality of management in ELECTROPERU. Specifically it has (i) provided the utility with the autonomy to pay higher salaries; (ii) appointed -- at the Bank's urging -- a new general manager with solid power sector management experience; and (iii) replaced three of ELECTROPERU's key managers with better qualified professionals and hired five advisors to assist five other senior managers. 68. Now that the Government has taken action to begin building up ELECTROPERU, the Bank would, through the project recommended in this report, focus on three specific aspects of institution building: training, improving the financial information systems, and planning. Training activities have been neglected in recent years with the result that the training unit itself needs assistance before it can more effectively execute a satisfactory program. Bank staff worked with the unit during project preparation in defining a program that would be executed over the 1982-1986 period with support from the proposed loan (para. 62). With respect to financial infor- mation, the staff of the department responsible for this in the company has been strengthened recently and are -- with the assistance of consultants financed under a loan from IDB -- introducing reforms and new procedures designed to reorganize the accounting system. The objectives of this reorga- nization would be to: (i) clarify the allocation of responsibilities between the financial and accounting units; (ii) standardize accounting procedures; and (iii) specify data processing needs. Improvements, satisfactory to the Bank, would be made in all three of in these areas by December 31, 1985 (Section 3.05 of the draft Project Agreement with ELECTROPERU). With regard to the third area of weakness -- planning -- formal investment planning is now being done by ELECTROPERU and, under the provisions of the Bank-financed power engineering project (para. 54), a master plan for power generation and transmission must be updated semiannually. However, the initial plans that were produced in 1981 did not include a program for works outside the main system (e.g. for rural electrification). ELECTROPERU will continue to prepare the master plan but, in order to improve overall planning, ELECTROPERU would also agree to review with the Government and the Bank, by November 30, 1983, and each year thereafter, its detailed sectoral investment and financing plan for the following year (Section 4.05 (c) of the draft Project Agreement with ELECTROPERU). With respect to its preparation of this detailed plan, the utility's financial management would be assisted through the technical assistance provided under the proposed loan (para. 59 (b)). Finally, in order to make sure that any large new projects which are added to the master plan are subjected to a thorough review before they are  - 17 - launched, the Bank would be provided with a satisfactory economic justifi- cation of any major projects before they are commenced (Section 3.03(b) of the draft Guarantee Agreement). 69. HIDRANDINA is a small company formed in 1947 by Empresas Electricas Asociadas, ELECTROLIMA's predecessor, to generate electricity at two loca- tions outside Lima and sell it in bulk. Ninety-three percent of the shares are owned by ELECTROPERU with the remaining 7 percent belonging to private investors. Four of the six members of the board of directors are nominated by ELECTROPERU and two by the staff of HIDRANDINA. The utility owns three hydroelectric plants: the 40 MW plant at Cahua, the 63 MW plant at Moyopampa and the 32 MW plant at Huampani. The company has about 200 employees and is a small, well organized, well managed utility. Finances 70. The financial analysis carried out in conjunction with the prepara- tion of this project shows that in the 1982-1986 period, the combined invest- ment requirements of the three participating institutions will be large -- equivalent to about US$2.5 billion (in 1980 prices). By 1986, the companies' fixed assets would be nearly 50 percent higher in real terms. The Government's policy is that power companies should, to the extent possible be financially self-sufficient in the future -- though it will be making some financial contributions to them in the short term. Sources of funding for the investment program between 1982 and 1986 are as follows: Source Amount (US$ millions of 1980) ELECTROPERU/ELECTROLIMA and 906 HIDRANDINA net cash generation Energy Tax Funds Available 275 Total Internally Generated Funds 1,181 Borrowings 1,076 Equity Investments from the Government 488 Other 44 Total 2,789 71. These projections show that the institutions would contribute about 42 percent of the funds required for investment during the 1982-86 period from internally generated funds. The projections are prepared on the assump- tion that tariffs would be increased sufficiently to enable the companies to earn the Government's objective of a 12 percent return -- excluding the energy tax -- on rate base by 1985. The Government increased charges by over 30 percent in real terms during 1981. In order to achieve this 12 percent goal, tariffs would have to be increased by a further 50 percent, in real terms, by 1985. The Bank would support this objective by including covenants in the proposed project's legal documents whereby the institutions would apply for tariff increases which would gradually enable them to reach the stipulated 12 percent rate of return on rate base (revalued fixed assets plus working capital) from 1985 onwards. Under the project, the Government would authorize the requested tariff increases (Section 3.05 of the draft  - 18 - Guarantee Agreement; Section 5.04 of the draft Loan Agreement and Section 4.03 of both Project Agreements). The interim rate of return targets set for the utilities would be four percent in 1982, seven percent in 1983 and 10 percent in 1984. In order to help ELECTROPERU protect its capital structure as it becomes more profitable, the project also calls on the Government to reinvest ELECTROPERU's dividends -- should any be declared in the future -- back into the company (Section 3.04 of the draft Guarantee Agreement). 72. The financial projections for each company show that they would all maintain a strong financial position throughout the forecast period. ELECTROLIMA's debt/equity ratio would improve slightly from 25/75, at the end of 1981, to 19/81 at the end of 1986. Meanwhile, ELECTROLIMA's debt service coverage ratio would remain above 2. ELECTROPERU's debt/equity ratio would rise modestly -- from 21/79 in 1981 to 25/75 in 1986 -- and its debt service coverage is expected to improve from 0.8 times to 2.0 times during the same period. HIDRANDINA's debt/equity ratio would increase considerably from 1/99 in 1981 to 73/27 in 1986 because of the relatively heavy borrowing and investment associated with construction of the Mayush hydroelectric project. Because of this borrowing HIDRANDINA's debt service coverage would decline from 2.3 to 1.0. 73. In spite of the improvement in earnings which is foreseen, borrow- ings contracted by the three companies during the period will be large -- over US$1 billion over the next five years. While it is the intention of the Government and the companies to maximize borrowing from international and bilateral financing agencies, in order to ensure that the borrowing is con- tracted in a disciplined manner, the three companies have agreed to obtain the Bank's concurrence for new borrowings if (i) short-term debt exceeded one-sixth of operating, maintenance and administrative expenses (excluding non-cash provisions); and (ii) their internal cash generation was less than 1.5 times their future maximum annual long-term debt service requirement (Sections 5.05 of the draft Loan Agreement and 4.04 of the draft Project Agreements). Project Cost and Financing 74. The total project cost is estimated at US$ 255.3 million equiv- alent, including taxes and import duties which amount to about US$25 million or 10 percent of total costs. This estimate includes physical contingencies amounting to 10 to 15 percent of the cost of each item and price contin- gencies, in dollar terms, of 8.0 percent in 1983, 7.5 percent for 1984, 7 percent for 1985 and 6 percent thereafter. The foreign exchange component is estimated at US$91.4 million, or 36 percent of project costs with the balance (US$163.9 million or 64 percent of total costs) being for local expenditures. The project's total financing requirements -- total costs plus a front-end fee of US$1.2 million -- come to US$256.5 million. The proposed Bank loan of US$81.2 million would, after deduction of the front-end fee, finance 88 percent of the foreign exchange cost. The remaining US$11.4 million of foreign costs, mainly representing imported transformers, would be financed through suppliers credits. The project's local costs would be contributed by the three participating agencies, 93 percent by ELECTROLIMA, 6 percent by ELECTROPERU and 1 percent by HIDRANDINA. In order to permit prompt initiation of the engineering for the hydro projects, retroactive financing for foreign exchange expenditures incurred after September 15, 1981, up to a limit of US$1.0 million, is proposed.  - 19 - Project Implementation, Procurement and Disbursement 75. ELECTROLIMA, ELECTROPERU and HIDRANDINA would be responsible for overall execution of their respective components of the project. ELECTROLIMA would enter into subsidiary loan agreements, satisfactory to the Bank and on the same terms as the proposed Bank loan, for onlending US$12.3 million to ELECTROPERU and US$3.6 million to HIDRANDINA (Section 3.01 (b) and (c) of the draft Loan Agreement). Signing of these agreements would be a condition of disbursement for their components of the project (Schedule 1, para. 4 (c) of the draft Loan Agreement). ELECTROLIMA would execute the physical works included in the project and its engineering staff would carry out the plan- ning for these works, supervise engineering designs and prepare specifica- tions for equipment, materials and works. ELECTROLIMA's technical staff is competent and can execute the project adequately. 76. Civil works, materials and equipment to be financed with funds from the proposed loan with a total value of US$97 million would be procured through international competitive bidding (ICB) procedures in accordance with Bank guidelines. Local suppliers and those from Cartagena agreement member countries (or any other regional trade agreement acceptable to the Bank of which Peru is or may become a member) would be accorded a preference repre- senting the difference between the prevailing duty actually applicable and the duty applicable to goods imported from non-member countries, or 15 per- cent on the c.i.f. price, whichever is lower. The regional preference would not be applied, however, if a domestic manufacturer was determined to be the lower bidder after application of the domestic preference. An additional US$11.3 million in minor civil works, which are not suitable for packaging and which are too small to be of interest to international bidders, would be procured through local competitive bidding in accordance with procedures agreed to with the Bank. Limited international tendering would be used for a few items which have to be compatible with existing equipment (such as expan- sion of existing communication equipment, special workshop and laboratory equipment and computer software), each not exceeding US$150,000 and estimated not to exceed US$1.5 million in total. Consultant services financed under the loan would amount to about US$19.5 million (excluding contingencies). The costs are based on estimated average rates of about US$11,000 per staff- month including subsistence and travel. All Bank-financed consultants would have qualifications satisfactory to the Bank and would be hired under terms and conditions acceptable to the Bank (Section 3.02 (a) of the draft Loan Agreement and 2.02 (a) of both project agreements). 77. The loan would be disbursed over a six-year period -- from mid-1982 to mid-1988 -- in accordance with the following expenditures for eligible expenditures: 100 percent of foreign expenditures for goods procured abroad and 100 percent of the ex-factory cost for any locally manufactured items which are selected through ICB; 100 percent of foreign expenditures for con- sultants from abroad and 90 percent of local expenditures for local consul- tants; 30 percent of expenditures for civil works; 100 percent of foreign expenditures for training fellowships; and 100 percent of the front-end fee. Project Benefits 78. The project's main component would entail expanding the availabil- ity of power in Lima. As a result of the operation recommended in this report, over 130,000 families -- more than 50 percent of which live in low- income areas -- would be provided with access to electricity and thus have  - 20 - improved living standards. An economic rate of return has been calculated for the aggregate 1982-86 expansion program of the central-north intercon- nected system, which includes the project. Using the anticipated tariffs, including taxes paid by ELECTROLIMA's customers, as a proxy for benefits, the rate of return is estimated at about 17 percent. 79. There are certain important, but non-quantifiable benefits which are expected to result from the project. The engineering studies would assist in preparation of a series of hydroelectric projects which are needed if construction of costly thermal plants is to be avoided. The Bank's support for preparation of the Mantaro Transfer project is particularly crucial if this highly complex project is to proceed in the optimum manner to provide needed power and water for Lima by the end of this decade. In addi- tion, the training which would be provided would result in an upgrading of the quality of staff in ELECTROPERU and ELECTROLIMA, the two major institu- tions in the sector. The dialogue that has taken place during project prepa- ration has provided the Bank with a vehicle for supporting needed institu- tional reforms and for strengthening the financial performance of the util- ities. The higher tariffs which the project foresees would enable these utilities to make a greater contribution to their investment programs while encouraging conservation of energy and a more rational allocation of resources. Finally, the annual review of the investment and financing plan, in combination with the Bank's review of the economic justification of major projects (para. 68), would provide the Bank with an opportunity to help ensure that future investments are made in a well thought out manner. Environmental Aspects 80. The proposed project does not present environmental problems. ELECTROLIMA has taken adequate care of environmental effects in designing the distribution network. The engineering studies to be included in the project would include environmental impact statements. With respect to the engineer- ing for the Mantaro Transfer project, two particular environmental issues would be addressed so that the final design would be able to deal with them. These issues are: (i) control of the pollution -- from the effluent of the large Cerro de Pasco copper mine -- which currently enters the Mantaro River; and (ii) the potential ecological effect of raising the water level -- because of the dam that would be constructed on the eastern end of the Transandean tunnel -- in Lake Junin by 1.7 meters including the measures needed to assist in relocating the 115 families around it. Project Risks 81. The project faces no special physical risks. Nevertheless, as the Yuracmayo dam would be located in a seismic region, the engineering design to be financed under the proposed project would include a seismological analysis whose findings would be reflected in the dam's design. In addition, ELECTROLIMA would agree to appoint a board of consultants, under terms of reference satisfactory to the Bank, to review the design two months after completion of the preinvestment study mentioned in para. 60 and to follow Bank requirements for dam safety inspections during the course of the damts construction (Sections 3.04 and 4.05 of the draft Loan Agreement).  - 21 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 82. The (i) draft Loan Agreement between ELECTROLIMA, COFIDE (the State Development Bank, which under Peruvian Law must be a party to all agreements providing for external loans to public enterprises) and the Bank; (ii) the draft Project Agreements between the Bank and ELECTROPERU and HIDRANDINA, respectively; (iii) the draft Guarantee Agreement between the Republic of Peru and the Bank; and (iv) the Report and Recommendations of the Committee provided for in Article III, Section 4 (iii) of the Bank's Articles of Agreement are being distributed to the Executive Directors separately. 83. These draft agreements conform to the normal pattern for power loans. The main features of the draft Project, Loan and Guarantee Agreements are referred to in the text of this report and are listed in Section III of Annex III. A condition of disbursement for the project components to be executed by ELECTROPERU and HIDRANDINA would be their entering into sub- sidiary loan agreements (each satisfactory to the Bank) with ELECTROLIMA. Disbursements for the construction of the Yuracmayo dam and for the engineering for the Mayush hydro project would also be conditioned upon confirmation of the economic justification of these components. 84. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 85. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments by M. A. Qureshi May 24, 1982 Washington, D.C.  - 22 - ANNEX I Page 1 of 5 TABLE 3A PERU - SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (WEIGITED AVE7GES LAND AREA (THOUSAND SQ. KH.) - MOST RECENT ESTIMATEY-Z TOTAL 1285.2 MOST RECENT HIDDLE INCOME MIDDLE INCOHE AGRICULTURAL 305.5 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA 6 CARIBBEAN EUROPE GNP PER CAPITA (USS) 230.0 410.0 730.0 1616.2 2609.1 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 436.3 691.8 736.9 1324.1 2368.4 POPULATION AND VITAL STATISTICS TOPULATION, MID-YEAR (THOUSANDS) 10181.0 13461.0 17149.0 URBAN POPULATION (PERCENT OF TOTAL) 46.3 57.4 66.5 64.2 53.2 FOPULATION PROJECTIONS POPULATION IN YEAR 2000 (MlLLIONS) 28.5 STATIONAKY POPULATION (MILLIONS) 55.0 YEAR STATIONARY POPULATION IS REACHED 2085 POPULATION DENSITY PER SQ. KM. 7.9 10.5 13.3 34.3 80.6 PER SQ. K1. AGRICULTURAL LAND 33.0 44.0 54.6 94.5 133.9 POPULATION AGE STRUCTURE (PERCENT) 0-14 YKS. 43.6 44.3 42.8 40.7 30.1 15-64 YRS. 52.0 51.8 53.6 55.3 61.5 65 YRS. AND ABOVE 4.4 3.9 3.6 4.0 8.3 POPULATION GROWTH RATE (PERCENT) TOTAL 2.4 2.8 2.7 2.4 1.5 URBAN 5.1 5.0 4.3 3.7 3.1 CKUDE BIRTH RATE (PER THOUSAND) 46.4 41.8 37.8 31.4 22.9 CRUDE DEATH RATE (PER THOUSAND) 19.7 14.5 11.1 8.4 9.1 GROSS REPRODUCTION RATE 3.4 3.0 2.6 2.3 1.6 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. .. USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71=100) 96.0 102.0 86.0 108.3 119.8 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIRENENTS) 95.0 99.0 97.0 107.6 125.7 PROTEINS (GRAMS PER DAY) 62.0 61.0 59.0 65.8 92.5 OF WHICH ANIMAL AND PULSE 27.0 25.0 24.0 34.0 39.7 CHILD (AGEb 1-4) MORTALITY RATE 28.5 19.6 13.7 7.6 3.4 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 47.7 53.5 58.0 64.1 68.9 INFANT MORTALITY RATE (PER THOUSAND) .. 122.0/c 86.0 70.9 25.2 ACCESS TO SAFE WATER (PERCENT OF POPULATIoN) TOTAL 14.6 35.0 48.3 65.7 URBAN 30.2 58.0 60.0 79.7 RURAL 0.8 8.0 25.0 43.9 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 36.0 34.0 59.9 URBAN .. 52.0 51.0 75.7 FURAL .. 16.0 .. 30.4 POPULATION PER PHYSICIAN 2011.7 1904.9 1545.1 1728.2 973.3 POPULATION PER NURSING PERSON 2205.0/d 738.0 745.0 1288.2 896.6 POPULATION PER HOSPITAL BED TOTAL 425.1/e 469.6 542.7 471.2 262.3 URBAN .. 524.8 430.1 558.0 191.8 RUKAL .. 3055.3 5747.6 ADMISSIONS PER HOSPITAL BED .. 19.0 23.0 .. 18.2 HOUSUING AVERAGE SIZE OF HOUSEHOLD TOTAL 4.9 4.8/f URBAN 4.8 4.97g . KURAL 4.9 4.67 ... AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.3 1.9/f URBAN 2.0 1.77 . RURAL 2.7 2. 47 . ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 26.0 32.1/f URBAN 50.7 54.3/f RURAL 4.2 2.7/f  - 23 - ANNEX I TABLE 3A Page 2 of 5 PERU - SOCIAL INDICATORS DATA SHEET PERU REFERENCE GROUPS (WEIGHTED AVERAqES - MOST RECENT ESTIMATE) - MOST RECENT MIDDLE INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 83.0 103.0 112.0 101.7 105.9 MALE 95.0 111.0 116.0 103.0 109.6 FEMALE 71.0 96.0 106.0 101.5 102.2 SECONDARY: TOTAL 15.0 30.0 50.0 35.3 66.3 MALE 18.0 34.0 53.0 34.9 73.2 FEMALE 13.0 26.0 46.0 35.6 59.5 VOCATIONAL ENROL. (Z OF SECONDARY) 20.0 17.0 16.0 30.1 28.4 PUPIL-TEACHER RATIO PRIMARY 34.0 35.0 40.0 29.6 26.8 SECONDARY 12.0 17.0 29.0 15.7 23.6 ADULT LITERACY RATE (PERCENT) 61.0 72.5/f 79.7 80.0 75.4 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 17.1 18.5 42.6 83.9 RADIO RECEIVERS PER THOUSAND POPULATION 108.0 135.1 135.4 215.0 181.6 TV RECEIVERS PER THOUSAND POPULATION 3.2 29.3 50.8 89.0 131.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION .. 123.3 51.0 62.8 123.8 CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. .. 3.2 5.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3193.9 3896.8 5079.7 FEMALE (PERCENT) 21.1 20.7 22.8 22.6 32.9 AGRICULTURE (PERCENT) 53.0 44.8 37.8 35.0 34.0 INDUSTRY (PERCENT) 19.0 20.1 20.0 23.2 28.7 PARTICIPATION RATE (PERCENT) TOTAL 31.4 28.9 29.6 31.8 42.3 MALE 49.6 45.8 45.6 49.0 56.5 FEMALE 13.2 12.0 13.6 14.6 28.5 ECONOMIC DEPENDENCY RATIO 1.5 1.7 1.6 1.4 0.9 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 39.0/g .. . HIGHEST 20 PERCENT OF HOUSEHOLDS 64.47A 61.0/f LOWEST 20 PERCENT OF HOUSEHOLDS 2.5/g 1.9/f .. LOWEST 40 PERCENT OF HOUSEHOLDS 8.0/g 7.07 .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 235.0 RURAL .. .. 180.0 187.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 293.0 513.9 RURAL .. .. 200.0 362.2 385.1 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 49.0 RURAL .. .. Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1976 and 1979. /c 1970-75; /d 1964; /e 1962; /f 1972; /g Personal income within labor force. * The updated 1980 GNP per capita shown in the 1981 Bank Atlas is $930 (at 1978-80 prices) and the 1980 woPulatinn is estim-ated at 17,625,000.  - 24 - ANNEX I Page 3 of 5 DEFINITIONSi OP SOCIAL INIICATOiO i.tnee: Alaboagh tbe data are dn-n fie ....t.. generaly judged the mean -htbntntai- end reliable. it ehould glen be oted that they anY not bentr -IIt-n I,lln'coupanabl ..te.. nIf tInlc of etendetdi-ed d.tinitinne en onen need by differet coen.... Iin colctn tbe date. The detete .Ibel .s., ucfl in deetebe rdr of igttd nditten trede, ed h ...rt eei mjor diffe...ncee betwee I...oIltes Thereeron genopeate, 11).t' nbeeaountrygrnocer.theeo.b)eottcnyed (171 aountry~- g ioytbeosa.ehethigtere-ortecge , looebticnt rygrnSoy of tesb(t onr eontfr'aia ncu 011 ino Ine goPei1te "Middle Inc- -torh bfiott andniddle - met tahomn heau= feteoe eot-ulo f fitoitte).l the ree -neg Po Jet, the ategeaepylte eghted erihrtuetoeae for each indtaror-and hbee only hen .ainrLr of, the Iote teAoebe dat for c1hat niiteo.i- b eeeeo toft e_aonIte d ta edeeods cc the nollebtiltt tf data en Jentnofr,cnntee acte JIt tetgavrgeo oneiliod-efe to atother. Tb.. ec vtee t elly -efel 1n -pm-niog tin on i of ete todto-nn at a tine e-ng the tecettY etd telreca - ope LADit ARMA (Ih-ne.ad eqIka.) Pe Fattrt ifeecital ted-ttl ota -,td tutni - ?Toyc.i-to (total Totl1 - T-1e e-fece... ..e.c.nyieglao oe and inlend eaes.tba.. endrrl divided by thtet resynotte com"ber of hoepn-tral bede, Aglo.1t.ltul - tEnieste ef et _ornalaesnedteny..tatly or trnartily avilable to poblic ecd ycitnaege alad stlaited h.eptilndre too eolpe, paetnce. earket etd kitohen gendets ot.c lie feline: 191 data. hattaloecc.Oenaeaeetb eecePetiacettly etaffed cu1l.t d by cn cneelc ehod ac World B..k Atlas )1977-79 beele); 1960, and meial IrIr n petnetetly enaffrd by a yhystcian (hot bya 1970, sod 1919 dsta, _d ical am..c. t I.r.e, eiditf, etc.) hioh offert-a- n tot d,ri,n nod pr-cde a hatted -ang of aedica1 fcilftitee. tFrta, iinnIGf CONSUMPyTIOt ti CAIIA - Annel c-tentlo of comnca eea Jta tIcL tnIcPI rbnbertl icee Oepctt '.Itna oylaa and igni-. yet-ele-, natura gas nod hydro.-', ela n etane ln acdrenl boPh.inaIk loca ctote hott adnd1loa and naterity 'trinity) It bilngree of col eqolne1en Pcc tayir; 1960. 1970, and1919 ctee.Sye-taled-hocpitale ace inloded eel - .decttl dta. Adniesto.. n-e ti-acita Bed - Tota ubro ddtaon otitoh-rge item bpiytlel divided by tha n-net f bela. MPUrLATIONa AND tVITAL, STAfISTICS Total Pnrulatieo. iid-Tear(h A.ne)-d of Je1y 1; 1960, :970, end 1919 HOUSilIN dsLa. Avet..r tine of H" Ibed ...e..sona - hcucehiold)-tot-l, urban. nd. ta Ithbc Pntaarn . ....aII of total - tait of orb:a,ctri ouatt A hn.eehold cnlt Ill.gee oftdi elyeho.aeinn qenten different deft.tinton of omen. area eay afec co ra Jy of dat and tbet J el neal-.I. A b-ede- -t ldgec ma Io nay noA included to among cnonntte.; 1961. 1970, atd 191~,9 data.~ tbr ,ou fhld o ennai eyse -nneto .... tnehenntnbco reretne ret coca- total, urban, end tonal - tny,canlotto ner 110 J aro oonlnyoeclo r te o19 bto eeo e eni all ura,nd totl ope .oretoa toa nnaltby ag Iad aee d thlt tntnlly erd ferti It ctee. danilloga, reyoti-ly. Onallictaen-lcdetn-e --ttirctcend Irjtlcyretarefn motItt ratne onaytlie of fhr.. levelen.au.- un Petdyca log life no pettanty at blnth intn-eamt with c Pnty'a e tait ic hn-e Attna- ilttctv.atett aeltal oa.-nn.an uo lee, n fml life enpectety mtabtltelt at 71.1 yeere . The yarec - Cetetlna Attelli.g ni.. .lrtlctc to linig q-eter...Pm - g no erIIt" y trends fot yro-c tot. y Pynn. Afee noietRt Stationar n el ln- IIne -t -noy yoo.latOt there. Ian growth aite Primatn aeohl- nal. aeIn teIeo cttl aeed fenal the iribnte a aqal o nb deah tae, ad eet te ag errcloe cc enrllmet ofallageeat te trmarylevlIneretottfgI o naioentetat. Ti le acJvdol tarfrt n ae definetoottacdehILIagehooatn:nral oldeolldre aged 6-11 the rerleoeenr lenelof ed iten- r-p-odnore at. nbec, eaci:h aeearteyeet hot edjoetd for dilfer-t lscgthe of primay ede-tinn: for of nneo n ile .. Ifel enotly. The seat _loay pnn-ulati site, me. Ileltastt onlvteh edeta.. cnrnln_tey eceed ill yer-te eend lenel. nd.oatlccreqttreeac lae ot er f prvdytnt narilt fea stationar Jctat Ia renhbd - The year mhet etac-tcay yoyoleclon ero-ldeegnrl oatna.o ece rinn otettn Ir roPi attnh. bee hencencd. oeel e de1 na.o ag;ctettdtnOtant enal tef in. La -tid-yer yopn-oltot pet s.... kiloneten. (ill bectarne) of Vcatlnna eIr-ilmei (aer-ono of ......darvl - no..taional istiatlone.. toa re;10, j1970 and 1979 data - locode tecIhn!:Ical-,sidsre.o obryo m ehiob h rn Lndeyecod- -e n a.ancltnllnd -Caon nb fot agttt-lto-a lacd in ra emteat fsordaytslo oe ony; 1960, 1970 ard 1978 dat. turt- h-tenerrtto erli-tyo..ad ....andary-nToll etAdent ennedt teltion ASIMIreonr (eeroen) -Childre 10-14 yeera), e-riog-age (15- Ptri-y andetndy -lel divided by noner of teac.hers in the 6A year) ,and rettrad 165 years aod ove) aa rereentagee of itd-yea PIyn-tnepodglvls ato:1961, 197,a 1979 date. Molt literay rare Inencent.) - Litatatend.1te fable no reed and write) i' lno rwlnn _ Ipero-ni --totl - aa..uI gltnwhrae of nona1 aid- aep-rcc-e o Itotal adult p-oycinnl aged 15 yeare eod over. year yoelact.. for 1950-60, 19ti-10, and 1970-79. PnnatnIen ht U_alrctt oe - gonuosl.-oeh cat- of utha Pete- CifNSlitTlOf C_anlonaC-j11 foe105-6, 1it0-Ol, aod 1970-79. .!asneeCr tr tho.....d p.orlatinol - Pes-g-r oste toyreep nu Crd hnrAae erreenl - Ac 1a ItLe hirthe Per thnuand of etd-,-yar ee_ig eether ighn y-a....e; eclIdee anbelant-, hee_e end yoyuacln; 196l, 1970, and 1919 dat. eltayvhle Crudeleahet pt hea l-oanua deaths Pen thenenddof id-ear-ai eaet Prefcrhno .and nylal -01 nYPee ofretee fo rdIo yyltn;1960, 1970, ad1979 dana. Ieeosen eea yobhltc tar thoc...d of yyl -ln;eolds v GIrne aer tnot en-anaege teete of daughitree eva ill bea to fteedreteei noclee and in yer ela rglfrttnIf radio bet noma rerdcIve yaiod if she.arr Pue .r.e.n. g-r oti fe- aeetanetc;dal o aaoyascyntbe Ioarblestn- tlltty rates; usnallyfiv-year avcaeeedIng in 190 Igt.n.17.msJionia blee lcnIg Fa-ily PIa.-J.a - Adtnr. -Inna )nhn,ceade)t- Annual nuber of acannr TV tRcenver (aer thoumed pnnultlnn) TV eevr for broadoa no II of bIrth-onotrolI davncee under eeepi fnaional family cenn P-'ge- geea public yen1 thonsand yoylpa!tto ealdenlcnedTrceer famIlyPJ y dao1._-leer loerct L o meyd nee) - tercnag of manle inl ieant ise en Inyear hIn rgtratlo ofo estni fet woano obild-her~il g (1-A hara b uae bitrhb-.nnnr-I d-v..eeto tseaarCrottn re heen thitn) hw ...aeag. tc all maried eneninsae gegtue nlsd C f tdaily geea t esrnmmeet daft ned aaeldloa yehlioanti devn-d pi-tialy no -aoedtng a =ecl .. In Je con.e,'llerd REfO aItD feTLfITtOa no ha "daily" tf in par t -en... fou tilm.. .n.ek. laden of Fnn rouctian rerCatt )16 _7-lt -(de. nf pr tpfita anul Cinem A--cIa Atf-d-nce emr aPita retTet-ese: o the nube of yroducnoni .ofdal Ondc nIniJ. yvdttneoue adadfa ndntbtemld durIng thyerIniodiag Ldnetn to drietn _ne Is o caeneryear bhete. C-indtl.e..ve .primary goods (e.g. eAg-r... end mbi ae Idoeu n age) ehio er eib end -nninnirtnt (e.g. cnffea ad natnl nrg t`duce prc stht;1961-, 191, ad1979 dana. TatL1 Labor Poree ithona...del E- tno ioly actt- paraons, tncuding yeP- et erl ofdcl.re ln2rc_n of requir-mnte - Inepuftd from an-md fnrna ca-d unemyloy butenldthuetv,audt,ec. energ equiivalen1t2of nt fond auppILc aveilable in cnntry per cPapn.. onaro poelt ofa nilng.. lflnitl L. atc Innttaar Per day. va-La.ble enpIJte coprise dm.Iio produttLat, i,pnnte I... non to-p-tble; 1960. 1970 aId 1979 date guantnta ueed in fond ylote..ielag Ind Lasst dierIIunLo. . iqtre- Astol ure l.--tent - Lao uc I ema ffotetry,h-tiog aed mn.twr mtuaa by PAt b..eed onpytn ia -d.ed fat ..-ma acrl- fihbing sep trm sa of tota labor ftrte; 161, 1970 and 1979 dana. ynty and health onn..nidrt-a e-vr-anL.1 me-aue body woighta, age lnd ymatiet - Labor fncm L in mntg, no-troontac, aanfatnrtnlg end e.. dietetbcfLon of ypcart,ad alwn 17 t-ren Ifor meeanad aet ,mtnr and gas as percentage of tona lab-r ftnvc; 1960, f.Inuahold. leve;l; 196-65, 1970,oad 1977d dta. 1970 aed 1979 dana. enonpitr ueel nf renneto laa- net day) - Pnovittnnenof pen cePit. fann rtnnanbr-nt otl al,ad femle-yar-tnipatino or oaf eapy of food Per day. fea eupp1y of food I. defined as abate . t- atintnynee.eomo etotal,_ ml, and fenl labor fntcsa qulr=m.aafnr.1 all .noneias eetblishad bf USDA provide for elii- etngeof total, male and femal yylantLoa of at1 ages reep-tiv-ly; a oten f 60 grEa of tnna1 protein Par day end if gsm nf animal nod 1961,. 1970, and 1979 data. Thaaa arc bae on. d 10s partit pate ret- y.lce prntatv_ of m.,i 11 an-am eheAd he atlmel Prnti Tfhaae ana- r-flsanlnga e.-rat- n rhI pnnal,nd 1mg time tred.IA cede Iyeloe .tan .b. of 75 En-ama of t-Ia ptroet an 25gam f fe ai-ttte arm from ntintecr_ e animal ppo-ei cc, anavrge1 frlthb world, Ppeop-d by A L0.i the Third ton-alo Denende-n t!ti - ett of nnuleenuder Itan 65 and Iys Wnrld Fond SA_my 1961-65, 170 end 1977 deta. no the total laorfoce Per cels onea eerl fro anma and1 P,"e - pete-n supply at fund de- rIve P"m unaeso1 ulesI gas dan; 1961-65 ,197D and 1977d.fta. INCOME DnyIgryBTIOa Mild same1-41 flnnalitt ets Iper heuca_d - aaa eth-e`hoad n Pretg nf P-eeIncome fbo n abca Anod - aeend.byrticie ag olp- lma-, no hildeen in thgia ae gnp fne meet det..lapta.tun 5 Per..en. richest 26Leoo, ors 20 prcet, nod pnnren At pnrta cIes. data derived fr- life tab_16, 197 and 179 de ta. of hnaeehnlde. Li. t aOcaret e at Birlh (ven-e - bee-ae naber nf year of li.IferminIng The fnltwiaa ei-ate are vrappranimta m oerm f pnvatyt evls atbntb;1960, 1970 and 199aa,ed slhoudb aepee i J nedthecoin in atle-nlity Sane lra thanad A--uI deanba of infanta under ema year alaed AbnltePve,anne lee -Oerceti-uhnad itel- nof aga Per nbnna live bif the. Abnlate p-very Laa leve J. that ecam level bl1w ahich a I.inte An-n nSfe aNer iIre nfeelt""n- total Nhnoa na -ea ureowiyaeun die laesnIal1 nnn-fnad rLnrmet iant (ee upyinoldaa Zte .,a orfae noat I. untreted hon unonsmnaed g t.td geltins Pavetv I-tm Level (Ui$e tnna arba end -ora - matnca-a than teem pranat-d hrhas ,tern. an antr c t naoralreatv pnvsrty tan.-n leve Ls o-tbindn vrgeperpn ptmngmof thein tayntta ny-itnn. I'n`e na lve apbiternlIcaatI e enn.Urban leve IA dance d fin h ua f t.aaia n _anpaet In-tad met -er than 200 me.ter Zre n b-e may he-en vith adjeam t f-r high-r n-net at living in -rtatme nn=idmred as e1ing sithin emaeble a oea f than hae . I rura arn attd analneat baua eet am ee eecnl-a-e emeembleaceeenud imply that tha hancumife ormcaso h aehi n _ua -Prcn ofpplctna (P.. ca ua) r aelt dn anhtet eped a dlaproynen.inet part of the day in fetobing ntapae' *..bn of pant (ota' uhn e aa)een yatn ipetc pernennaga If theit ..eapcttve Papolati- .. tanat dtapnel may iolude end L_en-atar by ae-hresyn o n u o f pit prenean nueicnai anyt sad' PrnJeti.a. Diperateon l.t tnal.ttn_a fla 1991, Pemlenen arFbtenian Fpnltiea divided by a,bnr of pettitiag pbyei- nam qnilia tem mmiol sbai a uiemeeLty leve. PPena.tiamertreePeea-Pplo dmivdd by macbar nf preteeong male cAd f ala geadanta n. a rn a =neama cad ceetetetmes  - 25 - PERU ANNEX I PaRe 4 of 5 ECONDOMIC DEVELOPMENT DATA A C T U A L ESTIMATED PROJECTED GROWTH DATE (X p.a.) 1977 NATIONAL ACCOUNTS 1965 1970 1975 1976 1977 1978 1979p 1980p 1981 1985 1965-76 1976-80 1980-85 2 of (millioms of US dollars at 1977 prices) GDP Dross Domestic P-odu-t 8902.5 10693.6 13376.8 13647.1 13639.6 13570.8 14079.0 14516.4 15082.5 18792.5 3.9 1.6 5.3 100.0 GCios fro Tcrms of Trode -610.9 130.0 -246.9 -179.4 0.0 -235.9 679.9 872.1 317.0 558.2 n.a n.a n.e 8 Grocu . oc.D i_o locouc (GDY) 8291.6 10823.6 13129.9 13467.7 13639.6 13334.9 14758.9 15388.5 15399.5 19350.7 4.4 3.4 4.7 100.0 Imports 1840.2 2190.1 2985.4 2697.7 2706.8 1988.7 2086.8 3004.6 3455.3 3724.7 3.5 2.7 4.4 19.8 Exports 2314.3 2616.8 1906.9 1908.8 2129.5 2431.2 2730.1 2578.5 2632.6 2979.6 -1.7 7.8 2.9 15.6 Exporto, Terms of Trade Adjusted 1703.4 2746.8 1660.0 1729.4 2129.5 2195.3 3410.0 3450.6 2949.6 3537.8 0.1 18.9 0.5 15.6 Resource Gap, Ters- of Trods Adjusted (-: sacpls) 136.8 -556.7 1325.4 968.3 577.3 -306.6 -1323.2 -446.0 503.7 186.9 0.0 n.e u.s 4.2 Total ConsorRPtiOn 6461.3 8669.0 11313.3 11694.8 12172.2 11272.3 11633.3 12543.7 12990.5 15787.9 5.C 1.8 4.7 89.2 Io-tsiaeut 1967.1 1597.9 3142.0 2741.2 2044.7 1756.0 1802.2 2398.8 2914.7 3749.7 3.1 3.3 9.3 15.0 Domestic Soiogs 1830.3 2154.6 1816.6 1772.9 1467.4 2062.6 3125.4 2844.8 2409.0 3562.8 -0.3 12.5 4.6 10.8 p/ preliminary PRICES IN US DOLLARS (1977 100) EDport Prior Inde 32.9 46.9 87.4 90.6 100.0 97.7 148.6 175.4 164.3 243.4 Import Price uIdes 44.7 44.3 100.4 95.7 100.0 108.1 119.4 131.0 (46.7 205.1 Terms of Trode Indeo 73.6 105.0 87.1 94.7 100.0 90.4 124.9 133.S 112.0 118.7 Annual Average Exchcnge Rate (Doles peP 5) 26.8 38.7 40.8 57.4 83.8 156.3 224.4 208.7 416.0 u.a GDP BY SECTOR --- LABOR FORCE_ _ LABOR PRODUCTIVITY OUTPUT, LABOR FORCE AND PRODUCTIVITY In Mil. of UD Percest of Growth Percent of irowth Percemt of Gro-th IN 1973 PRICES Dollars Total Rats IE Thooumads Total Rate Im UD Dollars Average Rate 1970 1980 1970 1980 70-80 1970 1980 1970 1980 70-80 1970 1980 1970 1980 70-80 Agricult-re (in-l. fishing) 1534.2 1457.8 17.3 11.8 -0.5 2011.9 2248.0 48.0 40.0 1.1 762.6 648.5 36.1 29.4 -1.6 Industry (aioing, Rmauf., electr.., consr. ) 3226.3 4712.4 36.5 38.1 3.9 769.1 1037.2 18.4 18.5 3.0 4194.9 4543.4 198.6 206.2 0.8 scroi-es (all others) 4084.8 6198.1 46.2 50.1 4.3 1407.6 2328.3 33.6 41.5 5.2 2902.0 2662.1 137.4 120.8 -0.9 Total/Average 8845.3 12368.3 100.0 100.0 3.4 4188.6 5613.5 100.0 100.0 3.0 2111.8 2203.3 100.0 100.0 0.4 CENTRAL GOVERNMENT FINANCE ESTIMATED PROJECTED (as pe-neat of Currest GDP) 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 Cormest Reveso- 13.2 14.6 14.0 13.4 13.5 14.3 16.0 18.4 16.6 17.2 Corro-t UnpeodOtore 12.4 12.1 14.4 14.8 16.9 15.8 12.8 16.2 16.5 15.7 C-trenc SayDogs 0.8 2.5 -0.4 -1.4 -3.4 -1.5 3.2 2.2 0.1 1.5 Copitol Uxpenditores 3.9 3.7 4.5 4.5 3.5 3.1 3.7 4.7 4.6 4.1 Eoterual Assistance (Net) 1.0 0.5 2.3 1.8 3.0 0.4 -0.7 0.3 0.3 CURRENT EXPENDITURE DETAILS AC T U A L (as perceat of Total Carrest ERpenditure) 1968 1973 1976 1977 1978 DETAIL ON 1981/85 DevelopRent Plso PUBLIC SECTOR US $ 2 Total Eductiton 30.6 27.9 22.9 18.1 16.1 INVE8TMENT PROGRAM Million Heath 9.4 6.3 6.2 4.7 6.0 1981 Prices Agnicult-re 3.6 4.4 1.8 1.3 3.4 Other Ecouoric Services 3.2 4.0 5.2 3.2 2.7 AgrEciltuse, Fishing 1557.2 14.1 GC-enea seriEces (Inoludlng deeEnse) 46.4 42.7 46.9 54.1 45.2 IEdostry, Tourism sod MisiOg 924.1 8.3 oterrcst on Debt 5.4 11.3 10.8 15.1 24.1 Energy 2688.1 24.2 Other 1.8 3.3 6.2 3.5 2.5 Tea..po-t asd Comi-taiicoe 2547.2 23.0 Social ood Local Icter-t Projects 3367.6 30.4 Totol Current Expeoditores 100.0 100.0 100.0 100.0 100.0 T 0 T A L 11084.2 100.0 ONEY AND CREDIT 1973 1974 1975 1975 1976 1976 1977 1977 1978 1978 1979 1979 1980 1981 p (Billioss of Roles outstandiag at the sod of pmriod) M.o.ey asd Qost-Sloney 98.3 120.0 141.8 142.4 166.3 166.8 216.2 220.5 344.1 361.1 686.4 725.9 1305.1 1973.5 Bank Credit to Psblic Sentor 27.2 26.9 49.7 60.3 101.4 L15.3 149.3 198.9 262.2 303.7 204.1 237.0 371.5 682.2 Bank Credit to Private Seitor 73.2 84.5 108.2 109.8 134.5 136.0 167.8 173.8 233.1 243.2 382.8 442.5 801.8 1521.8 Undenlying EUchange Rats (S/. per U0$) 38.7 38.7 38.7 65.0 65.0 85.0 85.0 160.0 160.0 225.0 225.0 390.0 390.0 390.0 Uoney as Percant of GDP 25.0 24.3 22.6 22.7 20.0 20.1 18.9 19.3 18.7 19.6 19.9 21.1 23.5 20.7 CODSUoer Price loden So soles (1977=100) 37.5 43.9 54.3 72.4 000.0 157.8 281.7 421.4 Anouol Percentage Change Is: Coosnase _ rRcs Index io Dolcs 9.5 16.9 23.7 33.5 38.0 57.8 67.7 59.2 75.4 Bank Credit to Poblin SDctor 53.7 -1.2 84.8 68.2 29.5 31.8 -32.8 56.8 83.6 MAok Credit to Private Sector 27.7 15.5 28.1 22.4 23.4 34.1 57.4 81.2 89.8 March 22, 1982  I  AS19E l8E98I5 ETEA SSSAC2AEDB I I~~~~~114 173 19 217 A7I :17 1998 199 18IET 19 .s .......T -I'99 l- 99. 190 -1. TE- 91S -1. -1. 519-9. 9.9l: 1 099941198991 118.9 911.9 993-9 897.9 199.1 111.9 895.9 991.1 197.1 111.1 1911.9 ~ ~ ~ ~ ~ ~ ~~~~~11,11:1 11 I 111- -1. 1,19991111 -71.9 8.1 99.9 19.8 11.9 A.1 -11.1 9.9 91.1 IA-I 81.A~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1,11: 39991 99,1959 99591 -91.8 -99.9 .97.9 -15~~.1 9 III 1-919 85.9 39.1 999.3 1.14.A - 9838911 &194919999 .I -51.1 -19.1 -191-1 173.1 919.1 911.1 -91-4 -1199.9 -719.9 911.4- -941.1:, I 1.899119 1S89,9 19999199 141 991141 91 -1-9 1.9 919.9 -18.7 -799-4-179.1 -19191 .199.71999 . 917-1 811. 999199991 11419799 1111191918119.91 4 919 1991118191, 9191998119 99194991188 99.9 19.1 13.1 199.1 49.9 193.9 18.1 13.3 lI-I 99.9 39.1 99.1 -93.9 19.1 9.7I1I 4.1198119113 111.4 999.9 199.9 191.1 179.1 199,9 119.1 170.9 1115.1 9171.1 7119.1 19-4 11.1 11.8I., 19.8I. 91.1~4 1: 99999 11349998499 941 1911-l19581519 4,13 191, 319T.E 191.1 191.1 191.1 499.1 179 .1 9117.7 199,9 911.7 719.9 1.1 11.4 -9.1 9.9 4.1 81491 11118 13.1.9.1 811-9 1091.1 1149.9 1197.1 9111.1 91111 1911.7 1191.7 9191.9 1911.3 8911.9 19.4 8.9. 11.7 11.9 91. . .....88.1.11..9 10.0.. . 1. 1. 9.997 7 4 8. 99 . 19 71 1. . 191919. .... 11 '~"I,.9 99. Il-A 10.-1.- 7. 09 99.7991 19ll91111. 19 1. . .  I  - 27 - ANNEX II Page 1 of 6 THE STATUS OF BANK GROUP OPERATIONS IN PERU A. STATEMENT OF BANK LOANS (as of March 31, 1982) 1/ --- US$ million --- Amount Loan (less cancellations) Number Year Borrower Purpose Bank Undisbursed 27 loans fully disbursed 409.2 949 1973 Republic of Peru Education 24.0 1.9 1196 1976 Republic of Peru Transport 76.5 22.0 1215 1976 Republic of Peru Power 35.6 4.9 1281 1976 CENTROMIN Mining 39.7 4.7 1283 1976 Banco Vivienda Urban Dev. 21.6 9.6 1358 1977 COFIDE Industry 35.0 3.9 1403 1977 Republic of Peru Agriculture 25.0 21.3 S-11 1978 Republic of Peru Preinvestment 8.8 2.5 1771 1980 Republic of Peru Irrigation 56.0 51.1 1806 1980 PETROPERU Petroleum Prod. 32.5 27.0 1812 1980 Republic of Peru Rural Dev. 15.0 14.4 1888 1980 Republic of Peru Preinvestment 7.5 5.1 S-19 1980 SIDERPERU Technical Asst. 5.0 4.7 1963 1981 CORPAC Aviation 58.0 57.6 1968 1981 COFIDE Industry 60.0 60.0 2018 1981 ELECTROPERU Power 25.0 25.0 2064 1981 Central Reserve Bank Industry 26.0 26.0 2091 1982 Republic of Peru Transport 93.0 93.0 2117 1982 PETROPERU Industry 5.3 5.3 Total 1,058.7 of which has been repaid 183.5 Total now outstanding 875.2 Amount sold 18.3 of which has been repaid 18.3 _ Total now held by Bank 875.2 Total undisbursed 440.0 1/ Since March, the Bank has approved two loans to Peru: (i) US$40.6 million to the Lima Water and Sewerage Service for a water supply project; and (ii) US$40.6 million to the Republic of Peru for an agricultural research and extension project. These loans were approved on May 11 and 20, 1982, respectively, and will be signed shortly.  - 28 - ANNEX II Page 2 of 6 B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1982) Type of Year Obligor Business Loan Equity Total 1960 Industrias Reunidas, S.A. Home Appliances 0.2 - 0.2 1960 Luren S.A. and Ladrillos Calcareos, S.A. Bricks 0.3 - 0.3 1960 Durisol del Peru, S.A. Building Materials 0.3 - 0.3 1960; 1962 Fertilizantes Sinteticos, S.A. Fertilizers 4.1 - 4.1 1962; 1968 Cemento Andino, S.A. Cement 2.3 0.2 2.5 1964; 1967 Cia. de Cemento Pacasmayo Cement 1.1 0.5 1.6 1975 Southern Peru Copper Corp. Mining 15.0 - 15.0 1978 Cia. de Minas Buenaventura Mining 2.0 0.5 2.5 1980 Cia. Minera San Ignacio de Morococha, S.A. Mining 2.7 0.5 3.2 1981 Sogewiese Leasing 3.0 0.1 3.1 1981 Consorcio Energetico de Power Huancavelica Transmission 4.5 - 4.5 Total gross commitments 35.5 1.8 37.3 less cancellations, terminations, repayments and sales 18.0 0.4 18.4 Total held by IFC 17.5 1.4 18.9 Total undisbursed incl. participants' portion 8.2 - 8.2  - 29 - ANNEX II Page 3 of 6 C. STATUS OF PROJECTS IN EXECUTION 1/ (As of March 31, 1982) Loan 949-PE: Education Project; US$24.0 million Loan of December 5, 1973; Effective Date: March 5, 1974; Closing Date: June 30, 1982. The project has experienced serious difficulties and is now about 40 months behind schedule owing to start-up problems including weaknesses in the project unit and cumbersome bureaucratic procedures. In order to resolve these problems, the project has been modified to reduce its scope, increase the Bank disbursement percentage, create a revolving fund and improve administrative procedures (see President's Memorandum R79-59 of March 27, 1979). As a result, the pace of project execution has improved substantially over the past year, and disbursements now stand at about US$22.1 million. Loan 1196-PE: Lima-Amazon Transport Corridor Project; US$76.5 million Loan of May 27, 1976; Effective Date: August 18, 1976; Closing Date: December 31, 1982. Construction of the project's river ports component is almost completed, although with some cost increases because of start-up difficulties. There were serious delays in contracting for civil works under the road component because of slow procedures and limited Government implementation capacity. These problems have been largely overcome and construction is now underway on all project components. The project has been modified so as to reallocate funds for the purchase of road maintenance equipment and eliminate improvement of those road sections which cannot be completed within a reasonable time (see President's Memorandum R79-88 of April 27, 1979). Loan 1215-PE: Fifth Power Project; US$36.0 million Loan of September 20, 1976; Effective Date: November 18, 1976; Closing Date: December 31, 1982. The slowdown of demand in ELECTROLIMA's market in the wake of economic difficulties as well as procurement problems, have delayed the project's power distribution component and completion is expected about a year behind schedule. Serious delays were also experienced in getting the technical assistance program of the loan underway; however, all consultants have now been retained, and with strong support from the current staff in the Ministry of Energy and Mines the program is now well advanced. Because of the delays, the Closing Date has been extended to end-1982. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 30 - ANNEX II Page 4 of 6 Loan 1281-PE: CENTROMIN Mining Project; US$40.0 million Loan of December 6, 1976; Effective Date: May 24, 1977; Closing Date: December 31, 1982. Initiation of the copper mining component was delayed by about two years because of the lack of local counterpart funds owing to the recession of the late 1970s. CENTROMIN is now proceeding with the project with support from additional Government counterpart funds, as well as a supplementary IDB loan and commercial bank borrowing to cover inflationary cost increases. Engineering, procurement and mine development activities on this part of the project are well-advanced. The mine-water treatment plant has now been completed. Loan 1283-PE: Urban Sites and Services Development Project; US$21.6 million Loan of October 12, 1976; Effective Date: January 10, 1977; Closing Date: December 31, 1982. Administrative difficulties, particularly the need to reconcile Peruvian procedures with Bank guidelines for procurement, delayed the project by about one year. All components are now moving ahead well and disbursements stand at US$12.0 million. Because of past delays, however, the Closing Date has been extended to end-1982. Loan 1358-PE: Industrial Credit Project; US$35.0 million Loan of January 28, 1977; Effective Date: March 30, 1977; Closing Date: June 30, 1983. Peru's economic recession led to a contraction of investment and to lower than anticipated demand for the loan in the late 1970s. In view of this, the Borrower -- the National Development Bank (COFIDE) -- agreed to finance projects identified by commercial banks and other financial institutions, which would also guarantee these loans and provide some loan servicing. With this action and improving economic conditions over the past two years, demand for the credit line has increased, and it is now almost fully committed. Loan 1403-PE: Irrigation Rehabilitation Project; US$25.0 million Loan of May 20, 1977; Effective Date: August 2, 1977; Closing Date: June 30, 1983. Because of the weakness of the project unit, there was a long delay in completing the designs for civil works in the six valleys where irrigation systems are to be improved. The unit has been substantially strengthened over the past few years, the design phase is now complete and construction has started. The project, however, is now several years behind schedule. Loan S-ll-PE: Water Supply and Power Engineering Project; US$8.8 million Loan of December 22, 1978; Effective Date: June 27, 1979; Closing Date: December 31, 1982. The main components of this project consisted of the feasibility study for the Mantaro water transfer scheme and a master plan for Lima's water system. The Mantaro study has been completed, and all other components are being implemented satisfactorily.  - 31 - ANNEX II Page 5 of 6 Loan 1771-PE: Lower Piura Irrigation Rehabilitation Project; US$56 million Loan of February 4, 1980; Effective Date: May 28, 1980; Closing Date: December 31, 1985. Project execution is gaining momentum. The implementation of most of the Bank-financed components of the project has begun or is in the process of being started. Loan 1806-PE: Petroleum Rehabilitation Project; US$32.5 million Loan of April 28, 1980; Effective Date: September 30, 1980; Closing Date: January 31, 1983. The project got underway more slowly than expected because of the weak implementation capacity of PETROPERU. All project components, however, have now begun and execution should improve in the coming months. Loan 1812-PE: Puno Rural Development; US$15 million Loan of April 28, 1980; Effective Date: July 9, 1981; Closing Date: June 30, 1985. Although there was a delay in making this loan effective, project activities are now underway. Consultants for the extension program have been hired and irrigation system designs are being prepared. Loan 1888-PE: Bayovar Engineering and Technical Assistance Project; US$7.5 million Loan of August 21, 1980; Effective Date: December 22, 1980; Closing Date: June 30, 1983. Consultants have been contracted and the final feasibility report for the phosphate fertilizer project is being reviewed. Loan S-19-PE: SIDERPERU Technical Assistance Project; US$5.0 million Loan of December 15, 1980; Effective Date: April 16, 1981; Closing Date: June 30, 1985. A consultant's report evaluating SIDERPERU's expansion plans has been reviewed. A plan of action to deal with the findings of this report is being discussed with SIDERPERU. Loan 1963-PE: Aviation Development Project; US$58.0 million Loan of August 19, 1981; Effective Date: January 21, 1982; Closing Date: December 31, 1986. Procurement activities for equipment have begun. Loan 1968-PE: Second Industrial Credit Project; US$60.0 million Loan of August 19, 1981; Effective Date: February 25, 1982; Closin Date: June 30, 1985. About US$10 million of this loan has thus far been committed.  - 32 - ANNEX II Page 6 of 6 Loan 2018-PE: Power Engineering Project; US$25 million Loan of August 19, 1981; Effective Date: February 25, 1982; Closing Date: June 30, 1985. Final design of a number of projects included in this loan, including the Yuncan hydroelectric project, are now underway. Loan 2064-PE: Small-Scale Enterprise Project; US$26 million of Effective Date: ; Closing Date: December 31, 1985. This loan was approved by the Board on December 8, 1981. It is expected to be signed shortly. Loan 2091-PE: Eighth Highway Project; US$93 million Loan of Effective Date: ; Closing Date: June 30, 1986. This loan was approved by the Board on February 16, 1982 and is expected to be signed in the near future. Prequalification of consultants and constructors is being done. Loan 2117-PE: Oil Refinery Engineering Project; US$5.3 million Loan of Effective Date: ; Closing Date: June 30, 1985. This loan was approved by the Board on March 25, 1982. It will be signed shortly. Selection of consultants is now being done.  - 33 - ANNEX III Page 1 of 2 PERU SIXTH POWER PROJECT SUPPLEMENTARY PROJECT DATA SHEET SECTION I: TIMETABLE OF KEY EVENTS (a) Time taken by the country to prepare the project: 9 months (b) Project prepared by: ELECTROLIMA, ELECTROPERU and HIDRANDINA with Bank assistance (c) First presentation to the Bank: July 1980 (d) Identification of the project: January 1981 (e) Departure of appraisal mission: August 1981 (f) Completion of negotiations: May 7, 1982 (g) Planned date of effectiveness: September 1982 SECTION II: SPECIAL BANK IMPLEMENTATION ACTIONS None SECTION III: SPECIAL CONDITIONS (a) By December 31, 1983, and as part of the power subsector's reorganization, the Government would: (i) establish regional utilities; and (ii) furnish to the Bank its timetable for implementing a reorganization of the power subsector (para. 51). (b) By December 31, 1983, ELECTROPERU would have drawn up and obtained Government approval for its investment plan for works outside the main system and submitted this plan to the Bank for comment (para. 53). (c) As a condition of disbursement for the Yuracmayo Dam, ELECTROLIMA would present to the Bank an economic analysis confirming -- to the Bank's satisfaction -- the dam's economic viability (para. 60). (d) As a condition for disbursement on the HIDRANDINA component, the Mayush project's feasibility would be confirmed in a manner satisfactory to the Bank (para. 63). (e) ELECTROLIMA would, by December 31, 1982, present to the Bank an acceptable plan of action for improving load forecasting techniques. Also, by the same date, and annually thereafter, ELECTROLIMA would present its ten-year demand forecasts to the Bank for comment (para. 66).  - 34 - ANNEX III Page 2 of 2 (f) By December 31, 1985, ELECTROPERU would reorganize its accounting and internal audit system in a manner satisfactory to the Bank to: (i) clearly define responsibilities of the company's financial and accounting units; (ii) standardize accounting procedures;and (iii) specify data processing needs (para. 68). (g) By November 30, 1983, and each year thereafter, ELECTROPERU would review with the Government and the Bank its sectoral investment and financing plan for the following year. The Government would also submit to the Bank a satisfactory technical and economic justifi- cation of any major project before carrying it out (para. 68). (h) ELECTROLIMA, ELECTROPERU and HIDRANDINA would seek, and the Government would authorize, tariff adjustments sufficient to enable the utilities to gradually reach a rate of return of at least 12 percent by 1985 and thereafter. The Government would also reinvest all dividends it receives from ELECTROPERU back into the company (para. 71). (i) ELECTROLIMA, ELECTROPERU and HIDRANDINA would obtain Bank concur- rence for any borrowing which: (i) raised short-term debt to more than one sixth of operating, maintenance and administrative expenses in the preceding 12 months; or (ii) caused internal cash generation to be less than 1.5 times the maximum future long-term debt service requirement (para. 73). (j) As a condition for disbursement on the components to be executed by ELECTROPERU and HIDRANDINA, subsidiary loan agreements, satisfac- tory to the Bank, would have to be signed by these utilities and ELECTROLIMA (para. 75). (k) ELECTROLIMA would appoint a board of consultants, under terms of reference satisfactory to the Bank, to review the design of the Yuracmayo dam within two months of completion of the engineering and follow Bank requirements for dam safety inspections (para. 81).  IBRD16094R CENTRAL-NORTH INTERCONNECTED SYSTEM/ r ~~~~~~EXISTING AND MAIN PROPOSED HYDRO PLANTS-~ ~L PIRA a0~~~~~ - ~~~~~~'CHACHAPOYA CH CAY'D\2 PUCALLPAO~ H'1UARAZ...... A N ~ ~ ~ ~~ U HUIANCO 5/1/1UT MfOYOPA MPA - pc&"AoT H21AMPAIV/ LIMA CALL HV/VANCk PLATANW4 21TiUI NJANCA PUERTO0 EL-ICA MAILDONADO( SAC U CHO OU TH POco ARANCAY o%~~~~~~~IZCO 7 LAo &L1/S1-"'/ AN!NCA [PROPOSED EXISTINGMooo,f 220 kV To r---o L-r, 0 * Sobstoflons 7' C-AN\0 R,-~~~~~~~~~~~~~~~~~~~~~~~~~~~~b R MOQIJEODA A> o ro Co Inc 210 -- ~~~~~~~~~~~~~~~~~~~~~~~~~~ACI J 12' C~~ H \