Document of The World Bank FOR OMCIAL USE ONLY Report No. 5833-UR STAFF APPRAISAL REPORT URUGUAY POWER SECTL a REHABILITATION PROJECT September 4, 1985 Projects Department Latin American and the Caribbean Regional Office Tbis doement ha. a nestricted disribolem sad may be ud by reciplels s6ly in the pefermnce of their elull dudtes. in is e may met otherwie be discloed without Word Bank setherintlen. CURRENCY EQUIVALENT Currency Unit - New Uruguayan Peso (NUr$) NUr$100.0 (6/30/85) - US$1 WEIGHTS AND MEASURES 1 meter (a) = 3.281 feet (ft) 1 cubic meter (3) 35.315 cubic ft (ft3) 264.2 gallons (gal) = 6.290 barrels (bbl) 1 kilogram (kg) = 2.206 pounds (lb) 1 ton (t; metric; 1,000 kg) 1.100 short tons (sh. tons) 1 kilowatt (kW) - 1,000 Watts (103 W) 1 Megawatt (MW) = 1,000 kW (103 kW; 106 w) 1 kilowatt hour (kWh) = 1,000 Watt hours (103 Wh) 830.3 kilocalories (kcal) 1 Gigawatt hour (GWh) 1,000,000 kWh (106 kWh) 1 kilovolt (kV) = 1,000 Volts (103 V) 1 Megavolt ampere (MVA) = 1,000 kVA (106 VA) 1 kilocalorie (kcal) = 3.968 British thermal units (Btu) = 4,186.8 Joule (J) I Hertz = 1 cycle/second ...per... - w./... ...per second; ...per hour = .../s; .../h ...per day; ... per year = .../d; .../a GLOSSARY OF ABBREVIATIONS ANCAP = Administracion Nacional de Cementos, Alcoholes y Portland (National Petroleum Company) ANTEL = Administracion Nacional de Telecomunicaciones (National Telecommunications Company) COMIPAL = Comision Mixta de Palmar (Mixed Commission of Palmar) CTK = Comision Tecnica Mixta de Salto Grande (Mixed Technical Commission of Salto Grande) EdeF = Electricite de France MIE = Ministerio de Industria y Energia (Ministry of Industry and Energy) UTE = Administracion Nacional de Usinas y Trasmisiones Electricas (National Power and Transmission Company) FOR OFFICIAL USE ONLY URUGUAY UTE - POWER SECTOR REHABILITATION PROJECT TABLE OF CONTENTS Page No. 1. THE ENERGY SECTOR............................................... 1 Energy Resources.............................................. 1 Energy Sector Organization.................................... 1 Energy Planning............................................... 2 Power Sector Objectives and Strategy.......................... 2 Bank Participation in the Sector.............................. 3 2. THE BORROWER........e..ee..e................. .......**e**... 5 Organization and Management................................... 5 Employment.................................................... 5 Management Sysem....................................... 5 Accounts Receivable.....6..... .................. 6 3. THE MARKET...................................................... 7 Historic Power Market. .................................. 7 Future Power Market..................................*e..... 7 Existing Power Facliie................................ 8 Losses........................................................ 9 Energy and Capacity Balance......*.................... ..... 9 4. THE PROGRAM AND THE PROJECT................... ................. 10 The Program................................................... 10 The Project................................................... 10 Project Objectives..........e............................. 10 Status of Project Preparatione.... ee..ee..e................ 11 Project Descriptiono...............eee....o............ 11 Project Cost Estimate..................... 12 Project Financing Scheme........................*.............. 14 Project Implementation and Supervision...eee......e.......... 15 Procurement.e.ee.e.........e.e...e....e...e................. 16 Dib. ...... .......... 17 Environmental Aspects. ................................. 17 Project Risks................................... 17 Project Files....e.........................e............ 18 This report is based on the findings of an appraisal mission which visited Montevideo (Uruguay) during May/June 1985. The mission comprised Messrs. J. L. Vietti (Senior Financial Analyst), and V. Jadrijevic (Power Engineer). Mr. A. Lambertini (Economist) contributed to the economic evaluation. 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. - it - Table of Contents (Cont'd) Page No. 50.INC........................................................ 19 Earnings History.............................................. 19 Current Financial Situation................................... 19 Investment Program and Financing Plan... . ....... ... 20 Tariff Regulations and Rate of Return......................... 22 Future Finances............................................... 23 6. ECONOMIC EVALUATION......................ee......e.....m........ 25 Least Cost Solution........................................... 25 Generation.................................................. 25 Transmission and Distribution............................. 26 Rate of Return.............................................. 26 7. SUMKARY OF AGREEmENTS REACHED AND RECOMMENDATION.............. 28 ANNEXES Annex 2 Attachment 1 Organizational Chart.......................... 29 Annex 3 Table 3.1 Historic Power Data (Generation)................. 30 Table 3.2 Historic Power Data (Sales)...................... 31 Table 3.3 Market Forecast (GWh) ........................... 32 Table 3.4 Existing Generating Capacity..................... 33 Table 3.5 1982-1993 Energy Balances (GVh-Average Year) without Punta Pedegral...... .................... 34 Table 3.6 1982-1993 Energy Balances (GWh-Average Year) with Punta Pedegral.............................. 35 Table 3.7 Capacity Balances (MW)........................... 36 Annex 4 Table 4.1 1985-1993 Investment Progran..................... 37 Table 4.2 Project Cost Estimates........................... 38 Table 4.3 Project Implementation Schedule.................. 39 Table 4.4 Performance Indicators........................... 40 Table 4.5 Estimated Loan Disbursement Schedule............. 41 Table 4.6 Project Cost - Annual Investments................ 42 Annex 5 Table 5.1 Actual and Forecast Income Statements 1982-1993.. 43 Table 5.2 Actual and Forecast Sources and Applications of Funds 1982-1993 ............................... 44 Table 5.3 Actual and Forecast Balance Sheets 1982-1993..... 45 Table 5.4 Financial Performance Indicators 1985-1993....... 46 Annex 5.1 El Paluar Hydro Plant: Background................ 47 Table of Contents (Cont'd) Page No. Annex 6 Table 6.1 Costs and Benefits Analysis....................... 50 Annex 7 Project File ................................. 51 MAPS IBRD 19258 - Location of Project (Generation and Transmission) 19257 - Location of Project (Distribution) - iv - URUGUAY UTE - POWER REHABILITATION PROJECT PROJECT SUMMARY Borrower: Administracion Nacional de Usinas y Trasmisiones Electricas (UTE) Guarantor: Government of Uruguay Amount: US$45.2 million equivalent Terms: Repayment in 15 years, including 3 years of grace, with interest at the Bank standard variable rate. Project The project consists of the following components: Description: (a) rehabilitation of the Gabriel Terra bydro plant; (b) extension of the 500 kV transmission system to the East; (c) extension of the 500 kV and 150 kV systems in Montevideo; (d) remodeling and upgrading the 30 kV underground network in Montevideo; and (e) consulting services for project management and supervision. Estimated Project Costs US$ Million Local Foreign Total 1. Rehabilitation Gabriel Terra hydro plant 2.6 21.8 24.4 2. 500 kV System to East 9.8 7.9 17.7 3. 500 kV and 150 kV System in Montevideo 11.2 15.7 26.9 4. 30 kV Distribution in Montevideo 2.8 6.2 9.0 5. Project Management and Supervision 1.6 3.2 4.8 Total Base Costl/ 28.0 54.8 82.8 Physical Continencies 1.8 4.3 6.1 Subtotal 29.8 59.1 88.9 Price Escalation 10.6 21.0 31.6 Total Project Cost 40.4 80.1 120.5 Interest during Construction - 17.6 17.6 Total Financing Requirements T.U 97.7 138.1 1/ At June 1985 prices. Includes taxes (16%) and import duties (10%). -v- Benefits and Risks: The proposed project would help meet Uruguay's power needs with lower fuel consumption, Improved system reliability and a higher degree of operational efficiency of existing installed capacity. Should cofinancing be delayed or not materialize, the ensuing delays in transmission and dis tri- bution investments would reduce the proposed gains in system reliability. A delay in the execution of these components, however, would not affect the benefits from more efficient hydropower generation which would be supported by the proposed A-loan. The project does not present major technical risks. Financing Plan Millions of Current US$ Component A-Loan B-Loan UTE Total Gabriel Terra Rehabilitation 37.1 - 4.4 41.5 Transmission and Distribution - 43.0 36.0 79.0 Interest During Construction 8.1 9.5 - 17.6 45.2 52.5 TK1T Estimated Disbursements: Bank FY 198 1987 198 1959. 1990 1991 1992 1993 Annual 1.60 4.85 8.10 10.00 9.40 7.00 3.50 0.75 Cumulative 1.60 6.45 14.55 24.55 33.95 40.95 44.45 45.20 Rate of Return: 11.9% on UTE's investment program. I. THE ENERGY SECTOR Energy Resources 1.01 Uruguay has been one of the Latin American countries most affected by the energy crisis. In 1984 oil imports amounted to 23% of export earnings or about US$235 million. Pricing and taxation policies for oil derivatives have aimed at reducing consumption. At present the retail prices exceed international levels (gasoline's are equivalent to about US$2.8/gallon, and diesel's oil to US$1.7/gallon); lower taxes have been applied to diesel oil to avoid a negative impact on the competitiveness of industry and transporta- tation costs; because of these policies, additional conservation efforts and a slowdown in economic activity, demand for oil products since 1979 has decreased significantly, whereas electricity use has risen at a pace close to 4% per year. 1.02 The country's energy resources are limited: it does not have known oil or gas reserves and only has small reserves of coal (with a high ash content and low calorific value). There are some oil shale and peat deposits, and there is an insignificant amount of fuelwood. Hydropower resources are few and, by and large, either already utilized or not economi- cal to develop at present fuel prices. Within the past six years two large hydroprojects came into operation: Salto Grande and El Palmar. Salto Grande (1,890 MW) is a binational project shared with Argentina. It is located on the Uruguay River and started commercial operations in 1979. At present Uruguay is entitled to 315 MW of Salto Grande's output but it may exercise options to gradually increase its share to 945 MW by 1995. El Palmar (330 MW), located on the Rio Negro, started operations in late 1982, and has been in full operation since early 1983. The total present installed capacity in Uruguay is 1,282 MW, of which 881 MW are provided by hydro resources and 401 14W by thermal resources. Due to very favorable hydrological conditions, during 1984 UTE was able to meet most of its generation requirements with hydro generation, keeping its thermal installations as reserve (para. 3.01). Energy Sector Organization 1.03 Most of Uruguay's energy sector is state controlled. The electric power policy is determined by the Government, through the Ministry of Industry and Energy (MIE). The most important operating entities are the National Petroleum Company, Administracion Nacional de Cementos, Alcoholes y Portland (ANCAP) and the power company, Administracion Nacional de Usinas y Trasmisiones Electricas (UTE). Electricity rates are approved by Presidential decree, and the Ministry of Economy and Finance and the Planning and Budgeting Office intervene in their determination, with primary decision- making powers vested in the latter. 1.04 UTE is organized as an autonojous public entity (its Board of Directors is appointed by the Government) but is subject to various legal and administrative constraints on its operations. UTE's budget is approved by the Planning and Budgeting Office and this budget places a legal ceiling on investments and expenditures. The Government auditing agency (Tribunal de Cuentas) is responsible for ensuring that UTE complies with budget and procurement legislation. -2- 1.05 The only other entity, in addition to UTE, that now operates in the power sector is Comision Tecnica Mixta de Salto Grande (CTM). CT'I was created in 1946, and is an international organization governed by a Board composed of four Argentine and four Uruguayan members, all appointed by the respective Governments. CTK has built the Salto Grande hydroplant and is responsible for its operation. The plant is interconnected to the UTE system by 500 kV lines which provide a link to Argentina's power network. CTM's bulk rates for the sale of electricity are determined so as to enable it to meet its financial requirements, and are expected to decrease starting from 1992. Another entity, Comision Mixta de Palmer (COKIPAL), was created in 1973 to build El Palmar hydroplant; after its completion, El Palmar was transferred to UTE (para. 5.01) and COMIPAL was dissolved by Law 15.700 of January 10, 1985. Energy Planning 1.06 Formally, the Ministry of Industry and Energy (MIE) is responsible for long-range planning. After the 1973 oil price increase, the Direccion Nacional de Energia was formed within the MIE to deal with sector policies. It has not yet been able to play a significant role in shaping sector policies. So far no systematic energy planning has been carried out, and the Government has not defined a comprehensive energy policy. 1.07 An energy sector study, which was recently completed, identified the technical and administrative assistance needs of the MIE, proposed changes to its organizational structure, and suggested improvements in data collection to complete the data base required for the preparation of a National Energy Plan. Under the Power Engineering Project (para. 1.12), the Government agreed that it would furnish to the Bank a plan of action to implement the energy sector study's recomendations, including a timetable for preparation of a National Energy Plan, and that by December 31, 1985 the Government would start carrying out the plan of action after taking into account the Bank's comments. The Italian Government has recently offered a grant to finance part of the implementation cost of such plan of action. Power Sector Objectives and Strategy 1.08 Since the oil price increases in the early 1970s, the Government's key objective has been to reduce Uruguay's dependence on imported fuel. In the power sector its strategy has been aimed at the substitution of hydro generation for thermal generation. The potential for this substitution has now been substantially achieved with the construction of the Salto Grande and El Palmar hydroplants. A generation development study through the year 2000 (para. 1.11) made by independent consultants has shown that none of the small hydro projects that have been identified can compete with conventional ther- mal plants. Thus, in the future, fuel savings concerns will have to be addressed by a more efficient operation of UTE's generating plants and dis- tribution system, lose reductions, system planning and demand management through pricing policies which take marginal costs into account. The Bank continues to provide assistance to UTE in all these areas (para. 1.12). - 3- Bank Participation in the Sector 1.09 The Bank has supported Uruguay's power sector since 1950. It has been associated with major sector reforms and improvement programs carried out over the last five years. The proposed project would serve as a basis for extending the Bank's policy dialogue with the authorities, and would help to ensure continued Bank involvement in the action programE that are expected to evolve from the studies it has he._,ad to finance. Through the former Administracion Nacional de Usinas Electricas y Telefonos del Estado (now Administracion Nacional de Usinas y Trasmisiones Electricas-UTE) the Bank made five loans to the sector: in 1950 (Loan 30-UR), 1955 (Loan 132-UR), 1956 (Loan 152-UR), 1970 (Loan 712-UR) and 1979 (Loan 1779-UR) aggregating US$106 million. The first four loans have been fully disbursed and the projects have been satisfactorily carried out. The project Performance Audit Report for the Fourth Power Project (SecM78-867 of November 29, 1978) indicates that progress towards meeting the institutional objectives the Bank had in 1970, when making the loan, was slow and generally disappointing. It also makes the point that UTE did not ccnply with some of the loan covenants. It may be noted, however, that the project's implementation coincided with a period of severe social conflict and general economic dislocation. 1.10 To provide a focus for discussion of further Bank support of the power sector, in mid-1976 the Bank carried out a sector review and recommend- ed various measurLd o strengthen the power sector and improve UTE's perform- ance. This report was discussed with the Government when the Fifth Power Project was being prepared, and agreement in substance on all major issues was achieved. To address the problems detected, the Government passed a new Electricity law (and its corresponding regulations), approved UTE's new by-laws, and instituted a mechanism to allow tariff increases when input costs increased. Furthermore, agreement was also reached that UTE would engage various consultants (para. 1.11) and private external auditors to assist in improving internal operations, planning consultants to develop a long-range generation expansion plan, and project consultants to both assist with the project and set up a planning department and provide training to its staff. 1.11 Under Loan 1779-UR the Bank financed consultant services for the following studies: (a) an energy sector study, which reviewed institutional arrangements of the sector and developed a framework for energy planning (para. 1.07); (b) a planning study, which resulted in a least cost develop- ment plan to the year 2000 for electricity generation, and provided training to UTE's staff in planning techniques (para. 1.08); (c) a management study, which reviewed UTE's organization and operations and provided recommendations on means to improve its efficiency (para. 2.02); and (d) a tariff study based on long run marginal costs, which resulted in recommendations to improve the tariff structure (para. 1.12). The results achieved by the measures referred to in para. 1.10 and by the above studies have been very satisfactory and UTE's operations have measurably improved over the past few years. Project completion of Loan 1779-UR is expected for December 1985, including 3.5 years delay. - 4 - 1.12 In early 1985 the Bank gade a Power Engineering Loan (2484-UR) which follows-up on the previous efforts to improve UTE's operations and increase its efficiency. Loan 2484-UR includes: (a) the feasibility study for the rehabilitation of the Gabriel Terra hydroplant (which has been already completed) (paras. 4.04 and 4.05(i)); (b) an operation planning study (this study would be the basis to review the generation development study - para. 1.08); (c) a distribution sytitem study; and (d) a training component (all such studies aiming at ensuring a more economic operation of the generating facilities, reducing distribution losses and promoting management development). The Bank is also financing the purchase of electricity meters to implement a tariff structure based upon a satisfac- tory plan of action to implement the conclusions of the marginal cost study (para. 1.11). -5- 2. THE BORROWER Organization and Management 2.01 The Borrower of the proposed loan would be the Administration Nacional de Usinas y Trasmisiones Electricas (UTE), a quasi-autonomous entity of the Uruguayan Government which has the responsibility for public power supply in the country. UTE's organization is satisfactory; it is governed by a full-time, five-member Board of Directors with its President acting as Chief Executive Officer. The present President is a former UTE Planning Manager, with more than twenty years experience with the company. The General Manager and other senior staff are also career executives. The organizational structure of the company is sound and is shown in Annex 2, Attachment 1. 2.02 To help UTE have a more flexible and efficient administration, management consultants carried out a comprehensive organization and administration study (para. 1.11). This study was successfully completed and its recommendations have been,. or are in the process of being, implemented. One of the main consequences has been the recognition by UTE's management of training needs, thus providing continuity to the institution building efforts. Employment 2.03 UTE presently employs about 10,600 people (representing about 84 consumers per employees), which include 225 professional staff, i.e. about 2% of the workforce employees. Though this represents an improvement over the situation a few years ago, there is still an imbalance between professional and non-professional staff. Many senior managers are close to retirement,so there is also a need to develop middle and junior anagement. To address this, further steps to attract qualified professionals would be required. Under the Power Engineering Project, agreement was reached on a training program for management that will help to address this problem. Under Loan 1779-UR, UTE engaged Price Waterhouse to conduct a salary survey. The survey showed that, in 1982, the salaries of professional and management staff would have had to be increased significantly to be competitive with the private sector. At that time, some modest corrections were implemented; at present, the economic conditions in the country have reduced professional turnover and employment opportunities outside are limited, hence UTE has been able to main-ain and increase its professional staff. During project supervision special attention should be paid to ensure that appropiate compensation policies are followed. Management Systems 2.04 UTE's commercial systems have been improving in recent years. Financial planning is an area where staff are still in the process of developing expertise; improvements achieved in the past few years, however, - 6 - are quite significant. Accounting, budgeting and billing systems are adequate, as weli as insurance policies and practices. Under previous loans, UTE agreed to engage independent external auditors to review its accounts and assist in developing internal auditing capabilities; the results were satisfactory. The loan documents for the proposed project would repeat the covenant of earlier loan agreements that UTE should retain independent auditors (para. 7.02(a)). 2.05 UTE's inventory management is poor and a program for improvement is underway. The absence of a well-structured inventory policy and the need to strengthen inventory management are acknowledged by UTE's Board and staff, and are emphasized at every opportunity by both internal and external auditors. .Also, there is a general consensus on a significant overstock position in the last two fiscal years, which is reflected in the projection of working capital requirements for 1985-1993. To tackle the problem, an internal group was created to deal with procurement and internal control matters, but UTE agrees that further improvements are necessary. Under Loan 2484-UR, UTE agreed to submit to the Bank an action plan for improving inventory management and, after taking into account the tank's comments, to start carrying out such plan of action by October 31, 1985. Accounts Receivable 2.06 By the end of 1984, UTE had reduced its overall average collection period to 60 billing days, compared with the collection period of 75 days covenanted under Loan 1779-UR; the collection period for private consumers was 45 days. After a period of high public sector arrears in the early 1980s, an improving trend towards reducing public sector overdue accounts began in 1983. Public sector accounts receivable were further reduced in late 1984 when, in compliance with a condition of Board presentation of Loan 2484-UKR, a compensation exercise between Government agencies and UTE was carried out and a plan was submitted to reduce the billing period of the covenanted target. As of December 31, 1984, the collection period for public sector accounts was about 135 days; this represented a significant improve- ment compared to the 355 days in 1982, although still short of the 75 days target agreed upon in Loan 1779-UR. To ensure an adequate financial performance, during negotiations, UTE agreed to maintain the 75 days target agreed upon in Loans 1779-UR and 2484-UR (para. 7.02(e)), and the Government agreed on an action plan to settle its accounts payable to UTE within the following terms: by December 31, 1985, not more than 120 days; by June 30, 1986, not more than 90 days and by December 31, 1986 and thereafter, not mre than 75 days (para. 7.01 (a)). - 7 - 3. THE MARKET Historic Power Market 3.01 UTE's overall historic power data (generation and sales) is shown in Annex 3, Tables 3.1 and 3.2 and is summarized as follows: Average Growth (%) 1979 1981 1984 1979-1984 Generation (GWh) 2,904 3,534 3,753 5.3 Peak Demand (MW) 509 683 781 8.9 Sales (GWh) - Total a/ 2,479 2,913 3,019 4.0 Industrial 960 1,059 1,010 1.0 Residential 1,060 1,293 1,407 5.8 Commercial 378 454 494 5.5 Others 81 107 108 5.9 Station Service Use (GWh) 88 65 109 - Losses (GWh) 337 556 625 (%) 12 16 17 a/ Public sector sales amounts to about 15%. The share of industry in the market decreased from 39% in 1979 to 332 in 1984 while residential supply increased from 43% in 1979 to 48% in 1984. The growth pattern of generation by different sources (hydro, thermal and purchase) has changed significantly from 1979 to 1984. Hydrogeneration increased its share from 46% in 1979 to 97.6% in 1984 (this latter year due to very favorable hydrological conditions). This is due to the commissioning of the Salto Grande and El Palmar hydro plants in late 1979 and 1982 respectively and to the construction of transmission lines (financed under IBED Loan 1779-UR) to the interior, where isolated areas of the country were incorporated to the interconnected system. Load factor has decreased from 61% in 1979 to 54% in 1984. This fact indicates that the pricing structure needs to be used in order to improve load factor. Such improvements in the load factor, through adjustments in the tariff structure, are expected as a result of the implementation of the recommendations of the marginal cost study (para. 1.12). Future Power Market 3.02 UTE has developed in the past, with the assistance of consultants, different methodologies to forecast electricity demand and has relied on -8- trend analysis and on regression analysis techniques. As a consequence of the economic recession, the decline in the rate of growth of demand experi- enced during the last three years has left most of the projections outdated. The load and energy demand forecasts are shown in Annex 3, Table 3.3 and are based on the studies prepared by Hydro Quebec International (Canada) in April 1982 and updated by UTE in April 1985. Demand forecast was reduced by UTE to conform more closely to the actual economic situation during the appraisal mission. 3.03 The three principal categories of consumers (Residential, Non-residential, and Traction and Street Lighting) were analyzed separately for the period 1965-1984 from which the trend of each category was updated. The market forecast shows that sales would increase from 3,019 GWh in 1984 to 4,283 in 1993, indicating an average annual increase of about 4% during the period of the projections. 3.04 For the cases of Montevideo (para. 4.05 (iii) and (iv)) and the circuit to the East (para. 4.05 (ii)), a detailed study of electricity requirements was performed. For Montevideo, requirements for 1984 were first determined, taking into account the present (5 substations) and the new (9 substations) configurations of the 150 kV distribution system, then the requirements were projected. These projections show an average energy increase of 4.3% per year for the period 1985-1993, which is reasonable. For the circuit to the East, the requirements were projected based on 1984 data with an average increase of 7% per year. This figure is consistent with the growth experienced during the past twenty years where demand has doubled every ten years. Existing Power Facilities 3.05 Annex 3, Table 3.4 shows details of UTE's power generating facilities at the beginning of 1985. UTE's total installed generating capacity was 1,282 MW, of which 68% was hydroelectric (881 MW) and the balance constitutes oil or gas fired power plants (401 MW). Hydrogeneration is supplied through three power plants located on the Rio Negro River (566 MW) and by the Salto Grande Binational hydro plant built jointly with Argentina (315 MW) on the Uruguay river. Thermal generation is supplied through several power stations (388 MW) in the interconnected system and five diesel stations (13 MW) located in isolated systems. 3.06 The attached maps show UTE's existing and proposed power transmis- sion and distribution facilities. UTE delivers electricity to its consum- ers 1/ through a transmission system of 2,809 kms operating at 500 kV, 150 kV, 110 kV, and 60 kV, a primary distribution system of 14,800 kus operating at 30 kV, 15 kV, and 6 kV, and a secondary 220 V distribution system compris- ing 10,900 kms. The system includes 32 substations (transmission level) with a total installed capacity of 1,890 MVA and 158 substations (primary distri- bution level) with a total installed capacity of 1,206 MVA. 1/ Access to electric service in Uruguay in about 82% of all households. -9- Losses 3.07 Currently electricity supply in Uruguay is reliable. Historically, UTE has operated and maintained its facilities efficiently. However, the distribution system, particularly in the area of Montevideo, is old and its reliability is not as good as in the transmission and subtransmission system. This problem was partially addressed through improvements and expansion of the Montevideo system financed by the Bank under Loan 1779-UR. An important part of UTE's investment plan for the period 1986-1993 provides for expansion and improvement of the primary and secondary distribution system. 3.08 Presently total losses are 17%, of which 13% is attributable to the distribution system. This is technically high but it is not known whether thefts are a substantive part of these losses. It appears unlikely that thefts are a substantive part of these losses in view of the fact that losses have varied little from year to year. Technical inadequacies may be the main reasons: Montevideo's intermediate voltages are relatively low at 30 kV and 6 kV, many of the 30 kV and 6 kV underground cables are old and overloaded, while distribution is at 3 x 220 V, (non-balanced 2-phase 220 V loads cause heavier losses due to the lack of the neutral conductor). With the Bank assistance (Engineering Loan 2484-UR), UTE will carry out a comprehensive distribution study which includes a loss reduction plan in the medium and low voltage levels. Energy and Capacity Balance 3.09 Annex 3, Tables 3.5, 3.6 and 3.7 show UTE's energy and capacity balances for the national hydrothermal interconnected system for the period 1982-1993, based on a simulation model of existing generation system. Average hydrological conditions were determined from a simulation on a 70-year (1908-1978) series. The results of the simulation studies indicated that additional thermal generating capacity would be needed by 1989 in order to meet the projected demand so as to comply with reliability criteria. 3.10 Despite the above, expansion of the generating capacity has been excluded from the present investment program (para. 4.01) subject to the conclusions of the operation planning study to be carried out by consultants, to be financed by Loan 2484-UR, as further analysis of hydrological data is required to assess the risk of not being able to meet demand under dry year conditions. The study, which in part will conduct a comprehensive review of UTE's present model and practices, is expected to be completed by the end of 1986. Delay in the execution of a new thermal power plant my require relying on the interconnection with Argentina (Salto Grande) for about 10% (reserve capacity) of the total demand by 1989. - 10 - 4. THE PROGRAM AND THE PROJECT The Program 4.01 Annex 4, Table 4.1 sets forth details on UTE's development program for 1985-1993. It is designed to meet the forecast of energy and demand increases within acceptable levels of reliability. The cost of the proposed program is expected to amount to about US$804.7 million equivalent (in current dollars). Of the total investment program 27% would be for genera- tion, 18% for transmissi3n, 51% for distribution and 4% for miscellaneouc investments, which is a reasonable breakdown under the present circumstances. The generation component would consist mainly of the rehabilitation of the Gabriel Terra hydroplant. The transmission component mainly involves the works under the pro;osed project, projects under execution and other extensions to meet dezand growth in various areas of the country. The distribution component would involve new connections, rehabilitation and expansion of networks in Mantevideo and extension of the 60 kV and 30 kW lines to various productive areas in the interior of the country. As described below, the proposed project is part of the above expansion program. The Project 4.02 Annex 4, Table 4.2 sets forth details of the proposed project. It would include the following major components: (i) rehabilitation of the Gabriel Terra hydro plant; (ii) extension of the 500 kV and 150 kV transmission system to the East and to Montevideo; (iii) remodeling and upgrading of the 30 kV distribution system in Montevideo; and (iv) consulting services. Project Objectives 4.03 The main project objectives are: 1) to strengthen Uruguay's hydroelectric generation capacity by rehabilitating the Gabriel Terra hydro plant and extending its useful life; (ii) to ensure the continued efficient operation of downstream hydrogenerating capacity served by the Gabriel Terra reservoir; (iii) to improve the reliability of service in the country by expanding the transmission and distribution systems and to connect areas with growing economic activity to the system grid; and (iv) to ensure that UTE continues to operate its facilities in accordance with sound financial and managerial practices. More generally, the project would reinforce our policy dialogue on power sector issues, and would ensure that the studies under execution are - 11 - satisfactorily completed, and their findings implemented through appropriate action plans. Status of Project Preparation 4.04 The project is well advanced. For the rehabilitation of the Gabriel Terra hydroplant, the feasibility study (para. 1.12) prepared by EdF, under terms of reference agreed with the Bank, was reviewed by the Bank and found adequate. The study concluded that the rehabilitation of the hydro plant is technically essential and economically very attractive (para. 6.02). Technical specifications and bidding documents are being prepared by EdF with UTE's participation. It is expected that a complete set of docu- ments for review by the Bank will be ready by October 1985 and that shortly after Bank approval, tendering would begin. For transmission and distribu- tion the routes of the lines are already defined. UTE has started the detailed engineering work for the distribution and 150 kV transmission lines. Revision of the design criteria for the 500 kV transmission lines and preparation of bidding documents for a 150/30 kV package unit substation would be carried out by consultants financed by the Bank. Bidding documents for distribution and 150 kV transmission would be available for tendering by mid-1986 and by December 1986 for the 500 kV transmission lines. Terms of reference for consultant services are being drafted by UTE, according to guidelines provided by the Bank, and were agreed during negotiations. It was also agreed that some consultants would be engaged by June 1986 (para. 7.01(b)). Project Description 4.05 A summary of the proposed project is given below. (i) Rehabilitation of the Gabriel Terra hydro plant. This component consists of: replacement of electromechanical equipment in the power plant (generators, turbines, voltage and speed regulators, 151 kV circuit breakers, transformers, power and control cables, protective equipment and station service and auxiliaries); replacement of mechanical equipment at the dam (gates, grillages and related accessories); and minor civil works, both in the powerhouse and dam; (ii) Extension of the 500 kV transmission system to the East. This component consists of: 123 km of 500 kV lines from Montevideo to San Carlos; 17 km of 150 kV line to connect the San Carlos substation and expansion of the 150 kV Montevideo and San Carlos substations; (iii) Extension of the 500 kV system in Montevideo and upgrading of the 150 kV circuit ring. This component consists of: 20 km of 500 kV transmission lines, 11 km of 150 kV lines, 25 kas of 150 kV under- ground lines, and related 500/150 kV and 150 kV/30 kV substations; - 12 - (iv) Remodeling and upgrading of the 30 kV distribution network in Montevideo. This component consists of 70 km of underground 30 kV distribution lines, 160 MVA 30/6 kV substations, and 23 KVA 30/15 kV substations; and (v) Consultant Services for project management and supervision. Project Cost Estimate 4.06 Annex 4, Table 4.2 sets forth details on the expected cost of the Project. The total project cost, including physical and price contingencies, is expected to amount to about US$120.5 million, of which about US$80.1 million would be the foreign component (direct and indirect). Total financ- ing requirements, including US$17.6 million interest during construction, would be US$138.1 million. The table on the next page summarizes the cost data set forth in Annex 4, Table 4.2: - 13 - Project Cost Summary -- Cost in US$ thousand - Description Local Foreign Total (a) Rehabilitation of the Gabriel Terra 2,562 21,833 24,395 Hydro Plant (b) 500 kV Transmission Line Montevideo- 9,740 7,940 17,680 San Carlos (c) 500 kV and 150 kV System in Montevideo 11,177 15,670 26,847 (d) 30 kV Distribution Network in 2,142 4,907 7,049 Montevideo (e) 30 kV Distribution Network in the 714 1,325 2,039 Interior (f) Management and Project Supervision for 359 3,056 3,415 Item (a) b/ (g) Management and Project Supervision for 1,126 100 1,226 Items (b)-(c) (h) Management and Project Supervision 226 - 226 for Items (a)-(e) Total Base Cost 28,046 54,831 82,877 Physical Contingencies a/ 1J59 4,302 6,061 Subtotal 29,805 59,133 88,938 Price Escalation 10,600 21,000 31,600 Total Project Cost 40,405 80,133 120,538 Interest during Construction - 17,600 17,600 Total Financing Requirements 40,405 97,733 138,138 a/ 10% for items (a), (d), (e), (f), (g) and (h) and 5% for items (b) and (c) b/ To be done through consultants, financed by the Bank. - 14 - 4.07 The cost data for the rehabilitation of the Gabriel Terra hydro plant component was based on a feasibility study prepared by EdF using price levels as of June 1985. Cost data for the transmission and distribution component of the project estimates was based on a feasibility study prepared by UTE's planning and construction staff using price levels prevailing in June 1985. Prices of equipment and materials for the transmission and distribution component reflected UTE's recent experience with respect to similar works. Cost includes import duties (10%) and taxes applicable to local goods and labor costs (16%). Physical contingencies were calculated on the basis of 10% and 5% of the base costs for the generation and transmission and distribution components respectively, which were considered to be reason- able given the accuracy of the above cost estimates. Price contingencies were applied using the following annual expected international price increases: 5% for 1985; 7.5% for 1986; 8% for 1987-1990 and 5% for 1991-1992. It was assumed that the exchange rate adjustments would reflect the differ- ence between internal and external inflation. Project Financing Scheme 4.08 The financing scheme for the proposed project would include a Bank A-loan to finance the foreign exchange component of the rehabilitation of the Gabriel Terra hydro plant and a B-loan which would finance the transmission and distribution components. The project financing plan would be as follows: Component A-Loan B-Loan UTE Total (Millions of current US$) Gabriel Terra Rehabilitation 37.1 - 4.4 41.5 Transmission and D-'stribution - 43.0 36.0 79.0 Interest During Construction 8.1 9.5 - 17.6 45.2 52.5 40.4 138.1 4.09 Under the loan financing plan described in para. 4.08 above, the proposed Bank A-loan would be USS45.2 million. This financing would cover 100% of the foreign expenditure for the generation component of the project including the corresponding interest and other charges during construction until September 14, 1991. A US$52.5 million B-loan would finance the trans- mission and distribution component of the project as well as the pertaining interest during construction. Financing of interest during construction is justified in view of the heavy financial burden on UTE imposed by the servicing of the external debt and the Uruguayan difficulties in obtaining foreign currency at this time. - 15 - Project Implementation and Supervision 4.10 The executing unit of the project within UTE's organization (Annex 2, Attachment 1) would be the planning division, and the division manager would act as project coordinator. This unit would work within the framework of UTE's organization with the assistance of the procurement, construction, finances and engineering divisions, to provide the required technical and project management guidance to ensure that design, procurement and construc- tion would be executed in a timely and orderly manner. During negotiations the Bank agreed with UTE to maintain the present project unit (para. 7.02 (b)). A program implementation schedule which would be used to mnitor the project is shown in Annex 4, Table 4.3. Project completion is expected by December 1992. 4.11 Erection of electromechanical equipment for the Gabriel Terra hydro plant would be carried out by UTE's force account with the assistance of specialized personnel provided by the manufacturer and the consultant. UTE has agreed that supervision of this portion of the project would be done through consultants (para. 7.01 (c)). Construction of UTE's proposed trans- mission and distribution works are expected to be contracted under ICB and the works would be supervised by UTE's construction departments. As UTE's technical staff is competent and has experience in this kind of work, Bank staff consider these arrangements adequate. 4.12 Consulting services, procurement, manufacturing, installation and construction of the works included in the project are expected to be carried out between January 1986 and December 1992. The corresponding key dates are summarized below: Activity Period Issuance of Bidding Documents January 1986-April 1988 Contract Awards Apr'.1 1986-December 1988 Construction/Manufacturing/Services May 1986-June 1989 Commissioning of Works August 1986-May 1993 At negotiations, UTE accepted the performance indicators which are to be used to monitor UTE's financial, managerial and operational performance (Annex 4, Table 4.4 and Annex 5, Table 5.4). - 16 - Procurement 4.13 The following table summarizes the procurement arrangements for the project: -US$ Million ----Procurement Method--- Project Element ICB a/ LCB b/ EA c/ Other d/ Total 1. Generation Equipment 32.3 - - - 32.3 and Materials (32.3) (32.3) 2. Transmission Lines Equipment and 14.2 3.5 - - 17.7 Materials 3. Substation Equipment and Materials 24.0 0.3 - - 24.3 and Transmission Underground Power Cables 4. Distribution Equipment 10.4 0.1 - - 10.5 and Materials 5. Engineering and Administration - - 2.7 4.8 7.5 - - - (4.8) (4.8) 6. Construction Works 25.0 1.4 1.0 - 28.2 Total Project 105.9 5.3 45 4.8 120.5 (32.3) (-) (-) (4.8) (37.1) Note: Figures in parenthesis are items to be financed by Bank A-loan. a/ ICB - International competitive bidding b/ LCB - Local competitive bidding c/ FA - Force account (to be supplied through borrower manpower and/or resources). d/ Consultants services to be procured in accordance with IBRD guidelines. 4.14 Procurement of goods to be financed from the proposed loan would be through international competitive bidding (ICB) in accordance with the Bank's guidelines for procurement. The Bank expects that procurement of goods and services to be financed from the B-loan would also be consistent with said guidelines. Goods and construction works to be financed by UTE would be procured through UTE's normal procedures, which require competitive bidding for both local and international procurement. Local manufacturers will receive a margin of preference of 15Z or the applicable import duties, whichever is lower for bid evaluation. The Bank found UTE's procurement procedures to be consistent with the principles of economy and efficiency. Applicable regulations and procedures are in the Project File (Annex 7) which will be used to prepare a "Country Procurement Assessment Report" scheduled for FY86. Consultant's services for project engineering and management would be selected from a short list of consulting firms following Bank guidelines and appointed under terms and conditions approved by the Bank. - 17 - Disbursements 1.15 Annex 4, Table 4.5 reflects the expected disbursement schedule of the proposed loan based on the Bank's experience in similar projects. The annual investment of the total project cost is shown in Annex 4, Table 4.6. Proceeds of the Bank A-loan would be used to finance: (i) 100% of foreign expenditures for imported goods, and 84% of the ex-factory cost for local goods for the generation component of the project; (ii) 100% of foreign expenditures, and 84% of local expenditures for consulting services. (iii) interest and other charges during cnstruction until June 1991. Disbursement requests would be fully documented except for imported goods whose value is less than US$100,000 equivalent. Claims for expenditures of these lesser amounts would be subject to presentation of a statement of expenditures for which the supporting documentation would not be sent to the Bank but would be retained by UTE for periodic inspection by the Bank. A special account would be established in the Central Bank of Uruguay with a deposit of US$4 million. Periodic replenishment would be made to this special account against withdrawal applications received from UTE and supported by such documents as the Bank would require. The Borrower would be required to carry out auditing of this special account on an annual basis. The closing date would be June 30, 1993. Environmental Aspects 4.16 No environmental problems are expected. The Gabriel Terra hydro plant is an existing plant which has not posed environmental problems. The facilities to be constructed (transmission and distribution) are of standard design for which the necessary easements are provided. They would be under- ground and in substation buildings in Montevideo, and of the standard over- head type in the interior. UTE intend to route their lines and locate their substations so as to minimize their visual impacts in a manner consistent with economic and financial considerations. Project Risks 4.17 The project faces no special risks. The construction schedule assumed for the project is reasonable and takes into account normal engineer- ing, administrative, construction and erection procedures. Despite the adverse effects of the declining economic activity in the early 1980's, UTE has had an adequate financial performance and its present situation is sound, although depending on timely tariff adjustments and debt restructuring. If the present tariff policy is maintained and a satisfactory arrangement is achieved with the commercial banks creditors on El Palmar debt, no major risks are envisaged and a satisfactory financial performance is expected - 18 - during project execution. The generation component of the project, which would be financed under the A-loan, would not be affected by a delay in the execution of the other components of the project should the B-loan be delayed or not materialize. Project Files 4.18 The documents utilized to process the project and prepare the SAR are listed in Annex 7. - 19 - 5. FINANCES Earnings History 5.01 Since 1977, the results of UTE have fluctuated, reflecting changes in the Government economic and tariff policies, but on balance its financial performance has been adequate. The rate of return exceeded the level covenated under Loan 1779-UR until 1979, and after declining from 1980 to 1982, an improving financial trend began in 1983. In the latter year COMIPAL's assets .(US$600 million: US$546 million El Palmar hydro plant and transmission lines, and US$54 million current assets) were transferred to UTE, and US$594 million of debts (most of which mature in the next 5 years) were added to UTE's liabilities; the remaining US$6 million was a Government equity contribution (Annex 5.1). Despite this increase in debt, UTE's debt equity ratio is still at a satisfactory level, 50:50. 5.02 During 1983 and 1984 UTE showed an improvement in its financial performance, although the rate of return agreed upon under Loan 1779-UR was not met. A modest increase in sales took place during these years despite a widespread recession, and tariffs were adjusted in line with inflation. Operating costs were substantially reduced due to the commissioning of El Palmar and to very favorable hydrological conditions which allowed UTE to shut down its thermal plan:3 and minimize fuel costs. Furthermore, wages were increased less than internal inflation. Although the rates of return achieved in 1983 and 1984, 2.8% and 3.8% respectively, were lower than the minimum 6% covenanted under Loan 1779-UR, the financial performance of UTE was reasonable given the economic difficulties the country has been facing. Additionally, it represented significant progress in comparison with the negative returns of 1981 and 1982, especially taking into account that the asset revaluation and the transfer of assets of El Palmar resulted in a significantly higher rate base than expected during the appraisal of Loan 1779-UR (para. 5.10(b)). Current Financial Situation 5.03 UTE's financial situation is sound; however, it is dependent on timely tariff adjustments and the restructuring of the El Palmar financing package. 2/ UTE's operational cash requirements are linked to exchange rate variations (energy purchases from CTM, fuel costs, maintenance supplies and debt service) and to a lesser extent to domestic price changes (salaries, social benefits, local supplies and general expenses). In view of this, timely adjustments of tariffs to compensate for exchange rate variations and domestic cost increases are of paramount importance to maintain in real terms the financial balance which requires an average tariff level of about 6 US cents/kWh (in mid-1985 prices). Periodic adjustments that are allowed by current legislation (para. 5.08) were incorporated in Bank agreements under 17 he "Package" also includes two loans for Salto Grande to finance transmission facilities. - 20 - Loans 1779-UR and 2484-UR and would be repeated in the proposed loan (para 7.02(c)). The new Government has demonstrated its willingness to comply with both the legislation and agreements with the Bank through two tariff increas- es of 30% and 18% carried out in last April and July respectively, which took the average tariff level slightly over 6 US cents/kWh, presenting a 27% increase in real terms in the period March-July 1985. 5.04 The restructuring of El Palmar debt service (as well as the entire external debt of Uruguay) is one of the priorities of the new Government, following an 18 months (July 1985 to December 1986) agreement with the IMF, tentatively reached in late July. Although there is not yet agreement o. the terms of the restructuring, negotiations with the commercial banks are currently underway in a satisfactory manner. During negotiations the Govern- ment and UTE agreed that if the El Palmar debt were not satisfactorily restructured with commercial banks in line with UTE's cash generating capa- city, then it would be restructured through an agreement satisfactory to the Bank between the Government and UTE. The end result of such restructuring would be to provide financial relief to UTE and would be in place thirty days from loan signing (para. 7.01(d)). The effect of any such agreement may be for UTE to make payments under what would become a long-term schedule and for the Government to supplement such payments as required, or UTE would pay only a portion of contracted debt with Government paying the remainder. As a consequence, the obligation under Loan 2484-UR on the ratio of funds from internal sources to capital expenditures is no longer necessary because it has been superseded by the above agreement. Investment Program and Financing Plan 5.05 Annex 5, Tables 5.1 to 5.4, set forth the forecast financial data of UTE for the period 1985-1993. UTE's investment program and financing plan for this period is summarized below: US$ Current Requirements for Funds Millions % Construction Program Ongoing Works 94.9 10.4 Proposed Project 120.5 13.2 Future Works 589.4 64.7 Sub-&otal 804.7 88.3 I.D.C. 34.9 3.8 Total 839.6 92.2 Net Change in Working Capital a/ 71.5 7.8 Total Requirements 911.1 100.0 - 21 - Source of Funds Gross Internal Cash Generation 1,641.7 180.2 Less: Debt Service b/ 1,235.6 135.6 Net Internal Cash Generation 406.1 44.6 Borrowings 505.0 55.4 Existing Loans 22.0 24 IBRD 1779-UR 5.2 0.6 IBRD 2484-UR 4.0 0.4 Other 12.8 1.4 Proposed Loans 97.7 10.8 IBRD "A" 45.2 5.0 IBRD "B" 52.5 5.8 Future Loans 385.2 42.3 Total Sources 911.1 100.0 Note: Figures may not add up because they have been rounded off. a/ Includes temporary cash surpluses estimated for period 1989-1993. R/ Debt service on El Palmar and Salto Grande transmission lines has been calculated assuming its restructuring based upon assumptions described in Annex 5, Table 5.2, footnote a/. 5.06 The financing plan summarized above for the 1985-1993 investment program (which Licludes the financing scheme for the Power Sector Rehabilita- tion Project described in para. 4.08) includes a US$45.2 million Bank A-loan and a US$52.6 million B-loan whose syndication is considered feasible. Several banks, led by Citibank, have expressed interest in participating in arranging a B-loan. 5.07 UTE would be the borrower of the proposed A-loan. The Uruguayan Government is expected to be the borrower of the proposed B-loan. At any rate, the borrower of the B-loan would onlend its proceeds to TE, if required, on the same terms and conditions. 1TE would, thus, bear the exchange and interest rate risk. Since the Government faces a foreign exchange gap during the IMF stand-by period (para. 5.04), while the activi- ties for the project to be financed with commercial banks' resources are not supposed to start before late 1986, the Government intends to deposit the B-loan proceeds into an account in the Central Bank. The funds would only be used for project execution and the Government has agreed to make these funds available to UTE as and when needed for purposes of the project. Thus, the Bank would retain the right to suspend disbursements from the A-loan if there were any difficulties in use of funds fPr the project components to be financed under the B-loan. - 22 - Tariff Regulations and Rate of Return 5.08 During the preparation of the Fifth Power Project (Loan 1779-UR), UTE and the Bank agreed on the text of the regulations to the Electricity Law which defines the tariff regime presently in force in Uruguay. 3/ These regulations (decrees 339 and 498 of 1979) state that: (a) UTE's tariffs will be set on the basis of a target rate of return (not lower than 6%) on a rate base consisting of average revalued net fixed assets in operation plus a provision for working capital; and (b) from time to time, UTE may request tariff adjustments to take into account changes in operating costs. 5.09 In accordance with the above, Loans 1779-UR and 2484-UR provide that UTE shall earn a rate of return of 7.5% (on a rate base defined in the same manner as in the regulations) provided that if in any one year the rate of return is below 7.5%, but above 6%, the difference may be made up in the following year. The loan agreement specifically provides that connection fees shall not be considered as operating income, since the Electricity Law had included provisions making these connection fees refundable. 5.10 During negotiations, the Bank, the Government and UTE agreed to amend the rate of return covenants in the following manner (para. 7.01(e)): (a) connection fees would be treated as operating income as long as they are not refundable. The refundability of the connection fees has been suspended since such regulations became effective; the Government has recently passed decree 231 of 1985, extending the suspension until December 1986; (b) the rate base would now be defined as average net fixed assets in operation, revalued annually in a manner satisfactory to the Bank. The change of the rate base, by excluding the provision for working capital, would be consistent uith what the Bank has already accept- ed in many other countries and would take into account the large rate base increase that took place in 1980 when assets were 3/ UTE applies a unified tariff structure to all its customers throughout the country. In compliance with one of the recommendations of the long- term marginal cost study (para. 1.11), a tariff office was created within UTE's organization reporting to the General Manager. The objectives of this new office are to recommend tariff policies and to advise on the implementation of the new tariff structure based upon the recommendations of such study (para. 1.12). - 23 - revalued to replacement cost. 4/ Asset revaluation in Uruguay has been extremely thorough, and it is possible that now some assets may be overvalued; this may also be the case of El Palmar (Annex 5.1, para. 9). Additionally, UTE's fixed assets include several significant components which are not directly appropriated to electricity supply such as a wood treating plant -and a recreational center. The Bank expects to receive from UTE by June 30, 1986 a detailed account of its net fixed assets in operation for rate base calculation purposes; (c) the rate of return would be not less than 6%, provided that if in any one year the rate of return were below 6% the shortfall would be made up the following year. Every year, before October 31, UTE would review whether it would meet the rate of return r--quirement in the current year and in the next year and would furnish to the Bank such review with an action plan to meet the requirement. (Additionally, for monitoring purposes, UTE would submit to the Bank quarterly financial reports on rate of return and tariffs.) Acceptance of this rate of return is justified by the following: (i) average revenues per Kwh resulting from the 6% rate of return are in the range of the incremental costs for the 1985-1993 invest- ment program; and (ii) self-generation for the period 1985-1993 is expected to be about 45%, which is satisfactory. Future Finances 5.11 The financial agreements discussed above -- timely tariff adjustments (para. 5.03), satisfactory restructuring of El Palmar and Salto Grande financing packages (para. 5.04) and rate of return (para. 5.10) - 4/ Up to 1979 gross fixed assets and accumulated depreciation were annually revalued by an index which attached equal weight to the percentage increases in the cost of living index and in the exchange rate (pesos per US$) from December 31 of the previous year to December 31 of the current year. In 1980, UTE's auditors requested an inventory of all fixed assets and the mark-up of book values to assessed replacement cost. This resulted in a value of net fixed assets as of December 31, 1980 of Ur$7,753.9 million. Had the prior revaluation method been applied, this value would have been Ur$3,409 million, i.e.: the adjusted value was 127% higher than the value resulting from the former revaluation method. Subsequently, in accordance with the provisions of section 5.04 (d) of the Loan 1779-UR loan agreement, UTE's auditors developed a new revaluation procedure (to keep the replacement cost up-to-date), to be applied from 1981 on, which was accepted by the Bank and approved by the Government through a decree passed on June 2, 1982. Essentially the new procedure, which is consistently applied, calls for: (a) revaluing civil works based on the Uruguyan cost of construction index; and (b) revaluing equipment by compounding external inflation (as measured by the US wholesale price index) by the change in the exchange rate over the year. - 24 - constitute the basic principles of a sound financing plan that would enable UTE to carry out the project in a timely fashion. However, to ensure that the financial performance of UTE would be satisfactory, during negotiations the Bank agreed with the Government and UTE to repeat, with minor changes, the following covenants of Loans 1779-UR and 2484-UR: (a) if the future debt service coverage ratio were less than 1.5, UTE would not incur any long term debt unless the Bank otherwise agrees; (b) until the completion of the project, UTE would retain all its earnings; (c) the collection period of Government accounts receivable would be maintained within 75 days; and (d) UTE would maintain its self-insurance fund against the standard risks which are not insured through external insurance (para. 7.02(d) to (g)). 5.12 To ensure adherence to the proposed financing plan until the project is completed, during negotiations UTE agreed not to undertake without prior agreement of the Bank, investments (excluding those for the project) exceeding in any year 3% of the established value of the company's fully revalued fixed assets in service (para. 7.01(f)). 5.13 UTE's forecast (Annex 5, Tables 5.1 and 5.3) shows the strengthen- ing of the finances in the 1985-1993 period. Tariffs have been forecast to achieve a 6% rate of return during the projection period; starting from 1992 a reduction in tariffs is assumed due to a reduction in the tariff for block energy purchases from Salto Grande (para. 1.05). Since a restructuring of El Palmar and Salto Grande debt has been assumed (para. 5.04 and Annex 5, Table 5.2, footnote a/), the self-financing ratio is expected to average 44.6% during the period and the financial structure measured by the debt/equity ratio would be maintained at satisfactory levels (47/53 in 1985 to 24/76 in 1993) throughout the period. Debt service coverage would not be less than 1.2, which is adequate, although consultation with the Bank would be required for new borrowings. UTE's financial performance through the main financial indicators is set forth in Annex 5, Table 5.4. - 25 - 6. ECONOMIC EVALUATION Least Cost Solution 6.01 UTE's generation, transmission, and distribution expansion plan was prepared, based on an average annual expected load growth for 1985-1993 of 4% and in conformity with normal standards of reliability. The assumptions used, methodology and results have been reviewed and found satisfactory to the Bank. The plan has been established to be part of UTE's least cost expansion program. 6.02 Generation: There is no additional new generation capacity included in the proposed program. The rehabilitation of the existing Gabriel Terra hydro p"ant will guarantee the continued operation of the plant, and of two run-off river hydropower plants located downstream on the Rio Negro River. The selected alternative has been chosen among several configurations with different increases in capacity outputs of generators and turbine efficiencies. 6.03 In the absence of rehabilitation, the generating units are expected to be phased out starting in 1987 and through 1991, when the last two units might have to be retired, causing both a cut in the system's hydropower availabilities and in the regulation of the downstream bydroplants. The alternative to rehabilitation - conversion to hydraulic control facilities - was found to be uneconomical given its larger capital investment requirements and since it would stop contributing energy to the system of about 700 GWh per year. 6.04 Of the various designs evaluated for rehabilitation, the least cost option was estimated to yield a rate of return of over 35% on the capital investments. For the purpose of rate of return calculations, the planned nutput from the rehabilitated plant was valued at its thermal equivalent cost, given that the energy deficit resulting from the otherwise inevitable phase-out would have to be met by thermal power facilities because there are no identified hydro developments. The impact of rehabilitation on the downstream plants, however, has not been quantified. In this regard, the calculated rate of return is a minimum measure of the project's benefit. 6.05 In light of the expected phase-out of the existing units, the rehabilitation would have to be promptly executed: under the given assump- tions about the system's energy requirements, a one year delay in the startup of construction has been estimated to result in revenue losses equivalent to almost half the project investment costs. And since the plant's rehabilita- tion schedule of works requires a one year energy stoppage per unit, construction should start in early 1987 to meet the first retirement. 6.06 This component of the project is self contained and justified on its own merits and is not dependent on the execution of the transmission and distribution components. - 26 - 6.07 Transmission and Distribution: The selection of the 150 kV and 500 kV transmission lines configuration (voltage level, conductor sizes, routing and span lengths) was based on economic comparison with other possible configurations. As regards the 500 kV line to the East, it was compared to a double 150 kV circuit and to a gas turbine alternative, and found to be the least cost solution for rates of discount up to 12%. The 500 kV line will be energized in 150 kV during the first seven years of operation. For voltage selection it was considered only UTE's normalized voltages for transmission (500 kV and 150 kV). UTE's distribution expansion plan includes normal expansion of primary feeders, extension of the 60 kV subtransmission system, remodeling and upgrading the 30 kV underground system and increasing capacity in the substations. There were few alternatives for the distribution expansion, other than considering conductor and transformer sizing and substation expansion. Primary circuits and substation capacities were optimized to minimize total investment and operating costs of the system. Rate of Return 6.08 Since the costs and benefits of the proposed project cannot be isolated from those of other components of UTE's investment program, the rate of return was calculated for the 1985-1993 sector investment program. The rate of return on the corresponding investments was estimated as being the discount rate which equates the present values of the costs and benefits attributed to the investment program. The cost and benefit streams are shown in Annex 6, Table 6.1. The underlying assumptions appear as footnotes to the table. The cost streams include: capital investment on generation, trans- mission, distribution and general investments, and costs of operation and maintenance related to the program. All cost streams are net of taxes and import duties. 6.09 The benefits of the program are related to incremental electricity sales valued by the current average tariff as a minimum measure of consumer's willingness to pay. The resulting rate of return is 11.9Z, which is slightly above the opportunity cost of capital of 11% assumed for Uruguay. This would indicate that current tariffs are in line with the incremental costs of the 1985-1993 program. 6.10 The above rate of return does not fully measure some of the benefits to society such as the social benefits of residential and public uses, or the indirect benefits to industry and commerce, whose production and employment depend on reliable electricity supply. In this sense, the base rate of return of 11.9% is deemed to be a mininum measure of the benefits conferred by the project. 6.11 Standard sensitivity analyses were carried out to evaluate the impact on the base case rate of return as a result of variations on the key parameters. The results of these analyses are summarized on the next page: - 27 - Scenario Rate of Return (Z) 1. Base Case 11.9 2. Investments 1OZ higher 10.4 3. Benefits 10Zlower 9.5 4. Benefits 1OZ higher 13.9 5. Investments 1OZ higher and 8.3 Benefits IOZ lower 6.12 Additionally, the sensitivity of the base case rate of return to a two year delay in the implementation of the transmission and distribution component was examined; the estimated impact on the associated benefits was calculated to lower the program's base rate of return by less than one percentage point. - 28- 7. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION 7.01 In addition to the standard clauses in power projects, during negotiations agreement was reached on the following main points: (a) The Government would agree on an action plan to settle its accounts payable to UTE within the following terms: by December 31, 1985, not more than 120 days; by June 30, 1986, not more than 90 days and by December 31, 1986 and thereafter, not more than 75 days. (b) UTE would engage consultants for the revision of the design criteria for the 500 kV transmission line and preparation of bidding documents for a 150/30 kV substation, by June 1986 (para. 4.04). (c) UTE would engage consultants to supervise the erection of the eletromechanical equipment of the Gabriel Terra hydroplant (para. 4.11). (d) The Government would restructure El Palmar debt in line with UTE's cash generating capacity if such debt is not restructured with commercial banks (para. 5.04). (e) UTE would achieve a rate of return not lower than 6% (para. 5.10). (f) UTE would not undertake investments exceeding 3% of fixed assets in service without prior agreement of the Bank (para. 5.12). 7.02 The following main provisions of Loan Agreements 1779-UR and 2484-UR would be maintained: (a) Auditing and financial statements (para. 2.04) (b) Project Unit (para. 4.10) (c) Tariff adjustments (para. 5.03) (d) Debt service coverage (para. 5.11) (e) Electricity bills collection (para. 5.11) (f) Self-insurance fund (para. 5.11) (g) Retain earnings (para. 5.11) 7.03 With the above assurances, the project would constitute a suitable basis for a Bank loan of US$S5.2 million, to be repaid over a period of 15 years, including three years of grace. URUGUAY JTE - POWER SECTOR REIIABIITATION PROJECT ORGANIZATIONAL CIIAR U.cueh mc i Pjert'i hftf4u MnufleIIaIaml rmfl~OISCGInfI 41UU" 1 FCuiat ruet iøl i 15! - 1Eu secna UmIDarrera Wec MNRIC -GE MrA Gim ffi ^an 1,3-2 4- ,417 48 2,74 9.7 -2 50- -7.1 61.6 kw 25 155 1.3 2906 -.8 9 2,273 69.3 2.6 3112 94.9 13.2 617 21.2 57.4 GR . 167 7.7 37. 12.9 1981 2,m6 72 813 233,359 95 7.9 683 10.7 56.1 .81 30 15 4.8 3,53M 7.8 £982 2,446 69 %1 27 3,407 % 1.4 .733 7.3 53 1 21 13 -25.7 3,53 0 1983 3,55 97 11 0.3 3,49 97 4.2 761 3.8 53.2 87 16 103 -2.7 3,652 3.3 198 3,664 98 12 0.33,676 98 3.5 78 2.6 53.6 45 12 57 -45 3,753 2.2 Qedil m - mm een Uunnai emI:r Tal iauhtrial am.te ercial stT.. k. Illo lnt. netal m.o bnt Toal In.> ne. Toeal . n.e~ation s.J. a.h 1... _'mar ab an 2 0 a ab m m ab on m m Wh W - ä = W - if~ - iiZ 1979 551 409 90 7 627 433 1,060 -0.8 244 134 378 5.8 39 25 64 -1.5 17 0 2,479 3.1 337 12 1980 566 446 1,012 5.4 717 448 1,164 9.9 309 134 443 17 31 31 69 7.8 18.5.9. 2,706 9.1 506 15 1961 579 481 1,059 4.7 792 501 1,293 11 305 149 454 2.5 3B 51 89 29 18 0 2,913 7.6 556 16 1962 518 466 984 -7 840 520 1,360 5.2 314 151 465 2.4 39 53 92 3.4 18 0 2,920 0.2 551 16 1983 531 501 1,031 4.9 661 539 1,400 2.9 326 150 .476 2.4 34 57 91 -4 19 5.5 3,017 3.3 609 17 1984 538 472 1,010 0.7 838 569 1,407 0.5 334 160 494 3.8 33 56 89 -2 19 0 3,019 1 625 17 ii UT - vMER 5EC~1R EABILITATIO rKikECT MAT rOSCAST (S) Actuai Varecast 1935og IlaE Rer> 3i1@3 17511 Inue IWUI IN fn11 lumdntisi 1.360 1,400 1,379 1,448 1,476 1,494 1,511 1,527 1,566 1.628 1.693 1,760 l~an-Resideutlet 1,450 1,507 1,534 1,554 1,649 1,759 1,875 1.997 2,086 2,710 2,257 2,346 Street Lightlag and Othersi/ 110 110 106 116 120 126 131 137. 156 162 168 177 Total slag 2,920 3,017 3,019 3.118 3,245 3.379 3.517 3.661 3,808 3,960 4.118 4,283 Total Loase2/ 617 636 734 764 798 830 864 898 934 973 1,011 1.049 Total Omamrating Lquiremats 3,537 3,653 3,753 3,452 4,043 4,109 4,381 4,559 4,742 4,933 5,129 5,332 fatem La«d vactar (Z) 53 53 53 54 14 54 54.5 54.5 54.5 54.5 55 5 D7mad 764 793 797 810 855 U2 918 955 993 1,024 1,065 1,107 IUcT#ds ltduttrnal and coandcoia faidsUT's cousumptiom (statoa service and other) - 33 - ANNEX 3 1r5l7. 4 URUGUAY TE- POWER SECTOR REHABILITATION PROJECT EXISTING GENERATING CAPACITY Installed Year of No. of Hydrothermal System Capacity (NV) Commissioninu Units Hydroelectric Power Plants: Gabriel Terra 128 1945-1948 4 Baygorria 108 1960 3 El Palmar 330 1982 3 Salto Grande 315 11 1979 Subtotal Hydroelectric MT - Thermal Steam Power Plants J. Battle - Units 1-2 20 1931 2 J. Battle - Units 3-4 100 1954-1956 2 J. Battle - Unit 5 88 1970 1 J. Battle - Unit 6 125 1975 1 Subtotal Thermal (Steam) 333 Thermal Gas Power Plants Ing. Calgano - BBC Group 21 1969 1 Ing. Calgano - GE Group 10 1965 1 Maldonado - AA Group 24 1981 1 Subtotal Thermal (Gas) In Diesel Power Plants Diesel Station in all the Country, not 13 - 5 Interconnected to the Grid Total Hydrothermal Capacity T=o 11 The total installed capacity of the binational (Argentina-Uruguay) Salto Grande pour plant is 1,890 MW (14 units of 135 MW each). At present Uruguay is entitled to 315 MY (about 171) but according to bilateral agreements Uruguay may exercise options to gradually increase its share to 945 MW (50%) by 1995. URUGUAT UfE - PWIIR 9EC10R EEMAIILITATION FROJECT 1982-1993 Energy Dalamns (G2h-Average Yar). måkbout Puta edagrål- 198R 1983 1984 1a8 1986 198, 1988 1919 190 11. 1992 9913 Residentiel 1.360 1,400 1,379 1,448 1,476 1,494 1,511 1,527 1,566 1,628 1,693 1,760 Non-tesidential 1,450 1,507 1,534 1,554 1,649 1,759 1,875 1,997 2,086 2,710 2,257 2,346 Street Lighting sed Traction 110 110 106 116 120 126 131 137 156 162 168 177 Total Sales 2,920 3,017 3,019 3,118 3,245 3,379 3,517 3,661 3,808 3,960 4,118 -4,283 Total Lagss 617 636 714 764 798 830 864 898 934 973 1,011 1,049 Total Generation 3,537 3,653 3,753 3,882 4,043 4,209 4,381 4,559 4,742 4,933 5,129 5,332 GOmratlon Interconected Systm. a0-90 aio Iugro 1,327 2,584 2,733 2,637 2,251 2,199 2,210 1,925 1,962 2,048 1,904 2,061 Salo Graade 1,119 954 931 1,093 1,640 1,640 1,640 2,186 2,186 2,186 2,733 2,733 Subtotal Elydro 2,446 3,538 3,664 3,730 3,891 3839 3.850 4,111 4,452 4,234 4,637 4,914 Exsting 961 11 12 150 150 368 529 446 281 697 490 516 runta vedkgral - - - - - - - - Subtotal 1Turual ål 12 150 150 368 529 446 592 697 490 516 0. Deficit Total Gamration Iatercoaoected 3,407 3,549 3,676 3,880 4,041 4,207 4,379 4,557 4,740 4,931 5,127 5,330 Syst= Generation Isolatad system Dissel Genmratiou 109 -88 45 2 2 2 2 2 2 2 2 2 Interdcomn tian 21 16 12 - - - - - - - - - Total Generated Isolatud ystem 110 104 57 2 *2 2 2 2 2 2 2 2 Caecity Kaälme Capacity Intercouftetad I 733 761 781 789 655 882 98 955· 993 1,024 1,065 1,107 System . tais Capacity Isolated Nyste« K 31 - 32 16 10 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 faad Factor Z 53 53 54 54 54 54.5 54.5 54.5 54.5 55 55 5 Isay rumt (Dunker C) Ton X10 254 15.9 17 40 40 97 139 116 153 180 126 133 Sptal ael 011 Toa [1 2.2 .5 - 3 3 4 9 8 11 13 9 10 ea 011 1061c. 24.4 15.07 11,7 2 2 1 1 3 5 6 5 5 ww Diesel di1 &6lt. 14.0 13.48 4.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 UUGUAY Uig - PMPEN giciR REMANILITATION PROJCT 1982-1993 Energy malancem (Wh-Average Tear). with Nta Pedegral 182 5983 1184 [9as 1986 1981 1988 1589 1910 195 1993 1993 2eeldetiL 1,360 1,400 1,379 1,448 1,476 l,494 1,511 1,527 1,566 1,628 1,693 1,760 ion-residentlat 1,450 1,507 1,534 1,554 1,649 1,759 1,875 5,997 2,086 2,710 2,257 2,346 Street Låt(ung and Trection 110 10 106 116 120 $26 131 137 156 162 168 177 Total sales 2,920 3,017 3,019 3,118 3,245 3,379 3,517 3,665 3,808 3,960 4,518 4,283 Total Lomses 617 636 714 764 798 80 864 898 934 973 1,011 1.049 Total Generation 3,537 3,653 3,753 3,882 4,043 4,209 4,381 4,559 4,742 4,933 .5,129 5,332 Generation Interconnected Syteg tio Någro 1,327 2,584 2,733 2,637 2,251 2,199 2,210 2,172 2,266 2,326 2,116 2,304 satta Grande 1,119 954 931 1,093 1,640 1,640 1,640 2,186 2,186 2,186 2,733 2,733 Subtotål Kydro 2,446 3,538 3,664 3,730 3,891 3,819 3,850 4,358 4,452 4,512 4,845 5,031 Exting 961 1S 12 150 150 368 529 t99 281 396 256 253 unte edegral - - - - - 1 23 22 40 Suheotal hersa Il 12 150 150 368 529 199 288 419 218 293 Deficit Total Generation Interconnected 3,407 3,549 3,676 3,880 4,041 4,207 4,379 4,557 4,740 4,931 5,127 5,330 System Genoration Inolated fyrtem £ Die#e Generation 1g9 88 45 2 2 2 2 2 .2 2 2 2 Iaterconnction 21 16 12 - - - - - - - - - Total Generated Isolated Syste 130 104 57 2 2 2 2 2 2 2 2 2 Want~a Capacity Interconnacted KW 733 761 781 789 855 882 918 955 993 1,024 1,065 1,107 Osvtes meihsm Capacity taglated System M 31 32 16 10 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Load Factor 3 53 53 54 54 54 54.5 54.5 54.5 54.5 55 Fuel Meavy Fuet (Runker 0) Ton .503 254 15.9 17 40 40 91 139 47 65 95 63 66 pecial meå 011 Tn 103 2.2 . - 3 3 4 9 9 16 17 ta 12 oe 011 1561t. 24.4 15.07 1.7 2 2 l l t i t & i DieeM 011 1561t. 14.0 13.48 4.0 0.1 0.5 0.1 0,1 0. 0.1 0.1 0.1 0.1 UIIUCUAY UTI - POWER SECTOR REHABILITATION PROJECT CAPACITY BALANCES (NU) 1982 1983 198- 1985 1986 1987 1988 1989 ,990 1991 1992 1993 Kalemin Deand 733 761 781 789 855 882 918 935 993 1,024 1.065 1,107 abriel Terra 128 128 128 128 128 128 128 128 128 128 128 128 Røytorria 108 108 108 108 108 108 108 108 108 108 108 108 Palmar 330 330 330 330 330 330 330 330 330 330 330 330 Salta G;rande 315 315 315 315 473 473 473 630 630 630 788 788 Total Hydro Iuetalled Cepacity 881 881 881 1,039 1,039 1,039 1,196 1,196 1,196 1,354 1,354 atile aud Ordooea 3-4 100 100 100 100 100 100 100 100 100 100 100 100 Battle aud Ordonen 5-6 213 213 213 213 213 213 213 213 213 213 213 213 59,.C. (Gas Turbin@) 21 21 21 21 21 21 21 21 21 21 21 21 Alethun (GaG Turbin@) 24 24 24 24 24 24 24 24 24 24 24 24 Subtatet thrat 358 358 355 358 358 358 358 358 358 358 358 358 hereat CapacLty Raquiredi/ - - - - 438 455 471 488 504 521 538 738 Raoerve Capaclty (ThersaL) - - - - -80 -97 -113 -130 -146 -163 -180 -200 11 Mana addition&l tFerml capacity required to be able to operate the G. Terra reervoir at the 75 mea. levet aud =et the establighed reltablitty criteria. Lii URUGUAY UTE - POWER SECTOR REHABILITATION PROJECT 1985-1993 INVESTMENT PROGRAI (US$ Mion -nUne 1935nEstant rices) 1985 1986 1987 1988 1989 1990 1991 1992 1993 WORKS UNDER BECUTION Generation 2.1 1.5 - d - - - - - Transmiseion 19.0 9.9 2.1 - - - - - - Distribution 21.2 18.8 6.2 - - - General Investments 4.0 1.0 - - - - - Sub-total 32.7 T1.I2 5. - PROPOSED IBRD PROJECT Generation - 0.6 3.7 6.4 1.6 5.8 4.0 2.4 - Transamston - 1.0 5.8 10.1 12.0 9.1 6.3 3.8 - Distribution - 0.2 1.2 2.2 2.6 1.9 1.3 0.8 - Sub-total - T T TO7 T 7%"2 Tr. I Tf OTHER PROJECTS Generation - 1.0 2.0 2.0 2.0 1.8 2.5 2.5 3.0 TranseLesion - - 1.0 2.7 3.7 8.8 9.0 11.0 15.0 Distribution - 18.7 24.6 31.7 31.1 46.3 47.0 49.4 57.0 General Investment 2.2 2.7 2.9 2.3 1.9 2.4 5.0 5.0 5.0 Sub-total .T T W.7 W3 3". T Grand Total 54.5 55.4 49.5 57.4 61.5 63.2 75.1 74.9 80.0 - 38 - URUGUAY ANNEX 4 Table 4.2 UTE - POWER SECTOR REHABILITATION PROJECT PROJECT COST ESTIMATES Cost in US$ x 1000 Description Local ori Total 1. Rehabilitation Gabriel Terra Hydra Plant Civil Works 118 109 227 Electromechancial Equipment: - Turbines 667 6,040 6,707 - Speed Regulators 77 700 777 - Rebuilding of Generators 764 6,517 7,281 - Electrical Installations 295 2,670 2,965 - Equipments for Gates and Underwater Works 197 1,785 1,982 - Transformers and 150 kV Circuit-breakers 192 1,740 1,932 - Access Roads, Temporary Installations and others 252 2,272 2p524 Total Basic Cost Gabriel Terra Hydro Plant 2,562 21,833 24,395 2. 500 kV and 150 kV Transmission Lines Steel Strucutures and Accessories 8,282 4,039 12,321 A.C.S.R. and Steel Overhead Conductors 2,910 3,951 6,861 Insulators and Hardware 103 690 793 Studies 100 - 100 Total Basic Cost Transmission Lines 11,395 8,680 20,075 3. Substation and 150 kV Underground Po6er Transformers 336 2,240 2,576 150/30 V Substation Equipment 774 5,170 5,944 Civil Works and Labor for 500/150/30 kV 3,584 330 3,914 Supply and Erection, 150/30 kV Shielded Substation (SF6) 1,020 2,140 3,160 Supply and Erection Power Cables 3,057 5,050 8,107 Land and Remodeling Existing Building (J Substation) 750 - 750 Total Basic Cost Substations 9,522 14,930 24,9452 4. Distribution 3016 kV-30/15 kV Power Transformers 170 1,133 1,310 Substation Equipment 371 21,477 2,848 Civil Works and Substation Erection 1,278 - 1,278 Supply Underground Cables 394 2,622 3,016 Erection Underground Cables 543 - 543 Lands 100 - 100 Total Basic Cost Distribution 2,856 6,232 9,088 5. Management and Supervis ion 1711 3,156 4,867 Total Direct Cost 24,046 54,831 82,877 Physical Contingencies 1,759 4,302 6,061 Price Contingencies 10,600 21,000 31p600 Total Project Cost 40,405 80,133 120,538 IUGUAY UTE - FOWR SECTOR MK4ILITATION IMAECT PROJECT ItPKNTATION SOVDA.E tssue of Bidding Cocumts ward of Contracts Starting of: Comissioning of Equipmnt/Services - Construction filip t/ServIces Construction Manufactring/Services Construction tlrks or Cmletion of Services GENERATION Consulting Services March 1966 October 196 January 19? - February 392 Generators, Turbines and Regulators January 1986 1/ Ioeeer 1966 1/ "ar 1987 WItd 1988 Febnary 1931 Other Electrical Equipeant. April 1966 / 0Deber Is6 T/ April 1967 April 19O Decear 892 Ventilation. etc. Electramchanical Equipment for Getes. Ma 1966 1/ January 1967 / Jae "67 May 198 Decemaer 392 Crane, Underwater larks Civil orks not Related with - 2/ - 2/ April 1988 Dece~er 992 Electrical Installations Itwo stages) TRANSMISSION LINES Consulting Services December 1985 1/ June 1986 3/ May 1986 - August 1986 Steel Structure Decemer 196l January 1987 August 1967 January 1986 January 1968 July 1948 October 390 D Aluminue and Steel Conductors January 96? January 1967 August 1967 January 1988 Jamary 1988 June 1988 Natember 1990 Insulators and Hrdwere April 1968 January 1987 DOem 1968 Jenuary 1968 Jue 199 October 1989 owebar 1990 SUBSTATIONS Fmer Transformers July 1966 January 1967 March 1987 August 1987 Sqteber 1957 Navember 1988 Decemer 1989 Substotion Equipment August 1966 January 5987 April 1987 August 1987 October 19817 May 5966 March 1990 10 k9 Undergound Power Cables Notvber 1966 January 197 July 1987 July 1967 January 5966 July 196 Decemer 189 DISTRIBUTION 30/6 kV-30/ts kV Tramformirs January 1981 November 1986 Svtemer 1967 July 1981 Mard 1986 November 1987 January 1990 Substation Equipent January 1967 Noveiber 1966 Septeder 1967 July 1987 March 1988 Novembr 1987 February 390 Underground Pacer Cables October 1986 Novoer 1986 June 1987 July 1987 October 1986 Noveeber 1987 Mardh 199 I/ Instalations, repair and replacement of 4ll electromachanclal equipment will be de tirough specialled permannel provided by the consultant and meufectrers. and the assistance at WE's personnel 70/ To be done on UITE's forow account bails. ./ Supervision of torks ill be done by Int's personnel. ,bill C - -rM - ~ 8 m REMAILITTOR n - IE~cAE IlDICMSm8 192 1983 M94 1985 1986 1987 19m8 1989 1990 l9l1 1992 m~ FO sr sale ()h 2,290 3,017 3,019 3,118 3,245 3,379 3,517 3,661 3.808 3,960 4,118 n. (M.) 764 782 797 799 856 883 919 956 994 1,025 1,066 UTE nat Genration (OM) 2,333 2,656 2,762 2,755 2,374 2,530 2,694 2,343 2,521 2,705 2,364 Salto Grande Purdaes (Øh:) 1,140/ 9705/ 9431/ 1,093 1,640 1,640 1,640 2,186 2,186 2,186 2,733 System Id Factor (Z) 53 5P s4 54 54 54.50 54.50 54.50 54.50 55 55 ¥Mues (ff) 553 609 686 730 769 791 817 868 899 931 979 "tomar/eeployee 82.89 82.95 83.80 84.00 84.20 84.40 84.60 84.80 85.00 85.30 85.60 Sale. (kWh)/Eqaoyee 284,490 290,150 285,600 283,400 289,200 295,400 301,600 306,200 314,700 321,400 328,400 D nd (kW)/oploye 74.43 75.21 75.40 72.60 76.30 77.20 78.80 80.50 82.10 83.20 85.00 iet ~sneratton (kWh) 338,367 348,721 350,500 349,800 357,800 364,500 361,700 381,200 389,000 397,000 406,500 Total Eployeus 10,264 10,398 10,572 11,000 1,200 11,440 11,600 11,880 12,100 12,320 12,540 operation 7,229 7,196 7,132 7,590 /,730 7,780 7,880 8.080 8,110 8,260 8,400 ~dmOstratlon 2,142 2,144 2,154 2,090 2,130 2,060 2,080 2,140 2,060 2,100 2,130 magineeroig and CostEuetion 893 1,058 1,286 1,320 1,340 1,600 1,640 1,660 1,930 1,960 2,010 fIncludeu pur~aes tro Satoa n 2f includes purchaes fra. Salto Grande - 41 - ANNEX 4 Table 4.5' URUGUAY UTE - POWER SECTOR REHABILITATION PROJECT - ESTIMATED LOAN DISBURSEMENT SCHEDULE (US3 Wili1on) Assumptions: Loan Signing: November 1985 Effective Date: April 1986 Closing Date: June 1993 Disbursements Cumulative Disburements IBRD Fiscal Year During Semester at end of Semester and Semester US$ Million Z US$ Million z 1986 December 31, 1985 - - June 30, 1986 1.60 3.5 1.60 3.5 1987 December 31, 1986 1.60 3.5 3.20 7.0 June 30, 1987 3.25 7.2 6.45 14.2 1988 December 31, 1987 3.25 7.2 9.70 21.4 June 30, 1988 4.85 10.7 14.55 32.1 1989 December 31, 1988 4.85 10.7 19.40 42.8 June 30, 1989 5.15 11.4 24.55 54.2 1990 December 31, 1989 5.15 11.4 29.70 65.6 June 30, 1990 4.25 9.4 33.95 75.0 1991 Decembe: 31, 1990 4.25 9.4 38.20 84.4 June 30, 1991 2.75 6.1 40.95 90.5 1992 December 31, 1991 2.75 6.1 43.70 96.6 June 30, 1992 0.75 1.7 44.45 98.3 1993 December 31, 1992 0.75 1.7 45.20 100 -42 - A1EX 4 Table 4.6 m - s x - " e a -a p en F. -c= # Y aa i , , t II al a - a .aaa.S 2R m cmen& 1 1.k t- -47 enIV bl 4megg an8 r4 2I URUGUAY TIE - Power Sector Rehabilitation Project Actual and Forecast Income Statements 1982-1993 * (sillions of current USS) ...---Actual I---- ---------------------------*Forecast ------------------------ 1992 1983 1984 b/ 1965 1986 1197 1988 1969 1990 1991 1992 1993 .... ... ... ... ... ... ... ... ... ... ... ... a Figures say not ddd u! because they have been rounded off. sales (WM c/ 2908.0 3003.0 3006 3118 3245 3379 3517 3661 3809 3960 4119 4293 Average tariff US$/Kwh d/ 0.073 0.051 0.051 0.060 0.066 0.072 0.078 0.086 0.094 0.099 0.097 0.095 A/ mission siuates; rates of exchange used (U$USI OPERATING REVENUES 1992: 13,40; 1903ffl.60; and Sales revenuts 210.9 152.9 152.6 187.1 214.2 243.3 273.3 313.3 356.3 390.5 399.4 406.9 198406.10 Other 1.6 1.6 1.1 1.8 2.0 2.1 2.3 2.5 2.6 2.7 ------------------------------------------------------- bge u n preliinary financial Total Operating Revenues 210.9 152.9 154.2 150.1 211.9 245.1 275.3 315.5 359.6 392.9 402.0 409.6 1ttsns OPERATING EXPENSES f/ c/ See sales forecast prar. 3.02 tO 3.04 Fuel i 50.0 10.0 1.0 10.1 10.7 23.4 35.8 33.5 4.6 59.3 44.9 49.6 Personnel 57.0 28.0 24.0 30.6 32.5 35.0 31.9 40.9 44.1 41.0 49.4 51.9 d/ Forecast to achieve the covenanted Oey purchases q/ 44.0 29.0 19.0 29.2 46.4 50.0 54.0 77.9 84.1 69.5 93.5 84.3 rate of return. Others 19.0 12.0 13.0 6.6 7.0 1.6 8.2 8.9 9.6 10.2 10.7 11.2 Depreciation - hi 84.0 59.0 59.0 51.5 56.5 62.1 68.5 75.5 83.9 90.6 96.9 103.9 eaved upon historic trend until 1987 and assuaing a decline starting Total Operating Expenses 254.0 138.0 123.0 128.1 153.2 178.2 204.3 236.6 269.3 296.7 295.4 300.8 in 1988. Considered as operating Incaose for rate of return calcutations, Operating Incase -43.1 14.9 31.2 60.6 62.7 67.0 71.0 79.9 19.3 96.3 106.6 108.8 as long as the connection fees are not ref undable (para. 5.301 OTHER IINCOME Connection Fees el 31.0 16.0 11.0 10.9 21.6 24.5 24.8 25.2 25.1 23.6 17.6 17.0 f/ Except where noted otherwise, the IIsctilanous -1.0 -2.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 operating expenses are estieated by --------- -------- .... b..e. on historic average in Total Other Incoe 31.0 15.0 9.0 20.0 22.9 25.8 26.2 26.7 26.7 25.3 19.4 11.9 real teres and then escalated. INCOME EFORE INTEREST -12.1 29.9 40.2 80.6 65.5 92.7 91.1 105.6 116.0 121.6 126.0 127.7 g/ Salto Grande tariff are forecast to decrease starting from 1992 (para. 1.051 TOTAL INTEREST il 229.0 230.0 406.0 79.1 78.9 75.7 74.7 78.3 73.9 10.1 69.6 67.3 Charged to construction 1.0 1.0 2.2 2.2 3.1 2.9 3.7 3.8 4.4 4.6 4.9 5.4 h/ Straight-line ethod adequately applied. Charged to operation 227.0 229.0 403.9 76.9 75.8 12.9 71.0 74.5 69.5 65.5 63.8 61.9 11 Based upon 1985-1993 energy balance for average year. NET INCOME -239.1 -199.1 -363.6 3.7 9.6 20.0 26.1 31.0 46.5 56.1 62.2 65.9 J/ Includes rate of exchange losses In 1902 to 1984. URUSUAY UTE - Paver Sector Rehabilitation Project Actual and Forecast Sources and Applications of Funds 1992-1993 * (litins of current US$1 Actual------------------------ Forecast-------------------- Total 1984 1985 1986 1997 1918 1989 1110 1991 19M 1IM 1985193 Incas before Interest 74.9 80.6 95.4 92.7 97.1 105.5 116.0 121.5 125.7 127.6 q52.3 04.5 Figures say not add up becass they Depreciation 48.3 51.5 56.5 62.1 69.5 75.5 13.9 9.6 96.9 103.9 689 75.7 have kien rounded off. Gros Internal Cash leneration 123.2 132.1 141.9 154.9 163,6 191.0 19. 212.2 222.7 231.4 (641.7 180.2 a/ Based upon debt IWViC4 PfGjcti=g - -------- ----..............-a..-.... -.............. -. as of June 30, 1995, reschefiling Debt Service a/ of M 500 millions has atn assuiw Interest 74.5 79.1 78.9 73.7 74.7 78.3 73.9 70.1 69.6 67.3 666.6 73.2 in the follal tet il interest Amortiration 42.2 25.6 27.6 52.9 53.9 71. 80.3 93.9 101.4 106.9 603.9 66.3 rate 1311 111 grace periods until ... .. -- - -- -- ---- ---- ------- -------- January18971 and repayssat prof iles Total Debt Service Before IDC 116.7 104.7 106.5 12. 129.5 149.9 154.2 153.9 170.0 174.2 1270.5 139.4 10 Years asortiuation as follows Less 11K -2.2 -2.2 -3.1 -2.9 -3.7 -3.9 -4.4 -4.6 -4.8 -5.4 -34.9 -3.8 Uff9200 Im increffing installments ... .. -- .. --- ---im 1187-1191 period and 119 30 in total Debt Service 114. 102.5 103.4 125.7 124.9 146.1 149.8 149.3 165.2 169.9 1233.6 135.6 aguaifistalletats dung Ike Nkt Internal Cash Generation 1.6 29.6 39.5 29.2 40.9 34.9 50.1 62.9 57.5 62.7 40. 44.6 roiis asti ated for period 116U71993. Estill IN 379 1.4 3.9 2.2 6.0 0.7 1N 1779 3.0 5.2 5.2 0.6 [no 2484 0.5 2.8 0.7 4.0 0.4 Ralto frande 6.8 0.7 Others 1.0 0.0 0.0 Futures Proposed IM A-Loan 3.2 6.5 V. 10.3 9.5 5.5 1.5 45.2 5.0 Proposed IM I-o 3.6 7.6 11,3 11.9 10.1 6.3 1.7 525 5.8 pliers 15.4 9.5 14.9 11.7 9.9 5.6 9.9 20.4 24.7 30.5 13O 15.0 athr (1989-1993 Prograel 32.4 52.1 46.7 53.1 64.3 249.6 27.3 Total 1orroaings 20 .9 2 26.6 26.5 30.8 603 8. . 0. 94.9 505.1 55.4 TOTAL SQUIUB 29.4 55.4 65.1 55.7 71.6 95.2 13005 141.9 11813 157.5 911.3 100.0 APPLICATIMIIS Construction Proae On-going projects 54.0 52.3 33.1 9.5 94.9 10.4 Farure Projects 0.0 2.2 23.9 34.9 47.9 52.5 95.6 975 109.5 15.5 589.3 64.7 Proposed project 0.0 0.0 1.9 22.2 23.1 29.7 24.3 27.9 11.5 0.0 120.5 13.2 Total 480.9 82.2 1 15. 0 1355 90457 98.3 Interest bring Construction 2.2 .1 2 3 3.8 4 4.6 4.9 5.4 34.9 3.9 Total Coostruction Progra 52 5 61 59 74.6 16.0 114.3 1 lf." 140.939.6 92.2 Variation in Vding Capital 61 26.7 -1.3 3.2 -3.9 -3.0 9.2 16.3 2.9 12.6 16.6 11.5 7.8 Total Applicatilas 29. 53.4 1651 55.6 71.6 198 130.6 141.9 138.4 257.5 911.1 100.0 URUGUAV UITE - Power Sector Rehabilitation Project Actual and Forecast Balance Sheets 1982-1993 * (millions of current USV ...... Actual I/-----------------------Forecast---------------- 1982 1983 1994 b/ 1995 1986 1987 1989 199 1990 1991 1992 1993 ASSETS FilED ASSETS gross plant in service cl 1610.0 2249.0 2293.0 2442.0 2681.5 2949.3 3246.7 3570.5 3941.7 4223.2 4497.6 4792.9 * Figures way not add up because they Less Accululated depreciation c/ d/ 891.0 958.0 1001.0 1108.6 1248.3 1410.3 1591.6 1794.4 2021.8 2213.5 2421.2 2646.0 have been rounded off. Net plant in service 159.0 1291.0 1292.0 1333.3 1433.2 1539.1 1655.2 1776.1 1919.9 2009.7 2076.4 2146.9 al Wission estleaes; rates of Haorks in progress ci 42.0 65.0 52.0 105.8 120.4 133.3 148.6 167.8 181.3 186.6 226.1 266.2 echang, used INUrtiUSs 19921 Other fixed assets 3.0 3.0 3.0 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 33.75; 193:43.25; and 1984: 74.25 Total net flied assets 764.0 1$59.0 5347.0 5441.9 1556.3 1615.1 1906.5 1946.6 2103.8 2199.9 2305.2 2455.7 b/ Based upon prolimary financial CURRENT ASSETS ol Cashl aprational reairevents 50.0 8.0 7.0 2.3 2.9 3.5 4.1 4,8 5.6 6.2 4.5 3.8 c/ Anually revalued sing an adequate Tesporary surplus f/ -8.5 -2.0 -0.9 4.1 .I 25.3 45.3 57.1 73.6 revaluation mtkod. Account receivable (nett 26.0 36.0 25.0 40.3 39.9 37.5 32.6 37.1 40.9 44.3 39.5 37.2 Inventories 49.0 50.0 39.0 46.4 44.4 42.4 40.4 40.4 40.4 40.4 40.4 40.4 d/ Annex 5, Table 5.1, footnote hi. Other s57.0 20.0 6.0 12.8 12.9 12.9 12.8 12.9 12.8 12.1 12.8 12.8 Total current ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~iDae ast...:........................................ /Bedupon adeqvate projection Tota curen asets102.0 514.0 77.0 93.3 99.1 95.3 93.9 506.0 524.9 549.0 554.2 167.9 assuepin thtrlae uretU Totals curren usetscuren DIFRREDassets eeds and currt DIERDCAlS0.2 0.2 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 liabilities amailabilities to OTHER ASSETS 1.0 .3 . 1.7 1.7 5.7 5.7 1.7 5.7 1.7 .7 .7 operational y TOTAL ASSEIS 87.2 1414.5 1426.5 1537.2 1656.4 1772.4 1902.3 2054.7 2230.8 2350.0 2441.5 2565.5 be funded by thf local baking --------------------------------------------------.-- - - - - -sytatmes. EQUITY AIM LIABILITIES Share capital 1.0 17.0 21.0 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 Grants 2.0 49.0 29.0 47.9 47.9 47.9 47.9 47.9 47.9 47.9 47.9. 47.9 Revaluation reserve c 757.0 917.0 5504.0 996.3 1097.3 1219.7 12343.9 473.6 1 00.4 1666.2 1743.6 17.0 Retained earnings -77.4 -244.1 -447.6 -241.9 -232.3 -252.3 -596.2 -155.2 -509.7 -52.6 9.3 75.5 Total equity 692.6 737.9 75.4 94.3 9133.2 1074.5 1225.9 1386.5 1559.8 191.7 1821.0 1960.2 LONG-TERM KIT 141.0 6. f.0 591.0 658.9 657.9 631. 4 609.4 97.1 597.2 592.4 570.9 559.4 CURRENT LIABILITIES e Coesercial 20.0 22.0 20.0 12.3 53.9 15.0 16.9 19.5 22.2 24.4 56.9 13.9 Financial 9.0 35.0 102.0 22.3 22.3 22.3 22.3 22.3 22.3 22.3 22.3 22.3 Miscellaneous 14.0 13.0 7.0 29.6 28.6 28.6 28.6 28.6 29.6 21.6 29.6 28.6 Total current liabilities 43.0 70.0 129.0 63.2 64.8 65.9 67.7 70.4 13.1 15,3 41.9 64.9 OTHER LIABILITIES 0.6 0.6 0.7 0. 7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 TOTAL EQUITY AND LIABILITIES 97 .2 1474.5 5426.1 5537.2 5656.4 5772.4 5902.5 2054.7 2230.9 2350.0 2465.5 2595.5 ...0T......L.......SSE........S. URUGUAY UITE - Paer Sector Rehabilitation Project Financial Perfaraince Indicators 1983-1993 - - - - - --- - - --------------------F----------------- 1995 196 11 1988 1159 190 1991 1992 1993 a' Rate of Return (t at 6.1 6.1 6.2 6.0 6.1 6.2 6.1 6I 6.0 Internal Cash Generation/ Total Constraction Progras (V 52.3 62.2 49.0 54.7 40.6 43.9 52.4 45.7 44.5 Debt Servicw Coverage Ratio bi 1.3 1.3 1.2 1.3 1.2 1.3 1.4 1.3 1.3 Debtl Eqaity Ratio cl 0.47 0.44 0.39 0.36 0.33 0.30 0.20 0.26 0.24 Operating Ratio di 0.68 0.71 0.73 0.75 0.76 0.77 0.79 0.73 0.71 a/ As defied in para. 5.10 1-4 0 b1 Ratio of Gross Internal Cash kneration to Total Debt Service as efad s in Section 5.06 of the Lou Agreteent. t cl Total debts (Lang Ter, Carrent and other Liabilities) as a percentage of Total Debts plus Equity. d/ Total Operating Espenses as a percentage of Total Operating Revenues. - 47 - ANNEX 5.1 Page 1 of 3 URUGUAY UTE - Power Sector Rehabilitation Project El Palmar Hydro Plant: Background 1. El Palmar is a 330 MW hydro plant in full operation since early 1983. It was constructed on schedule, in the period 1976 to 1982, by "Comision Mixta de El Palmar" (CONIPAL) and subsequently transferred to UTE in compliance with an agreement under Loan 1779-UR.1/ As of December 31, 1982 COMIPAL's assets (worth US$600 million: US$546million hydro plant and transmission lines, and US$54 million current assets -- proceeds of an external loan deposited in the Central Bank) were transferred to UTE and US$594 million debts were added to UTE's liabilities; the remaining US$6 million was a Government equity contribution. 2. El Palmar is a sound power investment in a country that has no other identified hydro projects. Its justification is technically and economically attractive, independently of considerations or questions on prior financing arrangements. In the context and prospects of the present and estimated level of relative prices, El Palmar is economically justified and is already producing significant benefits to the Uruguayan economy. 3. The project was totally financed by external borrowings by Government from commercial banks with rather short-term loans which do not conform to the plant economic life or anticipated cash flow. The Inter- national Financing Institutions were reluctant to participate in such financing because in the early 1970's (when the decision was in discussion) the project was considered economically marginal. The evolution of relative prices after the oil crisis of the aid-1970's created a different set of economic conditions, which made El Palmar economically justified despite investment costs higher than forecast. By then commercial bank financing had been arranged. 4. El Palmar was part of the least cost solution for power development in Uruguay as concluded by the consultants (SOFRELEC-France) in October 1974 under the prevailing economic conditions at that time. At present, although El Palmar investment cost has been higher than forecast (paras. 5 to 8 discuss this point), its costs compare favorably with an equivalent thermo- electric generation alternative. 1/ Law 15.700 of January 10, 1985 terminates the operation of 0DMIPAL and establishes UTE as its legal successor. - 48 - ANNEX 5.1 Page 2 of 3 5. El Palmar's average ,eneraticn output (1400 GWh per year) together with that of Salto Grande have been the main contri.butors to the Uruguayan diminishing oil imports in the last two years. The oil import savings resulting from El Palmar are estimated at about US$65/70 million per year. 6. El Palmar had no significant physical cost overrun; however, the final total cost was higher than forecast due to two circumstances not related to the project that took place between 1979 and 1982, which were the years of peak construction: (a) the monetary approach to the balance of payments, (which was the Uruguayan external sector policy) kept the rate of exchange NU$/US$ excessively undervalued; and (b) unusually high interest rates overburdened the 100%-borrowing-financing-plan, most of it tied to LIBOR. 7. Since local contractors were paid with external US$ loans during a period of US$ undervaluation, the local civil works cost, when measured in US$, was unusually high. A comparison of the official rate of exchange with the purchasing power parity rate during the 1979-1982 period (that could have been the rate of exchange otherwise) is as follows: Average Average Estimated US$ Official Rate Purchasing Power Undervaluation of Exchange Parity (NUr$/1USS) z 1979 7.9 9.0 87.7 1980 9.1 12.9 70.5 1981 10.8 16.5 65.5 1982 13.9 19.5 71.3 8. Since interest during construction was charged to investment costs, the unusually high interest rates during the 1979-1982 period also excessive- ly burdened El Palmar investment cost. 9. As such extraordinary circumstances negatively impacted El Palmar investment costs, the following estimate appraises the project cost assuming it had been constructed under normal circumstances: - 49 - ANNEX 5.1 Page 3 of 3 Before 1979 1979 1980 1981 1982 Total Civil Works 19 31 47 30 10 137 Adjustment a/ ( 4) (14) (10) ( 3) (31) Elecrosechanical Equipment 17 22 26 26 8 99 Transmission Lines 6 17 34 20 4 81 Adjustment a/ (1) (3) (2) (1) (7) Interest during Construction 5 11 32 62 119 229 Adjustment b/ ( 4) (12) (21) (37) Total 47 81 139 137 iTT 3=1 Total Adjustments (75) Total Adjusted Cost 470 a/ Local cost reduction assuming Purchasing Power Parity Rate of Exchange. b/ Interest during construction reduction assuming lower prevailing LIBOR rates plus spread: 10% in 1980 and 20% in 1981 and 1982. URUGUAY UTE - POWER SECTOR REHABILITATION PROJECT COSTS AND BENEFITS ANALYSIS YEAR COST STREAMS (MILLION 1985 US$3 BENEFITS CAPITAL INVESTMENTS a/ c/ TOTAL SALES DUE NET ----------------------------------------------------------- m0 COSTS TO EXPAN- REVENUE BENEFITS GENERATION TRANSMISSION DISTRIBUTION OTHER SUBTOTAL c/ COSTS SION(ONH) (MILLION 1985 US$) b/ 1985 1.9 16.7 24.0 5.4 48.1 0.0 48.1 0.0 0.0 -48.1 1986 2.8 9.6 33.2 3.2 48.9 1.5 50.3 31.8 1.9 -48.4 1987 5.2 7.8 28.2 2.5 43.7 2.6 46.4 130.5 7.8 -38.5 1988 7.6 11.3 29.9 2.0 50.8 3.6 54.4 299.3 18.0 -36.4 1989 8.7 13.8 30.2 1.7 54.4 4.6 59.1 543.0 32.6 -26.5 1990 6.9 15.8 42.5 2.2 67.3 5.8 73.1 690.0 41.4 -31.7 1991 5.9 13.5 42.6 4.4 66.3 7.3 73.6 842.0 50.5 -23.0 1992 4.5 13.0 44.2 4.4 66.2 8.8 74.9 1000.0 60.0 -14.9 1993 2.7 13.2 50.2 4.4 70.5 10.3 80.8 1165.0 69.9 -10.9 1994 12.0 12.0 1336.0 80.2 68.2 1995 12.0 12.0 1336.0 80.2 68.2 1996 12.0 12.0 1336.0 80.2 68.2 1997 12.0 12.0 1336.0 80.2 68.2 1998 12.0 12.0 1336.0 80.2 68.2 1999 12.0 12.0 1336.0 80.2 68.2 2000 12.0 12.0 1336.0 80.2 68.2 2001 12.0 12.0 1336.0 80.2 68.2 2002 12.0 12.0 1336.0 80.2 68.2 2003 12.0 12.0 1336.0 80.2 68.2 2004 12.0 12.0 1336.0 80.2 68.2 2005 12.0 12.0 1336.0 80.2 68.2 2006 12.0 12.0 1336.0 80.2 68.2 2007 12.0 12.0 1336.0 80.2 68.2 2008 12.0 12.0 1336.0 80.2 68.2 2009 12.0 12.0 1336.0 80.2 68.2 2009 12.0 12.0 1336.0 80.2 68.2 2010 12.0 12.0 1336.0 80.2 68.2 2011 12.0 12.0 1336.0 80.2 68.2 RATE OF RETURN 0.119 a/ As per Annex 4. Table 4.1 b/ Sales increase over 1985.Sales attributed to the program phased in at rates of 25,50,75,100% in 1986,1907,1988,1989,respectively. c/ Net ov taxes and im ort duties 0H costs based on he followinq assumptionsIgeneration, US$ 3,900/year/MNNtranssission and distributian,1.5 and 3% capital investment/year,respectively. - 51 - ANNEX 7 URUGUAY UTE - POWER SECTOR REHABILITATION PROJECT PROJECT FILES A. Selected Reports on the Economy of the Sector - National Energy Balance of Uruguay - 1983 B. Selected Reports on the Borrower of Project - Technical and Economic Report on the Rehabilitation of the Gabriel Terra hydro plant (Electricite de France - 1984) - Feasibility Study for Transmission and Primary Distribution Works - 1985-1989 UTE's Inleitment Plan - Annual Reports - Procurement Regulations and Procedures. C. Selected Working Papers - Worksheets for Detailed Cost Estimates - - Worksheets for Economic Analysis - Worksheets for Financial Anelysis - UTE's Audited Financial Statements eU unegudjh AR G E N T l NA J-m 8Þ ..... ...... ti lrJIi : .... . I -t *~ - sy h I 11 uiauu- ---- URUGUAY CANELONES UTE - POWER SECTOR REHABIUTATION PROJECT DEPARTMENT MONTEVIDEO - PRIMARY NETWORK EXISTING AND PROPOSED INSTALLATIONS PROJECT EX3STING 500 kV Subs!ation 1 M 150/30 kV Substation A 30 kV Connection SAN JOSE O * 30/6 kV Substation DE.------ - 30 kV Underground 30 kV Distribution Line OSE A Department Boundaries s.V. A P Tobloda CANELONES Norte sDEPARTMENT C H ®---- ---- P. Roose.el R u a .I PajasBlanas 3 (' uare
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Uruguay - Power Sector Rehabilitation Project
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