ReportNo. 675b-AR Appraisalof the FourthBuenos Aires PowerProject Argentina SERVICIOSELECTRICOS DEL GRAN BUENOSAIRES (SEGBA) Public Disclosure Authorized September7, 1976 Powerand TelecommunicationsDivision LatinAmerica and the CaribbeanRegional Office r c OPY FOR OFFICIALUSE ONLY Public Disclosure Authorized Public Disclosure Authorized
Documentof the World Bank Public Disclosure Authorized
This documenthas a restricteddistribution and may be usedby recipients only in the performanceof their officialduties. Its contentsmay not otherwisebe disclosedwithout World Bankauthorization. CURRENCY AND EQUIVALENT
Currency Unit = ArgentinePeso ($a) US$1 = $a 140.17 (OfficialRate) US$1 $a 250.00 (Free Market Rate) $a 1 Million US$7,134 (OfficialRate) $a 1 Million US$4,000 (Free Market Rate)
ABBREVIATIONSAND ACRONYMS
AC Alternating Current CADE Compafi!a Argentina de Electricidad AyEE Agua y Energia Electrica CEN Corporacion de Empresas Nacionales CIAE Compania Italo Argentina de Electricidad S.A. CNEA Comision Nacional de Energla At6mica CONCAP Comision Nacional de la Cuenca del Plata CTMSG Comision Tecnica Mixta de Salto Grande DEBA Direccion de Energla Electrica de la Provincia de Buenos Aires DUC Despacho Unificado de Carga EBY Entidad Binacional Yacyreta-Apipe EPEC Empresa Provincial de Energha de C6rdoba HIDRONOR Hidronor S. A. Hidroelectrica Norpatagonica, Sociedad An6nima SEGBA ServiciosElectricos del Gran Buenos Aires, S.A. SOFRELEC Societe Francaise d'Etudes et de Realisations d'EquipementsElectriques
MEASURESAND EQUIVALENTS
kW = Kilowatt MW MMegawatt (1,000 kW) kWh = kilowatt hour GWh - gigawatt hour (million kWh) kV = kilovolt (1,000 volts) kVA = kilovolt-Ampere MVA = Megavolt-ampere (1,000 kVA) km = kilometer (0.6214 mile) km = square kilometer (0.386 sq. mile) kcal = kilocalorie (3.968 BTU)
SEGBA's FISCAL YEAR
January 1 - December 31
1/ As of June 30, 1976 FOROFFICIAL USE ONLY
APPRAISAL OF THE FOURTH BUENOS AIRES POWER PROJECT
SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
Table of Contents
Page No.
SUMMARY AND CONCLUSIONS i - ii
1. INTRODUCTION 1
2. THE POWER SECTOR 3
Energy Resources 3 Sector Organization 3 Power Market 4 Expansion Program 4 Future of the Sector 5 Tariffs and Asset Revaluation 5 Buenos Aires-Litoral Region 5 Greater Buenos Aires Subregion 6 Service to Low-Income Groups 6
3. THE BORROWER 8
Legislation 8 Organization and Management 8 Employment 9 Training 9 Accounting and Audit 9 Power Rates 10. Tariff Structure 10
4. THE PROJECT 12
Project Cost 12 Procurement and Disbursements 14 Engineering and Project Execution 15 Environment 15 5. JUSTIFICATION OF THE PROJECT
Sector Objectives 16 Project Objectives 16 Load Forecast 16 High Tension System (500, 220 and 132 kV) 17 Distribution System (mid and low-tension) 17 Performance Indicators 17 Return on Investment 17
This document hasa retrictod distribution candmay be used by recipientsonly in the performance| of their offcial duties. Its contents maynot otherwisebe dusclsedwithout World Dank authofiztion. Table of Contents (Cont'd)
Page No.
6. FINANCIAL ASPECTS 18
Past Record and Present Position 18 Financing Plan 19 Future Finances 21
7. AGREEMENTSREACHED AND RECOMMENDATIONS 22
This report was prepared by Messrs. C. Besse (Financial Analyst) and M. Linder (Engineer). List of Annexes
1. The Energy Sector
2. The Power Sector
3. Greater Buenos Aires Subregion
4. Tariff Regulation and Structure
5. Project ImplementationSchedule
6. Project Description
7. Justification of the Project
8. Actual and Forecast Income Statements
9. Actual and Forecast Balance Sheets
10. Debt Contracted as at December 31, 1975
11. Forecast Sources and Applications of Funds
12. Forecast Schedule of Loan Disbursements
13. Forecast Key Operational and Financial Indicators
14. Financial Ratios
Maps Argentina - Regional Subdivision of the Power Sector (IBRD 11441R)
SEGBA System - TransmissionLines and Substations (IBRD 11442R)
APPRAISAL OF THE FOURTH BUENOS AIRES POWER PROJECT
SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
SUMMARY AND CONCLUSIONS
i. This report covers the appraisal of a project forming part of the 1977-1981 expansion program of Servicios Electricos del Gran Buenos Aires (SEGBA), a corporation owned by the Argentine Government,which is the main distributorof electricity in the Greater Buenos Aires area.
ii. This would be the Bank's fourth loan to SEGBA. The first three loans, which were made in 1962, 1968 and 1969 helped finance the expansion of generation, transmissionand distributionfacilities. The physical execution of these three projects has been satisfactory. Considerable progress was made toward one of the long-term objectives of Bank lending to SEGBA namely the building of SEGBA into a financiallysound utility. However, this achievementwas nullified by Government interferencein 1964 and 1971. SEGBA's finances deteriorateddramatically as a result of it not being permitted to adjust its tariffs to keep pace with inflation and devaluationas provided by its ConcessionAgreement. However, as a result of monthly tariff increases which have been approved by the Government since April 1976, SEGBA is expected to comply with its concession and make a satisfactorycontribution to the financing of its investmentprogram in 1977 and thereafter.
iii. The power sector, although essentially owned by the Government, has a fragmented organization. No reasonable national expansion program exists. As a result, a number of unjustified investmentdecisions for the sector have been taken in the past. The present Government,aware of this situation, intends to carry out a national sector organizationstudy and prepare a national power expansion plan and to discuss their conclusionswith the Bank. A rational development of the sector is of high priority to Argentina's industrial development. Industry is the largest consumer of electricity and its consumptionhas been growing rapidly.
iv. The project consists of the main elements of SEGBA's 1977-1981 transmissionand distributionprogram and two studies to be carried out by the Government. It is estimated to cost US$495.3 million (equivalent),with a foreign currency component of US$152.6 million, US$115 million of which would be financed out of the proposed loan. The Bank loan would be disbursed for equipment purchased during the period 1977-1980 and would cover 13.9% of SEGBA's financial requirementsfor this period. The balance of 1977-1980 requirements would be met by internal cash generation (51.3%), Government contributions (4.4%) and by foreign and local bank loans (30.4%). The project would allow SEGBA to provide the power infrastructureneeded to support the continued growth of industrv in its service area, Argentina's largest market for electricity.
v. Procurement procedureswould be substantiallysimilar to those established for the previous loan to SEGBA. Contracts for equipment and materials to be financed out of the Bank loan will be awarded after international - ii -
competitivebidding. Argentine manufacturerswill be granted a margin of preference of 15% over the CIF price of the lowest qualified foreign biddc , or the applicable customs duty, whichever is lower. In addition,someof the equipment and materials needed by SEGBA may be procured locally without international competitivebidding and with financing from sources other than the Bank. Such procurement,-however,will be limited to (i) a maximum of one-third of SEGBA's needs for each category of equipment and materials, and to (ii) a maximum price of 38% above the CIF price of the successful foreign bidder for the same category of equipment and materials. Use of this arrangement is expected to continue to be limited (it only accounted for 5% of equipment procurement under the previous loan).
vi. Since the new Government came into power in March 1976, it imme- diately took steps to improve the financial situation of the public service enterprises and a 10% monthly cumulative electricity tariff increase was introduced for SEGBA with an additional 20% increase on July 1, 1976. The Government intends to maintain this 10% monthly increase until December 1976 and thereafter grant tariff increases which will permit SEGBA to achieve the 8% rate of return stipulated in its Concession Agreement, which in turn will result in a substantial improvement in its finances and a satisfactory contribution to the investment program from net internal cash generation. The Government has also recently appointed competent new management for SEGBA, which is well qualified to implement the project.
vii. With the assurances obtained during negotiations, listed in Section 7, the project would form a suitable basis for a Bank loan to SEGBA of US$115 million equivalent for a period of 15 years including a grace period of three years. APPRAISAL OF THE FOURTH BUENOS AIRES POWER PROJECT SERVICIOS ELECTRICOSDEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
1. INTRODUCTION
1.01 The Governmentof Argentina has requested the Bank to assist in the' financing of a project which is part of the 1977-1981 expansionprogram of Servicios Electricosdel Gran Buenos Aires (SEGBA), a Government-ownedcorpora- tion which together with Companla Italo-Argentinade Electricidad,S.A. (CIAE), a corporationcontrolled by Swiss interests 1/, is responsiblefor supplying electricityin the Greater Buenos Aires area.
1.02 The project proposed for Bank financing comprises the main elements of SEGBA's ongoing transmissionexpansion program for the period 1977-1981, together with the entire distributionexpansion program for the same period. These works will permit SEGBA to continue to provide the power distribution infrastructurerequired to support the continued growth of industry in its service area, which comprisesArgentina's largest market for electricity. Also included in the project proposed for Bank financingare studies to be carried out by the Governmentwith the assistanceof consultants. The estimatedcost of the project is US$495.3 million (equivalent),including a foreign component of US$152.6 million, part of which would be financed by the proposed loan of US$115.0 million. SEGBA hopes to arrange cofinancingfrom foreign sources for the balance of the foreign exchange requirementsof the project.
1.03 The Bank has made four loans in the Argentine Power Sector: three to SEGBA and one to HIDRONOR, S.A. (HidroelectricaNorpatag6nica Sociedad An6nima). The first loan to SEGBA (308-AR) for US$95.0 million was made in January 1962, to complete the Costanera thermal station and expand transmissionand distribu- tion. The second loan (525-AR) for US$55.0 million was made six years later, in January 1968, to help finance further expansion of SEGBA's generation,transmis- sion and distributionfacilities. A third loan (644-AR) for US$60.0 million was made in November 1969 to help finance SEGBA's 1970-72 expansion program.
1.04 The physical execution of the three SEGBA projects financed by the Bank was satisfactory. The third project was completed in-1973, with a delay of approximatelyone year. One of the major long-term objectivesof these loans has been the building of SEBGA into an efficient and financiallysound utility. Unfortunatelysuccess in this directionhas been limited. SEGBA suffered a severe setback in 1964-1966due to Government interference,which led to deteriora- tion in SEGBA's financialposition and delayed its expansion. However, after a new management was appointed in mid-1966, significantprogress was made in the organization,effectiveness and finances of SEGBA.
1/Conversationsbetween the Governmentand CIAE are underway to explore She possibility of the acquisitionby the Governmentof a controllinginterest in CIAE. -2-
1.05 History repeated itself in 1971 when the Government took over management of the company. SEGBA's finances deteriorateddramatically when it was not permitted to raise tariffs to keep pace with increased costs. This led to a sig- nificant slowdown in SEGBA's expansion program and a financial situation where it- could no longer cover annual interest payments out of income. However, it is expected that SEGBA's finances will improve following tariff increases authorized by the Government in 1976 (para. 2.14). The new management appointed in July 1976 is expected to bring SEGBA back to its previous efficiency of the period 1966-1971.
1.06 The loan to HIDRONOR (577-AR) for US$82 million was made in December 1968 to help finance a hydroelectricproject about 1,100 km southwest of Buenos Aires, comprising the first stage of the El Chocon-Cerros Colorados works. In January 1973, an agreement amending the loan agreement expanded the project to include the second stage of the El Chocon-CerrosColorados works. After initial problems with the turbines at El Chocon and the transmissionline from El Chocon to Buenos Aires, the initial project can now be considered to be running satisfact- orily. The enlarged project is expected to be completed in 1977-1978.
1.07 HIDRONOR, SEGBA and other utilities making up the Argentine power sector have developed considerableexpertise within their spheres of activity. However, organization,regulation and planning at the sector level need to be strengthened substantially. The current authoritieshave recognized this need and the proposed Bank loan would support the necessary studies.
1.08 A mission composed of Messrs. Alan A.M. Onslow and Renato E. Salazar visited Buenos Aires in September/October1974 to appraise the project and SEGBA's expansion plans. A reappraisalmission composed of Messrs. Claude Besse and Manfredo Linder visited Buenos Aires in June/July 1976. This appraisal report is based on the findings of both Bank missions and on the information supplied by SEGBA. -3-
2. THE POWER SECTOR
2.01 The fragmented organizationof the Argentine power sector and the lack of effective arrangementsfor central regulation and planning, have resulted in a poorly conceived generation investment program. The present authorities have decided to carry out a power sector organizationstudy and to develop a national power plan which will enable the country to make the most rational use of its energy resources. Together with improved pricing policies for power and fuel the implementationof the recommendationsof these studies can be expected to lead to sound future developmentof the sector.
Energy Resources
2.02 Argentina depends heavily on petroleum and natural gas which accounted for 85% of total primary energy consumption in 1975. The Govern- ment plans to reduce this proportion by expanding the production of nuclear energy, hydroelectricityand possibly coal. The electric power sector could make an important contributionto this objective, since the possibilities of substitutionof petroleum in other major energy-consumingsectors are limited (electricenergy accounted for 23% of total energy consumption in 1975). It will, however, be difficult to achieve improvementsin the energy consumption structure without adequate planning of the expansion program for the whole energy sector and in particular of the power sector.
2.03 Argentina is well-endowedwith indigenous energy resources (Annex 1), which are, however, relatively high-cost. The hydroelectric potential is sizeable but only some 4% of this resource has been developed. Projects totaling another 8% of the known potential are under construction. Coal could also become an important source of energy, especially for power generation, and the Government intends to decide shortly on the investment program necessary to increase produc- tion, which would permit switching some existing and future thermal plants from oil to coal. At present Argentina imports about 11% of its petroleum and 15% of its natural gas requirements,at a cost which is expected to reach US$450 million in 1976. The Government intends to try to make the country self-sufficientby intensifying the exploration and production of oil and natural gas through the award of exploration contracts to internationalfirms.
Sector Organization
2.04 The power sector is, in theory, regulated by the Secretarla de Energia, which is responsible for planning, granting concessions to public utilities and self-suppliersand approving tariffs. In practice, however, the Secretaria de Energia has lost much of its authority to other branches of Government and to the larger provincial utilities, with serious effects on the sector. The utilities subject to the Secretaria'seffective control are CIAE, HIDRONOR, SEGBA and Agua y Energia Electrica (AyEE - the Federal water and power authority). However, as noted in Annex 2, some of their investmentshave been decided by other branches of Government without reference to the requirementsfor rational development of the power sector. -4-
2.05 The Secretaria de Energia plays a marginal role in the decisions of the Comision de -. Cuenca del Plata, CONCAP, a body which coordinatesArgentina's participation in internationalprojects with Bolivia, Brazil, Uruguay and Paraguay. This commission is under the auspices of the Ministry of Foreign Affairs and, in consequence, its decisions have been taken chiefly on the basis of foreign policy conisiderations.At present, the principal sector activity of CONCAP is through its participation in Comision Tecnica Mixta del Salto Grande (CTMSG - the Uruguayan- Argentine binational authority in charge of building and operating the hydroelectric system of Salto Grande); and Entidad Binacional Yacyreta-Apipe (EBY - the Paraguayan- Argentine authority in charge of the planning, constructionand operation of the future Yacyreta-Apipe hydroelectricproject on the Parana river). 2.06 The Secretaria de Energia has no practical influence on the activities of the Comision Nacional de Energfa At6mica (CNEA - the national nuclear energy commission) which is in charge of building and operating nuclear power plants and reports directly to the President of Argentina.
2.07 The two major provincial electric companies controlled by the respective provincial Governments are Direcci6n de Energla Electrica de la Provincia de Buenos Aires (DEBA - serving a part of Buenos Aires province); and Empresa Provincial de Energia de C6rdoba (EPEC). The Secretarla de Energia has no formal influence or control over these and other smaller provincial utilities, e.g., it has no voice in their investment decisions nor does it approve their tariffs.
Power Market
2.08 Argentina is a highly electrified country and at present 80% of the population have access to electricity. The per capita consumption is 991 kWh (1975). The Greater Buenos Aires region is 90% electrifiedwith a per capita consumption of 1,170 kWh (1975). The main consumer categories are industrial and residential, accounting for 43% and 32% respectivelyof total consumption of public-service electricity. Industrial consumption is the fastest-growingcategory. Approximately 700,000 rural dwellings are without electric service, and a rural electrification plan is currently under execution (Annex 2).
2.09 In 1975, public service generation was 24,554 GWh compared with 16,800 GWh in 1970. Captive generation was 4,900 GWh, practically unchanged since 1970. Total installed capacity in Argentina in 1975 was 9,280 MW of which about 2,000 MW correspond to captive plant.
2.10 A proper long-term sales forecast for the power sector has yet to be prepared. However, it is clear that the projection adopted by the previous authorities (implyinga growth of 11.5% p.a. for the period 1976-1986) was unrealistic. A reasonable forecast for demand growth in the central interconnectedsystem of Argen- tina (Greater Buenos Aires, Litoral, Buenos Aires South,-Comahueand Cordoba) is a grow, of 0% for 1976, 5% for 1977 and 8% p.a. thereafter. A maximum growth alternative as suggested by the Secretaria de Energia would be 0% growth in 1976, 5% in 1977, 8% in 1978 and 10% p.a. thereafter.
Expansion Program
2.11 The main items of the generation expansion program of Argentina which are under constructionat the moment are shown in Annex 2. This investment - 5 - program is a result of the fragmenteddecision-making which has characterizedthe power sector in the past and of the unrealistic sales forecast adopted by the previous authorities. It will result in substantial.surplus generatingcapacity until 1985, at considerablecost to the economy.
2.12 In view of this situation, the present authoritieshave reviewed all outstanding commitmentsfor major generation and transmissionprojects to determine the possibilityof delaying or cancelling them. A project in which HIDRONOR recently started construction (Alicura),will be deferred for the present. No new national projects will be started until the sector's priorities have been defined (para.2.13) Internationalprojects will be discussedwith the Governments concerned in order to develop solutions compatible with the national interests of all countries involved.
Future of the Sector
2.13 The present Government is fully aware of the need for improvementin the sector's structure and has,therefore,decidedto carry out a national power sector organization study and to prepare a national power expansion plan based on the least-costprogram for expanding generation and transmission,and agreed to discuss the conclusions of these studies with the Bank. To carry out the studies the Argentine authorities intend to retain individual internationalexperts (to be financed under the proposed loan) to assist in certain specific aspects where national expertise is lacking. Furthermore,the Government has agreed not to approve any major new investment in generation and transmissionuntil the national power expansion plan is prepared.
Tariffs and Asset Revaluation
2.14 On taking office in March 1976, the present Government took immediate action to deal with the deterioratedfinances of all public service enterprises and to bring user charges in line with costs. In this connection, SEGBA was authorized to raise its tariffs 10% monthly from April 1976 (a 20% additional increase was authorized in July) and the Government intends to continue this policy until becember 1976 when it is expected that SEGBA will obtain the 8% rate of return on net re- valued assets originally specified in its Concession Agreement. Similarly, AyEE was permitted to raise its tariffs in monthly increments of 15%. The Government also intends to raise the tariffs for bulk supply by HIDRONOR and CNEA's Atucha nuclear power plant to provide an 8% rate of return on investmentby end 1977 (see Annex 8). In addition, the Government plans to increase prices for fuel used in electricity generation (at present only 25% of internationallevels), gradually, so that by end- 1978 they approximate 75-80% of internationalprices.
2.15 There is no consistent approach to revaluation of power sector assets and this may result in inconsistantpricing of electricityby different utilities, which may lead to a misallocation of resources. As part of the planned sector organization study,the Government intends to carry out a study to develop a uniform methodology for the periodic revaluationof the assets of all power utilities.
Buenos Aires-LitoralRegion
2.16 Argentina's principal power market is located in a region covering the city of Buenos Aires and parts of the Provinces of Buenos Aires, Entre Rlos and Santa Fe. This area,referred to as the Buenos Aires-Litoral region, includes 57% of the country's population and accounts for 70% of total electric power consumption. -6-
2.17 The regionis served by AyEE, CIAE, DEBA, HIDRONOR and SEGBA. The main sources of generation are the AyEE thermal stations at Santa Fe, Rosario and San Nicolas, the SEGBA and CIAE thermal stations in Buenos Aires, CNEA's Atucha nuclear station, and HIDRONOR's El Chocon hydroelectricstation. In 1979, the hydro power plant of Salto Grande operated by CTMSG will also start serving this region.
2.18 To ensure the most economical use of faci1fttiesto meet load conditions, energy produced by these utilities is subject to a central dispatchingsystem, Despacho Unificado de Carga (DUC), coordinatedby AyEE. This is consistent with agreements included in the loan documentsof previous Bank loans to the power sector, which provide for central control of the generating plants supplying the Greater Buenos Aires area. These agreements have been repeated in connectionwith the proposed loan.
Greater Buenos Aires Subregion
2.19 Within the Buenos Aires-LitoralRegion, the city of Buenos Aires and 31 surroundingmunicipalities of the province of Buenos Aires contain 70% of the population and account for 71% of the consumption of electric power. This power is distributedby SEGBA and CIAE, which in 1976 had an installed generating capacity of 2,971 MW, all thermal (see AnneK 3 for details). SEGBA is the principal supplier and its concession covers the whole subregion. CIAE's concession area (which over- laps with that of SEGBA) includes one third of the city of Buenos Aires and four of the remaining municipalities. In addition to their participation in the DUC system, SEGBA and CIAE have been coordinatingtheir investment programs to avoid the duplica- tion of facilities which might otherwise result from their overlappingconcession areas, in accordancewith a provision of previous loan agreementswhich has been repeated under the proposed loan.
2.20 SEGBA and CIAE served 3.1 million consumers in 1975 (of which 2.7 million by SEGBA) and sold 10,300 GWh (of which 8,800 GWh by SEGBA). Captive plants in the subregion generated 1,400 GWh in 1975, which is relatively large. These plants were installed by many industrialand commercial consumers due to the power shortages of the 1950s and early 1960s, but as a result of SEGBA's ability to provide more reliable service their output has stagnated since 1970.
Service to Low-Income Groups
2.21 The low-income population of the Greater Buenos Aires area has grown very rapidly due to immigrationfrom rural areas and neighboring countries and large shanty towns have developed. These shanty towns have no urbanizationinfrastructure and many of these dwellings are connected to the nearest power line through illegal hook-ups which present serious problems of safety, in addition to financial losses to SEGBA.
2.22 SEGBA has estimated that about o50,000 persons live in 70,000 dwellings in 110 different shanty towns. SEGBA intends to reach agreementswith the municipal- ities, where these shanty towns are located, on a plan which would consist of selling energy to the municipalityin bulk for distributionwithin each shanty-town. - 7 -
2.23 There are about 25,000 dwellings corresponding to new low-cost housing developmentswithout legal electric service. SEGBA intends to connect these new consumers during the next three years with an investment of about US$6.0 million. This would form part of the project. -8-
3. THE BORROWER
Legislation
3.01 SEGBA, the proposed borrower is a corporation formed in 1958 to take over most of the assets and responsibilitiesof the Compai'ilaArgentina de Electricidad (CADE). Its shares are wholly owned by the Argentine Government through the Corporacion de Empresas Nacionales (CEN), a holding company for most government-ownedenterprises. Although this holding company has legal powers governing the general policies of its subsidiaries,the latter have retained their autonomy in carrying out their day-to-daybusiness. The present Government is studying the future of CEN. One possible alternative would be to do away with it in order to streamline the relationshipof public sector enterpriseswith the Government. 3.02 SEGBA's ConcessionAgreement (signed February 1, 1962 and approved by Decree No. 1247 of February 8, 1962) gives the company responsibilityfor electricity supply in the metropolitan Buenos Aires area on a non-exclusive basis (para. 2.19) and for an indefinite period. The ConcessionAgreement establishes in great detail the rights and obligations of SEGBA and the Government, including the basis for setting power rates (para. 3.12).
3.03 SEGBA's Bylaws, as approved in 1961 in connectionwith Loan 308-AR, were intended to ensure responsible management,efficiency and financial viability. Considerableprogress towards these objectives took place in the period 1966-70. However, the political and economic conditionsin the country during the following five years, led to Government interferencein SEGBA's internal affairs, accompaniedby considerablemanagement instability. The Bylaws were amended in 1972 to reflect the Government's intention to exert a greater degree of control over the company. This action was reversed with the approval of new Bylaws in July 1976, which are basically the same as those of 1961 and are adequate. As under previous loans, it was agreed that any, substantial amendment of either the Bylaws or the ConcessionAgreement which shall adversely and substantiallyaffect SEGBA's operationsor its financial condition would constitutean event of default.
Organization and Management
3.04 SEC-BAhas a Board of Directors of eight members, appointed by the Government through CEN. The Board chooses two of its members to serve as President (Chairman of the Board) and Executive Vice President (General Manager). The Executive Vice President is responsible for day-to-daymanage- ment. He is assisted by a committee of six department heads (Administration and Finance; Planning; Personnel; Procurement; Commercial;and Technical).
3.05 During the execution of SEGBA's Third Project, considerable improve- ments were introduced in the Commercial and Technical Departments. Customer service, meter reading, collections not handled by mail or through banks, constructionof low voltage lines, installationof transformersand connection of new customers have been decentralized. This required a major reorganization and has resulted in greatly improved service and operation. A new system of reporting outages in the generation, transmissionand distribution system is being implemented. This should be completed by 1978 and would permit management to monitor the quality of service provided by the utility. -9-
3.06 There has been improvement,too, in SEGBA's Planning Departmentwhich is now self-sufficientand is not expected to require the services of outside consultants. The Personnel and ProcurementDepartments have an adequate organizationand perform efficiently. In order to meet its financial goals, it is necessary that SEGBA improve its Administrationand Finance Department,particularly in the area of financial plannina. There is also need to accelerateits accountingprocedures and budget controls so that the monthly reports are availableon time. The new management is aware of this situation and is studying differentalternatives for achieving these goals. 3.07 The new Governmentappointed a new Board of Directors which took charge of SEGBA'smanagement in July 1976. The current Executive Vice President is a capable engineer with more than 30 years' service with SEGBA and its predecessorutility. Before resigning in 1972, he held the post of technicalmanager. The newly appointedmanagers and assistantmanagers are experiencedSEGBA staff members and constitutea competent team which is well qualified to implement the project. It had been agreed under previous loans that the Bank would be consulted prior to the appointmentof a new Executive Vice President. This provision has proven to be of limited value and it was agreed to amend previous loan agreementsto delete it.
Employment
3.08 In previous appraisal reports it was indicated that SEGBAfaced major problems due to employmentlevels far in excess of those usual for the sector. These resulted from the unusual strength of SEGBA's labor union. Though there was significant improvementin the period 1966-7l the situation worsened during recent years. The new economic authoritiesand the new management of SEGBAare fully aware of this problem and intend to reduce substantiallythe number of employees from the presentfiguLreof 26,300 to 22,800 in 1978. This means increasing the number of customersper employee from 102 in 1975 to 126 in 1978. This goal is reasonableand is among the performanceindicators to be monitored during the execution of the project (para. 5.06).
Training
3.09 SEGBA has a very comprehensivetraining program and maintains two centers to fulfill the majority of its training needs. Other specialized training is carried out at other local institutions(technical Universities, etc.)and for very specializedsubjects (for graduate engineers)use is made of the training facilitiesof Electricitede France and of suppliersof sophisticatedequipment. SEGBA intends to train 2,000 persons during the years 1977-1978 in subjects varying from low-tensionnetworks maintenance to load dispatching.
Accountingand Audit
3.10 SEGBA's accounting,internal audit and data processing are satis- factory. Nearly all commercial and accountingprocesses as well as personnel records, stores inventoriesand procurementare computerized. The monthly financial statementsand the budgetary reports have been delayed in recent months. The necessary steps are being taken to speed up their preparation and ensure their timely availability. - 10
3.11 Until 1973 SEGBA had its accounts audited annually by independent accountants acceptable to the Bank. In 1974 SEGBA was required to have its accounts audited by CEN and it cancelled its arrangementswith its former auditors. CEN, which also audited SEGBA's 1975 accounts, cannot, as the utility's owner,be consideredindependent. For 1976 and future years, SEGBA agreed to employ independent auditors acceptable to the Bank, and to forward certified copies of the annual financial statements together with the .auditor'sdetailed reports to the Bank within four months of the end of each financial year. SEGBA has indicated that it intends to appoint as auditors a firm of public accountants.
Power Rates
3.12 As explained in Annex 4, the Concession Agreement provides that SEGBA's rates should generate revenues sufficient to produce a return of 8% on its revalued rate base and contains detailed provisions on filing for tariff increases, recovery of shortfallsin earnings and interim rate increases. In 1969 SEGBA earned more than 8% and so, in accordancewith the Concession Agreement, rates were reduced by 1.3% effective January 1, 1970, to compen- sate for the excess earnings. This was the last time that the Concession Agreement was observed. As noted in para 6.02, SEGBA has failed to earn its stipulated 8% return since 1970 and, although it submitted applications for rate adjustments the Government did not grant the full increases requested. The provisions which call for recovery of prior years' shortfalls and interim rate increases to offset rising costs, were not applied.
3.13 As noted in para. 2.14 the new Governmenthas taken steps to improve SEGBA's financial situation by raising its tariffs. SEGBA agreed to request and the Government to grant tariff increases which will permit SEGBA to obtain in 1977 and thereafter the 8% rate of return as stipulated in the Concession Agreement.
Tariff Structure
3.14 Details of SEGBA's tariff structure are shown in Annex 4. The tariff schedule for residential consumers is based on a low, "social" rate for small consumers (less than 60 kWh/month), with progressivelyhigher charges to larger residential users. Tariffs for large industrial consumers include a charge related to maximum demand at the time of the system peak with reductions for accepting supply at higher voltages and for off-peak consumption. The latter are important factors in encouraging more economic patterns of consumption,and SEGBA should consider strengtheningthem.
3.15 SEGBA should also consider the possibility of introducing a more elaborate tariff structure for medium-sized commercial and industrial consumers with a maximum demand of less than 50 kW. Such consumers are presently included in a "general service" category which does not provide any incentive for high voltage supply or off-peak consumption.
3.16 The improvementssuggested above should be introduced gradually, in connectionwith the annual rate adjustments. The Government and SEGBA - 11 - have agreed to carry out a study of SEGBA's tariff structurewith a view to identifyingareas in which changes are required to induce improved patterns of consumption and to discuss its conclusionswith the Bank. - 12 -
4. TIIEPROJECT
4.01 The next step in the expansion of the generating capacity in the Buenos Aixes system is a 310 MWsteam unit at SEGBA's Costanera station to be commissionedin 1980. A new 350 MW steam unit was commissionedin June 1976. No further expansien of generating capacity by SEGBA or CIAE is presently envisaged and the incremental requirementsof the Greater Buenos Aires area will have to Le met by increased imports of energy from other utilities (see Annex 3).
4.02 To receive the imported power, interconnectlocal generating plants aridfacilitate distribution,SEGBA has planned a ring around the periphery of the Greater Buenos Aires area,initiallyto operate at 220 kV (double-circuit)and to be transformed (as part of the project) to a single-circuitline at 500 kV. Another single-circuitline at 500 kV would also be added. This ring (map 11442R) will link the Costanera station, which in turn is interconnectedwith the other SEGBA and CIAE generating stations along the Rio de la Plata, with the Ezeiza and Rodriguez substations,whichare receiving points for imported power.
4.03 This ring (500 kV and 220 kV) is planned to feed a number of 220 kV substations,which in turn feed the subtransmissionnetwork of 132 kV. This net- work (132 kV) feeds ,he mid-tension system (mainly 13.2 kV with some 33 kV and 27.5 kV subs:ations). The project includes expansion of ten 132 kV substations anidthe constructionof 21 new 132 kV substations.
4.04 The mid-tension system feeds the low tension network operating at 380/220 volts, 50 Hz. This network is under continuous expansion due to the increase of load in areas under service and to the extension of service to new areas (approximately65,000 new connectionsper year).
Project Cost
4.05 The project includes the main elements of the ongoing transmission expansion program for the period 1977-1981, to be commissionedbefore mid-1981 together with SEGBA's distributionexpansion program for the same period and the studies to be carried out by the Government (para. 2.13). It is described in detail in Annex 6. The following are the estimated costs of the project: - 13 -
US$ x 103 $a x 10.6 Local Foreign Total Local Foreign Total
A. Project Works
TransmissionLines Equipment 6,402 12,870 19,272 1,600 3,218 4,818 Civil works and erection 25,-876 5,462 31,338 6,469 1,365 7,834 Engineeringand Administration 17,714 - 17,714 4,429 - 4,429 Subtotal 49,992 18,332 68,324 12,498 4,583 17,081 Substations Equipment 8,273 44,678 52,951 2,068 11,170 13,238 Civil Works and Erection 37,489 7,679 45,168 9,373 1,920 11,293 Engineeringand Administration 39,936 - 39,936 99,840 - 9,984 Other 523 - 523 131 - 131 Subtotal 86,221 52,357 138,578 21,556 13,090 34,646 Distribution Equipment 16,945 25,416 42,361 4,236 6,354 10,590 Civil works and Erection 62,785 12,860 75,645 15,696 3,215 18,911 Engineeringand Administration 33,284 - 33,284 8,321 - 8,321 Subtotal 113,014 38,276 151,290 28,253 9,569 37,822 Communications and Load Dispatch Equipment 2,944 4,725 7,669 736 1,181 1,917 Civil works and Erection 1,584 324 1,908 396 81 477 Engineering and Administration 5,140 - 5,140 1,285 - 1,285 Subtotal 9,668 5,049 14,717 2,417 1,262 3,679 Total Base Cost 258,895 114,014 372,909 64,724 28,504 93,228 Physical Contin. 7,907 4,133 12,040 1,977 1,033 3,010 Price Contingency 75,773 34,032 109,805 18,943 8,508 27,451 Total 342,575 152,179 494,754 85,644 38,045 123,689 B. Consultants Base cost 80 370 450 20 93 113 Contingencies 10 40 50 3 10 12 Subtotal 90 410 500 23 103 126 Grand Total 342,665 152,589 495,254 85,667 38,148 123,815
4.06 These estimateswere prepared by SEGBA and are based on prices corresponding to mid-1976 as quoted by differentmanufacturers. Physical contingencieswere estimated at 2% for all project components,except £or the 500 kV items for which a 10% contingency was assuimed. This is reasonableas SEGBA has great experience in works up to and
1/ Converted at the free rate of exchange 1 US$ 250 $a, _ 14 -
including 220 kV and no experiencein 500 kV installations. The breakdown between foreign and local costs is based on the assumptions shown in Annex 6. Price contingenciesfor both local and foreign costs were based on the following percentages:4.5% in 1976 (half-year),8% p.a. in 1977 through 1979, and 7% p.a. there- after. The estimated cost for engineering,supervision and administrationwas based on SEGBA's experiencewith ongoing works. It is estimated that 60 man- months of consulting services would be required, at an average cost of US$4870 per man-month (excludingtravel and subsistence- see Annex 6).
Procurement and Disbursements
4.07 The proposed procurementprocedures for the project are similar to those used for the previous loan to SEGBA and may be summarized as follows:
- SEGBA will invite bids internationallyfor quantities equivalent to two-thirdsof its needs of each category of equipment or materials and will request simultaneouslyseparate bids, from Argentinemanufacturers only, for an additional one-third. In awarding contracts for the main quantities bid internationally,Argentine bidders will be granted a 15% margin,of preference over the CIF price of the lowest qualified foreign bidder or the applicable custon.s duty, whichever is lower. In addition, 0.5% of the CIF cost will be added to the CIF cost of foreign bids to take into account the difference in the cost of inspection during manuBactui in Argentina and abroad. Under Argentine law, local manufacturerswill also be exempt from sales tax and import duties on raw materials and component parts.1/
- If an Argentine manufacturerbids successfullyunder the 15% preference, SEGEA may also invite him to supply the additional one- third at the same unit price bid for the main quantity.
- If a foreign bidder is awarded the contract for the main quantity,. the separate Argentine bids for the additional one-third will then be opened. The correspondingsecond contract will be awarded to the lowest of the Argentine bidders provided that (i) his quoted price is less than 38% above the CIF price of the successful foreign bidder above or, if not, that (ii) he is willing to reduce his .priceto such level. Equipment and materials procured locally under these conditions will not be eligible for Bank financing.
- If no Argentine bidder is willing to reduce his price, the successful foreign bidd'erfor the main quantity may be invited to supply also the additional one-third, at the same unit price.
4.08 The procurement arrangementsdescribed above would thus ensure that:
(a) the Bank will finance only equipment and materials procured through interrnationalcompetitive bidding, including a maximum domestic preference of 15%;
I/ The so called "destinationcheck charge", which is levied on duty-free imports, would not be included in the cost of foreign bids or in the cost of imported raw materials and components included in local bids. - 15 -
(b) local procurement without internationalcompetitive bidding, to be financed from sources other than the Bank, would be limited to (i) a maximum quantity of one-third of SEGBA's nedds for each category of equipment and materials, and to (ii) a maximum price of 38% above the CIF price of the successful foreign bidder for the same category of equipment and materials, In this case the other two-thirds would be awarded to the successful foreign bidder. The cost to SEGBA of the combined foreign and local contractswould average a maximum of about 12.7% above the cost of the foreign bid.
Restricted procurement, under the provisions outlined in (b) above was only employed to a very limited extent (5% of the value of equipment contracts) in SEGBA's Third Project. It is also expected to have a limited application in the project financed by the proposed loan.
4.09 The proposed loan would be disbursed to finance:
(a) 100% of the foreign cost of imported equipment;
(b) 60% of the cost of equipment procured locally, under international competitive bidding as explained above (the estimated foreign exchange component); and
(c) 100% of the total cost of the consultants hired to assist in carrying out the studies mentioned in para. 2.13.
Estimated loan disbursements are shown in Annex 12.
Engineering and Project Execution
4.10 The 500/220 kV ring was conceived after a series of studies done by SEGBA with the assistance of consultants (SOFRELEC of France) in 1969. The basic concepts for the distribution expansion program are based on studies by consultants (Merz and McLellan of the UK). As noted'in para. 3.06, SEGBA is not expected to require the services of consultants for the project.
4.11 SEGBA employs contractors for the construction of high and mid-tension overhead and underground transmission lines, for a part of the low-tension distribu-- tion lines and substations and for the new high-tension substations. Expansions of existing substations, part of the low-tension distribution lines and substations and service connectionswill be undertaken by SEGBA's own forces. The project implementation schedule (Annex 5) was confirmed by SEGBA during negotiations.
Environment
4.12 SEGBA has carried out its previous projects with due regard to environmental factors and intends to give special attention to reduce adverse visual effects result- ing from this project, by conforming to applicable zoning regulations. The project is, therefore,not expected to have any adverse impact on the environment. - 16 -
5. JUSTIFICATIONOF THE PROJECT
Sector ObLectives
5.01 The Bank's objectives in lending to the power sector in Argentina are:
(a) to assist the Government in improving sector organization, regulation, planning, financing and operation, in order to ensure that these functions are carried out in future with maximum regard to economy ;nd efficiency; and
(b) to assist the Government in formulating a national power expansion plan based on the least-cost program for expanding generation and transmission facilities. This plan would incorporate: (i) reasonable criteria for establishing system reserves and (ii) the most rational use of indigenous energy resources for power generation (e.g. coal, uranium, and hydro- electricity).
Project Objectives
5.02 Besides helping the Government to achieve the above mentioned goals, the project would provide SEGBA with the transmissionfacilities necessary to permit utilization of the energy produced at the hydro power plants of El Chocon, Planicie Banderita and Salto Grande and at the nuclear power plant at Atucha. The availability of this energy will allow SEGBA to meet the increasing demand of power due to revitalization of industrial activities in Argentina as a result of the economic policy applied by the present Government. The industrial sector has been the main factor in the growth of electricity consumption (56% of the total over the last five years) and the project would provide the facilities required to support a continua- tion of this growth. The project also would provide the distribution facilities necessary to bring electricity to final consumers (65,000 new consumers are expected to be connected annually), reduce losses and improve the efficiency of SEGBA's operation and the reliability of service due to the incorporationof urgently needed comnunications, telecontrol,telemetering and load dispatching equipment.
Load Forecast
5.03 As a result of the socio-economicproblems which have faced Argentina since 1974, SEGBA's sales have increased only slightly since that year. This basically is due to a decline of industrial activity as SEGBA has kept on connecting about 50,000 new customers (mainly residential) per annum since then. Argentina's new authorities are implementingan economic program designed to reduce inflation, increase exports, encourage new investments and revitalize industrial activity, and as a consequence electric energy consumption is expected to start growing again in 1977. SEGBA's load forecast assumes that in 1976 energy consumption will remain substantially the same as in 1975, and in 1977 a moderate increase of 5% will occur as a result of higher industrial consumption. From 1978 onwards a yearly increase of 8% (the historical growth rate in the Buenos Aires region) is assumed. Th power and energy balance for SEGBA's system is shown in Table 1 of Annex 3. This forecast has been accepted by the Government and appears reasonable. Generation capacity is more than sufficient to supply the incremental energy and the project will ensure the availability of the necessary transmissionand distribution facilities 17
High Tension System (500, 220 and 132 kV)
5.04 With the help of consultants (SOFRELEC- France) SEGBA analyzed various alternativesolutions to feed its distributionsystems and a 220 kV system (con- vertible to 500 kV) was found to be the least-costsolution with a ring surrounding an area of approximately3,500 km2. The section of the ring connecting the Rodriguez, Ezeiza and Abasto has to be converted to 500 kV by 1981 to permit utilizationof the energy to be provided by the Salto Grande hydro power plant and from the San Nicolas steam power plant of AyEE in the greater Buenos Aires region. This follows the recommendationsof the SOFRELEC study. Considering rights-of-wayand environmental factors, the location of the ring, as conceivedby SEGBA, appears the best practicable solution.
DistributionSystem (mid and low-tension)
5.05 The project will cover 5 years of distributionnetwork construction (1977-1981). As is shown in Annex 7, the existing installed capacity of distribution transformersplus the proposed expansion of capacity under the project will bring total installed capacity up to the requirementsin 1981, due account being taken of the capacity required for rehabilitationof the existing system. The unit base cost of the distributionexpansion and rehabilitationcomponent of the project is US$175/kVA at mid-1976 prices, which is reasonable.
PerformanceIndicators
5.06 The project is expected to lead to improved efficiency through lower system losses and better service brought about by a reduction in outages and improved voltage regulation. The upgrading of SEGBA's load dispatching and control systems, as a result of the project,willalso improve the quality of service and permit a reduction of operating personnel. The reduction in losses and other improvementsare reflected in the targets specified in Annex 13, which would be used to monitor SEGBA's performance during project implementation.
Return on Investment
5.07 The benefits attributableto the project have been estimated on the basis of the value of the electric energy to be distributedas measured by SEGBA's revenues and associated sales taxes paid by the ultimate consumer. The return on the project investmenthas been evaluated'asthe discount rate which equalizes these benefits with the associated costs which include the'investment'andoperating cost of the project and the cost of power delivered to the'transmissionand distributionsystem. As shown in Annex 7, the rate of return on the project investment amounts to 21%. The sensitivityanalysis in Annex 7 shows that the rate-of return would exceed 18% even if costs are assumed to rise by 10%. - 18 -
6. FINANCIAL ASPECTS
6.01 Since the Bank made its first loan to SEGBA in 1962, SEGBA's financial situationhas fluctuated considerably. It has a sound Concession Agreement,which, if consistentlyapplied, would have enabled SEGBA to mobilize through self-financingand borrowings on commercial terms the sizeable amounts required to support its capital expansion. While these objectiveswere achieved during significantportions of the period since 1962, there have been two periods when failure to follow the Agreement have required massive injections of government funds or a slowdown in expansion. The present Governmenthas agreed to implement a realistic tariff policy (see para. 2.14) and has taken steps to restore SEGBA's efficiency. This should allow SEGBA to fulfill in due course the objectives pursued since the first loan.
Past Record and Present Position
6.02 Instead of the 8% return on its rate base guaranteedby its ConcessionAgreement, SEGBA earned 5.4% in 1970, 1.8% in 1971, 1.3% in 1972, less than 1% in 1973 and its earnings for 1974 and 1975 were negative (see Annex 8). This performancewas particularlypoor since SEGBA paid very low prices for its purchases of fuel and electricityfrom other public enterprises. The contributionof internal resourcesto the financing of SEGBA's investment,which had been in excess of 50%, became negative. Net operating income actually failed to cover interest charges in 1973-75.
6.03 The following summarizes SEGBA's balance sheet as at December 31, 1975 (see note 1 to Annex 9).
ASSETS Millions of US dollars Gross plant in service 1,436.5 Less depreciationand customers' contributions 492.2 Net Plant in service 944.3 Work in progress 181.7 Net current and deferred assets (69.2) 1,056.8
LIABILITIES
Equity 744.4 Long-term debt, less current portion 312.4
- 1,056.8
SEGBA's debt/equityratio;, including the current portion of debt, was a low 34/66.
6.04 Accounts receivable for electricityamount to about 94 days' billings which is high. Accounts of public sector agencies are particularlyslow in collection. In view of these collection problems, the Government agreed to - 19 -
talr.eall reasonable action within its constitutionalpowers, to enable political subdivisions and agencies, including municipal and provincial authorities, to service their accounts on a timely basis. SEGBA intends .:o reduce accounts receivable to 75 days' billings by 1977. The ratio of receivr-blesto sales is among the performance indicators to be monitored durii!gproject execution (para. 5.06).
6.05 By comparisonwith 1975, and as a result of the tariff increases introduced by the new authorities, SEGBA's financial situation has improved considerably in 1976. Earnings, however, are still expected to be very low and the contribution of internal cash generation to the expansion program to be marginal (3.6%). SEGBA's total shortfall in earnings with respect to its authorized 8% rate of return as of December 31, 1976, is estimated at US$123.4 million. To offset this shortfall, the Government intends to: (a) make available US$86.8 million through budgetary funds - of which US$50.3 million have been budgeted in 1976 and the balance is expected to be provided by June 30, 1977; and (b) allow SEGBA to charge tariffs in excess of those required to earn 8% in the years 1977-79 (see para. 6.10).
Financing Plan
6.06 SEGBA's planned investments include (in addition to the proposed project ) the completion of ongoing generation, transmission and distribution works including the 310 MW generating unit at the Costanera plant (para. 4.01); and the initial portion of projects designed to cover requirements after 1981. The estimated sources and applications of funds of SEGBA for the six-year period 1976-1981 are shown in Annex 11. The financing plan for the disbursementperiod of the proposed loan (1977-1980) is summarized below: 1977-1980 Millions of Percentage of US$ Total Financial Requirements
Construction expenditure:
Project 425.4 11 51.3
Ongoing works 223.3 27.0
Future works 2.8 0.3
Other 55.2 6.7
Interest capitalized 66.7 8.0
Total Construction 773.4 93.3
Increase in working capital 55.2 6.7
Total 828.6 100.0
1/ An additional US$69.8 million would be expended in 1981 to complete the project, after the proposed loan is fully disbursed. - 20 -
1977-1980 Millions of Percentage of US$ Total
Sources
Internal cash generation 701.1 84.6
Less: Net debt service 276.2 33.3
424.9 51.3
Government Contributions 36.5 4.4
Borrowings:
Proposed IBRD Loan 115.0 13.9
Existing Loans 39.8 4.8
Loans related to the Project 206.0 24.9
Future Loans 6.0 0.7
Total Borrowings 366.8 44.3
Other Sources 0.4 0.0
Total 828.6 100.0
In the period the contribution from internal cash generation to the investment program will be 51.3%, which is satisfactory.
6.07 The proposed US$115 million Bank loan to SEGBA would cover 75% of the foreign exchange cost of the Project. An interest rate of 8.9% has been assumed, and a term of 15 years including a grace period of three years. The proposed loan includes US$500,000 for studies to be carried out under the direction of the Secretaria de Energia (para. 2.13). SEGBA would act as disbuasing agent only for these funds and is expected to be reimbursed by the Government from the proceeds of the various taxes it ccllects from power consumers on the latter's behalf. The Government and SEGBA have agreed to make arrangements satisfactory to the Bank for the transfer of these funds and their repayment.
6.08 TIhebalance of SEGBA's financial requirements for the period 1977- 1980 is expected to be met by the Government's 1977 contribution (US$36.5 million - para. 6.05), loans from foreign and local banks (US$206.0 million), and the drardown of existing loans (US$39.8 million).- To ensure that these funds will be made available, the Government agreed that it will provide t.heequivalent of US$36.5 million by June 30, 1977 and it would cause to be - 21 - peovideA. not less than the equivalent of US$25.0 million in 1977, US$42.0 mrllion in 1978, US$59.0 million in 1979 and US$80.0 million in 1980 on terms a/d conditions satisfactory to the Bank. These amounts would be sufficient cc protect SEGBAagainst any failure to secure financing from foreign and local banks.
6.09 A foreign financial institution has expressed its interest in cor.sidering the financing of a part of the foreign and local cost of the project through a cofinancing arrangement with the Bank. SEGBAand the potential lender have been informed that the Bank would be prepared to consider such an arrangement at SEGBA's request, provided it would result in better terms for SEGBA than it could otherwise obtain.
Future Finances
6.fl) The forecast Income Statements (Annex 8) are based on the assumption that in 1977-1979, SEGBAwill attain a 9% rate of return in order to recover a part of the earnings shortfalls accumulated through December 1976. Thereafter thn projections assume achievement of the rate of return set in the Concession Agreement, namely 8%. The projection of SEGBA's operating costs takes into account the substantial increases expected in the prices paid by SEGBAfor fuel and purchased power (para. 2.1s).
6.11 Annex 9 gives estimated balance sheets for the period 1976- 81. Net plant in service is expected to increase from US$944.3 million in 1975 to US$1,617.8 million in 1981 (71%). Over the same period, long-term Tndebtedness uld only increase by 58%. The foregoing indicates satisfactory internal generation of resources. n.12 The debt/equity ratio would decline from 34/66 in 1975 to 31/69 in 1981. SEGBA agreed that it would not contract any long-term indebtedness without the Bank's concurrence if its internal cash generation is less than 1.5 times maximum future debt-service obligations. In prior loan agreements, SEGBA's borrowings had been limited by a combined debt-to-assets and interest coverage test, which is no longer being used in connection with most Bank power loans. These agreements would be amended to substitute the limitation .ased on a projected debt service coverage test described above.
6.13 SEGBA also agreed to afford the Bank a reasonable opportunity to comment on any major expansion program, other than the project, which it may propose to undertake prior to the completion of the latter. - 22 -
7. AGREEMENTS REACHED AND RECOMMENDATIONS
7.01 During negotiations agreement was reached with SEGBA on the following principal points:
a) Satisfactory arrangementswill be made with the Government for the transfer of US$500,000 to pay for the experts hired to assist the Government in carrying out the studies mentioned in para. 7.02 (a) (paras. 2.13 and 6.07);
b) Planning, expansion and operation of the power facilities of all utilities supplying Greater Buenos Aires will be coordinated (paras. 2.18 and 2.19);
c) A substantial change in SEGBA's Bylaws and Concession Agreement will be an event of default (para. 3.03);
d) The accounts will be audited by independent auditors acceptable to the Bank (para. 3.11);
e) SY;GBAwill request tariff increases in accordance with its Concession Agreement starting in 1977 (para. 3.13);
f) Possible improvements ir SEGBA's tariff structure will be studied (para. 3.16);
g) SEGBA will not incur any debt without the Bank's concurrence if it cannot meet the debt limitation test (para. 6.12);
h) SEGBA will afford the Bank a reasonable opportunity to exchange views on any major expansion (para. 6.13).
7. 02 Agreement was reached with the Government on the following principal points:
a) The Government will carry out a national power sector organization study, prepare a national power expansion plan, and exchange views with the Bank on the findings and recomrmendationsof these studies; it will not approve any new major investment in generation and transmissionuntil the national power expansion plan is prepared; and it will make satisfactoryarrangements with SEGBA for the transfer of inds included in the Bank loan for these studies (paras. 2.13 and 6.07);
b) Plalnning,expansion and operation of the power facilities of all utilities supplying Greater Euenos Aires will be coordinated (paras. 2.18 and 2.19);
c) SEGBA will be allowed to charge rates required to comply with its Concession Agreement (para. 3.13);
d) The Government will assist SEGBA in carrying out the study of its rate structure (para. 3.16); - 23 -
e) The Governmentwill take action in respect of the timely settlementof debts of public sector agencies to SEGBA (para. 6.04);
f) The Government will provide to SEGBAnot less than the equivalent of US$36.5 million by June 30, 1977 (para.6.08);and
g) The Government will cause loans to be made to SEGBAof not less than the equivalent of US$25.0 million, US$42.0 million, US$59.0 million and US$80.0 million during the years 1977, 1978, 1979 and 1980 on terms and conditionssatisfactory to the Bank (para. 6.08).
7.03 With the indicated assurances, the proposed project constitutes a suitable basis for a Bank loan of US$115 million equivaleat for a term of 15 years including a grace period of 3 years.
September 7, 1976
ANNEX 1 Page 1 of 2
APPRAISAL OF THE FOURTH BUENOS AIRES POWER PROJECT
SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
THE ENERGY SECTOR
1. The primary consumptionof energy of Argentina in 1975 was estimated at 35.2 million Toe, I/ and has grown at an average rate of 3.4% during the period 1970-1975. The relative contributionof the different energy sources for the years 1970 and 1975 are shown below:
1970 1975
Coal and Shale 3.0 3.4 Petroleum products 71.3 62.3 Natural Gas 17.4 22.7 Hydroelectricity 1.3 4.2 Nuclear Energy - 1.7 Vegetal fuels 7.0. 5.7
The percentages of total energy consumptionused in the form of electric energy are for the years 1970 and 1975, 20% and 23% respectively. The use of different energy sources for the generationof electric energy is as follows:
1970 1975
Coal and Shale 28.5 21.6 Petroleum products 20.3 16.9 Natural Gas 23.5 25.5 Hydroelectricity 100.0 100.0 Nuclear Energy - 100.0 Vegetal fuels 2.4 2.5
2. Estimated known (1975) reserves of the different indigenousenergy resources are as follows:
Hydroelectricity(MW) 45,000 Oil (m3 x 103) 390,000 Natural Gas (m3 x 103 - equiv. oil) 200,000 Uranium ore (tons of U3 08) 62,000 2/ Coal (tons x 106) 450
1/ Toe = Ton of oil equivalent i.e. 107 Kcalories. 2! The Argentine authoritieshave just reported that an assured supply of 24,000 tons of these uranium fuel reserves would cost less than US$100/kg, which is economic by internationalstandards. ANNEX1 Page 2 of 2
In most:cases, these resources are quite high - cost:and sizeable investments will be required for their conmi.ercialdevelopment.
3. Hydroelectric resources havrebeen utilized very little up to now but.important constructionprograms are underway or in preparation. Approx- imnately 3,600 MW of hydroelectric gei.eratingcapacity is under construction, WhiLil would raise the present percentage of utilization of 3.8% to 12% by 1982-1983.
4. Studies have been carried out to determine the feasibility of increasing coal production from the present value of about 0.5 million tons to 3 million per year, which would permit switching from oil to coal in the major steam turbine units in Argentina. The Government is presently reviewing these studies, prior to taking a decision. Technical and financial constraints taaybe encountered which could delay implementationof these plans.
5. The high proportion of petroleum products and natural gas in the total consumption is in part a result of the availability of these fuels for power generation at low price (e.g. about 25% of international levels for fuel-oil used in power stations). In contrast gasoline pricing is realistic. This situation can hardly be maintained in the future and the Government intends to implement a program directed toward replacement of petroleum products by use of nuclear energy (using indigenous uranium) coal and hydro- electricity. On the other hand the Government also plans to raise to a more realistic level the price of fuel (75 - 80% of international prices by end- 1978) used in power generation.
6. At present about 11% of petroleum and 15% of natural gas consumption is imported, which in 1976 is expected to result in a cost to the Argentine economy of US$450 million. The Government also intends to make Argentina self-sufficientin this respect by intensifyingthe exploration of oil and natural gas by awarding contracts to international firms.
September 1, 1976 ANNEX 2 Page 1 of 9 pages
APPRAISAL OF THE FOURTH BUENOS AIRES POWER PROJECT SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
THE POWER SECTOR
Power Sector Statistics
1. In 1975 the percentagesof population with electricity service in Argentina, separated per province is as follows:
Province Population Population with % of population with (thousands) electric service electric service
Federal Capital 2,977 2,977 100 Buenos Aires 10,057 9,252 92 Catamarca 175 89 51 Cordoba 2,332 1,749 75 Corrientes 603 368 61 Chaco 588 306 52 Chubut 194 153 79 Entre Rios 879 589 67 Formosa 238 105 44 Jujuy 312 205 66 La Pampa 175 103 59 La Rioja 137 69 50 Mendoza 1,064 724 68 Misiones 460 193 42 Neuquen 161 106 66 Rio Negro 267 139 52 Salta 529 328 62 San Juan 398 251 63 San Luis 187 161 86 Santa Cruz 88 70 79 Santa Fe 2,359 1,769 75 Santiago del Estero 528 227 43 Tierra del Fuego 13 11 85 Tucuman 831 540 65 Totals 25,552 20,485 80
As can be seen Argentina is a highly electrified country with 80% of the population with access to electric energy, with a per capita production of 1156 kWh and consumption of 991 kWh. The Buenos Aires region is over 90% electrifiedwith a total per capita consumption of 1170 kWh. However, about 700,000 to 800,000 rural dwellings are without electric service in Argentina. The Inter-American Development Bank made a US$43 million loan in 1974 for a Rural ElectrificationPlan which would gradually bring the benefits of electricity to about 100,000 rural inhabitants during the years 1975 through 1978 at a total cost of US$100 million. ANNEX 2 Page 2 of 9 pages
2. In 1975 public service generationwas 24,554 GWh compared with 16,800 GWh in 1970. Captive generationwas 4,900 GWh, unchanged since 1970. Total installed capacity in Argentina in 1975 was 9,280 MW of which about 2,000 MW corresponds to captive plant. It is expected that as public service reliability increases self-supplyingconsumers will discontinue their power generation except for those generating as a by-product of industrial process steam.
3. The break-downof public service consumption according to categories of consumer is as follows (for the whole country):
GWh (Total) Residential Commercial Industrial Other
1970 13,798 36.2 13.3 35.7 14.8 1971 15,222 34.5 12.7 38.3 14.5 1972 16,898 33.2 12.2 40.8 13.8 1973 18,054 32.4 11.9 42.0 13.7 1974 19,081 31.9 11.3 43.0 13.8 1975 20,420 32.0 11.4 42.7 13.9
Average Growth rate 1971-75-% 8 5 5 12 7
Thus industrial consumption has been the fastest-growing category, accounting for 56% of the growth in public-service consumption over the last 5 years. The relationshipbetween electricityproduction per capita and GNP per capita is as follows (for the whole country):
kWh per capita GNP per capita-/ Raatio 2 (1) (2) (1)
1970 909 647 .71 1971 959 659 .69 1972 1,031 680 .66 1973 1,071 712 .66 1974 1,109 753 .68 1975 1,156 728 .63
Average rate of growth 4.9% 2.4% (3.8% until 1974)
1/ Measured in constant 1960 US$. ANNEX 2 Page 3 of 9 pages
Power Sector Organization
4. The power sector in Argentina is essentiallyowned by the Government and is regulated partiallyby it through the Secretarla de Energla, a branch of the Ministry of Economy. The privatT1y owned company is CompafiiaItalo Argentina de Electricidad,S.A. (CIAE),- which serves one third of the city of Buenos Aires and has an installed generating capacity of 585 MW (see Annex 3). A number of provinciallyowned electric utilities exist; their principal function is to distribute electric energy though they own some generating installations.
The major entities involved in the power sector are:
- AyEE Agua y Energla Electrica (operatesin the whole country and also is in charge of irrigation)
- CONCAP Comision Nacional de la Cuenca del Plata (controls the Argentine representativesin the two international entities EBY and CTMSG)
- CIAE Comision Italo Argentina de Electricidad,S.A. (a private company operating in Buenos Aires - see above)
- CNEA Comisi6n Nacional de Energia Atomica (in charge of nuclear energy; constructs and operates the nuclear power plants)
- CTMSG Comision .TecnicaMixta de Salto Grande (the Uruguayan-Argentinebinational authority in charge of building and later operating the hydroelectricproject of Salto Grande)
- DEBA Direccion de Energla Electrica de la Provincia de Buenos Aires (provincialelectric utility serving a part of Buenos Aires province)
- EBY Entidad Binacional Yacyreta-Apipe (the binational Paraguayan-Argentineauthority in charge of the planning, constructionand finally operation of the Yacyreta-Apipehydroelectric project on the Parana river).
- EPEC Empresa Provincial de Energla de Co'rdoba(the provincial electric utility serving the Cordoba region; will soon (1977) be interconnectedwith the Buenos Aires-Litoralsystem)
1/ Talks between the Government and CIAE are underway to explore the possibility of acquisitionof a controlling interest in CIAE by the Government. ANNEX 2 Page 4 of 9 pages
- HIDRONOR Hidroelectrica Norpatag6nica, Sociedad Anonima (the utility in charge of the development and operation of the hydro resources of the North Patagonian region. At present is completing the El Choc6n hydroelectric project (1,200 MW) and building the Planicie Banderita power station (450MW).
- SEGBA Servicios Electricos del Gran Buenos Aires (the major utility serving the Buenos Aires region).
5. The regulation carried out by the Secretarla de Energla consists of:
(a) the granting of concessions for electric power supply; and
(b) the approval of electric tariffs.
However, the activity of the Secretarla de Energla is limited as it does not grant the concession for the installation of nuclear power plants - these are aut-horized directly by the President of the Republic, and does not approve the tariffs of the companies owned by the Provincial Governments, nor does it grant concession for the construction of generating facilities by these companies. Also, it has little voice in the decision regarding binational projects which up to the moment have been made by. the Ministry of Foreign Affairs.
6. Although the Government owns virtually all major generation, transmission uPl C;-stribution facilities of Argentina, the manner of controlling the various e,Lities is not uniform (see Attachment 1). As can be seen, the Secretary of Energy controls SEGBA, HIDRONOR and AyEE, the Ministry of Foteign Affairs *o ntrols the Argentine representation in the two binational entities E?Y and C'.n.'G, the President of Argentina controls CNEA, and the provincial Governments control the two main provincial electric utilities EPEC and DEBA. In other words, the organization of this sector is fragmented and it lacks cohesion. Js a. Lesult a chaotic situation exists in the sector regarding planning and investment decisions.
Power Sector Planning
i. A power planning working group, coordinated by the Secretaria de Frergia, with the participation of representatives of AyEE, SEGBA and CNEA Las in the past prepared power expansion programs for which a mathematical rmodel (minimum cost, linear-program) for optimization of generating and t:ransmission facilities was used. The last version of this program was prepared in 1975 and covers the years 1976-1986. The basic assumptions for this study were:
(a) Energy and demand forecast growth at 11.5% p.a. (the historical average growth for the period 1960-1974 was 8%) a consequence of assuming that economic activity in Argentina (GNP) would increase at 7.5% p.a. (the historical growth was 3.5% p.a. for 1960-1970). This projection implies that per capita consumption would grow from 800 kWh in 1970 to 3,000 kWh in 1985. No studies of historical trends per category of consumption, future trends ANNEX 2 Page 5 of 9 pages
based on regional development forecasts or analyses of industrializationplans were made.
(b) A system reserve of 22% of installed capacity was used which is unreasonablyhigh, especially for a system which progressively will become predominantlyhydro.
(c) Not all attractive hydro projects existing in Argentina were considered nor were reliable cost estimates used.
The final expansion program as prepared in 1975 results in an over-capacity of 5-10% over and above the system reserve, even with the highly inflated load forecast described in (a). In other words, the program is highly ambitious and of questionableeconomic justification.
8. As a result of this unjustified expansion program and the fragmented organizationand decision-makingstructure of the sector, the previous Government took a number of investment decisions for the sector with little or no technical or economic justification. The following are examples of such decision:
(a) In July 1975, the Government signed a contract with Russian, French aindGerman manufacturers for the..supplyof three steam mnitsof 310 MW each without any study of their necessity and timing. Unless rapid decisions are made to expand coal production, these units will have to boil-fired and will add to the balance of payment problems that Argentina faces.
(b) The previous Government decided to locate Argentina's second nuclear power plant (640 MW) in the Cordoba region, where no market exists for the energy produced. As a result, it then decided to build a pumped storage scheme (Rio Grande 760 MW) to utilize this energy and to build an interconnectionwith the Buenos Aires-Litoral system to export the combined output. While the interconnectionwould probably have been required in the long run, its construction is premature. The economic return of these three major investments is probably marginal.
(c) Agreements have been signed with Paraguay to build the Yacyreta- Apipe project without a detailed analysis of the necessity and timing of the project.
In all these cases, the previous Government appears to have been motivated by political or other non-economicconsiderations. In no case does it seem to have addressed the question of whether the project was the least cost alternative to meeting Argentina's need. for power.
Power Sector Expansion
9. As a consequenceof the decisions already taken by the previous Government, the main items of generation expansion program of Argentina under constructionat the moment are the following: ANNEX 2 Page 6 of 9 pages
Year of Name Entity Capacity Type/ Commissioning
Costanera SEGBA 2/ 310 S 1980 San Nicolas AyEE 2/ 350 S 1980 San Nicolas AyEE 2/ 310 S 1981 Cabra Corral AyEE 102 E! 1981 El Choco'n HIDRONOR 2/ 400 H 1978 Futaleufu AyEE 448 H 1977 Sorrento AyEE 2/ 160 S 1980-81 Agua del Toro AyEE 130 H 1980 San Nicolas AyEE 2/ 310 S 1982 Los Reyunos AyEE 216 H 1980 Planicie Banderita HIDRONOR 2/ 450 H 1977-78 Salto Grande CTMSG 2/ 1,350 H 1979-81 Rlo Grande AyEE 2/ 760 P.S. 1982 Cordoba CNEA 2/ 640 N 1982
10. Besides the above mentioned projects, several others are in preparation including:
(a) La Brava, a pumped storage scheme in the Buenos Aires region of 400 MW initial capacity and a 1,000 MW final capacity, to the completed (first stage) in 1984.
(b) Alicura, a hydro power plant of 1,000 MW capacity in the Limang Basin for which the civil works have already been started but which is not expected to be commissioneduntil 1983-1984 due to financial constraintsof HIDRONOR.
(c) Yacyreta-Apipe,a binational hydroprojectbetween Paraguay and Argentina on the Parana river with an initial capacity of 1,350 MW to be extended to 2,700 MW. The final feasibility study is nearly completed. Another binational project on the Parana river, Corpus (6,000 MW) is being studied and it already appears to be more economic solution than Yacyreta-Apipeon a cost/kW installed basis, due to less complicated civil works. A final decision regarding the timing of these two projects has yet to be taken by the present Argentine authorities.
(d) 3 possible binational hydroelectricprojects with Brazil on the river Uruguay have been identified. These are San Pedro, Roncador and Gavari. Gavari appears the most promising and a feasibility study is under preparation.
1/ S = steam; H = hydro; N = nuclear; P.S. = pumped storage.
2/ Form part of the interconnectedsystem - See Attachment 2. ANNEX2 Page 7 of 9 pages
(e) Feasibility studies are being prepared for 4 further hydro projects in the area of HIDRONOR's concessions, namely:
Piedra del Aguila 2,100 MW Collon Cura 700 MW Pichi Piciun Leuf'u 400 MW Michinuao 600 MW
(f) CNEA is studying the feasibility of building a third nuclear power plant (Atucha II) of about 1,000 MW to be installed in the vicinity of the existing Atucha nuclear power plant.
The transmission systems necessary to utilize all these power plants have not been defined and should be studied. In the case of the Yacyreta-Apipe project, AyEE has already decided that transmission to the Buenos Aires region use direct current, without having carried a comprehensive study to determine an overall transmission program based on the least-cost solution.
11. As Attachment 2 shows, this investment program will provide the interconnected system (Greater Buenos Aires, Litoral, Buenos Aires South, Comahue and Cordoba - see map 11441R) with an overcapacity until 1985. While a proper national sales forecast for the power sector has yet to be prepared, the current authoritie. have made reasonable assumptions as follows:
(a) growth rates of 0% for 1976, 5% for 1977 and 8% thereafter;
(b) an extreme case of growth rates of 0% for 1976, 5% in 1977, 8% in 1978 and 10% thereafter.
12. Two different values of system reserve were considered as follows:
(a) 22% of installed capacity as used by the last version of the expansion program prepared by Argentina (para. 7);
(b) the largest steam unit in service (350 MW) plus 20% of installed capacity until 1979 and 15% thereafter.
Argentine power sector planners have always tended to use high figures for system reserve due to:
(a) the high proportion of steam generating units, especially in the Greater Buenos Aires area, which require more maintenance than hydro units;
(b) insufficient maintenance of these steam units due to a historical lack of generating capacity .d to labor problems;
(c) a certain number of very old machines (about 320 MW) installed in SEGBA's system.
However, as a result of the present availability of power from Atucha and HIDRONOR, SEGBA and AyEE are carrying out a comprehensive maintenance program which would leave their generating units in a normal state of availability by 1979-1980. ANNEX 2 Page 8 of 9 pages
By this same date, the interconnectedsystem will have a much higher proportion of hydro units, with a considerablyhigher service reliability and in 1981 the obsolete units will have been dismantled. It appears reasonable therefore to use the alternative criterion for reserve mentioned above, i.e. 350 MW plus 20% of installed capacity until 1979 and 15% thereafter. This will result in an overall percentage reserve of 19% on a long-term basis which is on the high side but not unreasonable.
13. On this basis, it can be seen that even with the high load forecast, no additional generating capacity is needed until 1986 and that wasteful and unjustified investments have been decided by the previous Government which because of their state of advancement cannot be delayed or cancelled. It is also evident that it would be unjustified to proceed with the projects described in paragraph 10 (a to f) until a comprehensiveand realistic national power expansion plan has been prepared.
Revaluation of Assets
14. There is no consistent approach to revaluationof power sector assets; e.g. SEGBAts concession stipulates using historic US$ value adjusted only by the effect of the US dollar parity as stipulatedby IMF, and other entities use different methods. The Government intends to carry out a study to develop proposals for a uniform methodology for revaluation of assets to enable all the power utilities to maintain uniform and realistic values of their assets. This study will be included in the sector organization study. It is estimated that realistic values of the rate base of the different entities would mean increasing the presently used values by 50 to 100%. In the case of SEGBA and HIDRONOR this would mean an increase in their tariffs of about 25% and 40% respectively,if the values of their assets increase by 50% in order to maintain the 8% rate of return in agreement with their concessions. Conclusions
15. From the above, it can be concluded that:
(a) the Argentine authorities should consider delaying or cancelling, to the extent feasible, the commitments,until the expansion program mentioned below is completed;
(b) a national power expansion plan, based on the least-costprogram for expanding generation and transmissionshould be prepared as soon as possible; and
(c) a national power sector organizationstudy should be undertaken as soon as possible to rationalize the sector organization,regulation and planning.
16. The Argentine authorities are fully aware of the situation and have studied the feasibilityof delaying as many investment commitments as possible and have agreed to undertake studies mentioned in (b) and (c). The authorities have concluded that: ANNEX 2 Page 9 of 9 pages
(a) the projects under construction(para. 9) are too far advanced to be cancelled and should be completed,except for Alicura (para. 10 (b)) which will be reviewed in the context of the national power expansion plan;
(b) All other projects not on internationalwaters will be deferred and reviewed when the plan is available; and
(c) Projects on internationalwaters will be discussed with Argentina's partners in order to develop solutions compatiblewith the interests of all countries involved.
17. These power sector studies (sector organizationand expansion plan) should focus on, inter alia, the following aspects:
(a) reasonable criteria for system reserve; (b) use of indigenous energy resources; (c) regulationof the sector; (d) uniform and realisticmethodology for asset revaluation; (e) proposal for a national tariff structure; (f) reasonable timing of sector investmentsas a result of an updated market study; (g) financing plan for the expansion program; and (h) a comprehensivenational transmissionsystem.
Power Sector Operation
18. The present interconnectedsystem (see map 11441R) will be expanded in 1977 when the interconnectionbetween the Cordoba region and the Gran Buenos Aires- Litoral system is completed. In 1974, the Secretary of Energy, by Resolution No. 171 determined that the operation of all the entities involved in this system are subject to the instructionsof a centralizedload dispatching system - Despacho de Carga Unificado, DUC - located in Rosario and coordinatedby AyEE. Basically DUC operates as follows:
(a) daily load forecasts (for half-hour periods) of the system are made one day in advance; (b) the availabilityof all the system components (generatingunits, transmissioncircuits, etc.) is determinedone day in advance; (c) based on the incremental generatingcost and the availabilityof each element of the components, the most economicalloading of the generation and transmissionsystem is determined by computer; (d) DUC is also responsiblefor calculating the average monthly power and energy imported and exported by each interconnectedentity for purposes of billing between utilities.
DUC aims at the optimum use of generation capacity in the interconnectedsystem and limits the independenceof operatio of the different utilities which might otherwise lead to an uneconomicoperation.
In the other regions of the country, basically controlledby AyEE, no major interconnectionexists and the different isolated systems are operated independently. PAUAGL,AY URUGUAY
O_HER MINISTRIES
A j| OTHER SECSRETARREES
r.N l | EEGSCEAY |||l GOVEIRNORSCOCP||POICA
SUB-SECRETARY SU| -SECRE ARY VIN| RIVATE FUEL Ml ISTRIES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~APITAL
r~ rm Eg E~~~~~~~~~~~~~~~~~~O CUBRT 0 blA
--- inin -- ~~~~~~~~~~------3
------1OTHE
Agua E-rgra E1e6-ic OUC Dispxho Unificed dd Crgt AUTHORITIES C-m6iso N_cio-I de Ia CuenRa del Plai EBY EnwidRd BiREijOnSI Yfyrl.ti-Apipei 'O--`6rcion de E,,mpres Noc.on.les EPEC Emipres Pro-i,HHI de Energr. de C6rdoba I Com,arP.8 11.10 Arg-,Hi-O de Llec-ricdd, S,A. HIDRONOR HIdIHtk`cHOiUO N.pOtStgoniUO, S5i.d.d Anni-mO _ mM ______M_ M M M M _0 Comrisi6n Ncional de Energia At6mica SEGBA Servicios EIdtri.oS del Gran Buenos AireS, S A Comisi6n T-cn,ca MiHt. de S.lo Grande YCF Yacimientos Carbon-feros FisWE,e ALL THESE ENTITIES ARE CONTROLLED IN Direcci6n do EHergf. El corico de 1 PrOVI. im de BURROSAires YPF YTcimientos PetroIrferRs Fic-les THE OPERATION OF THEIR GENERATING FACILITIES BY DUC. AS INTERCONNECTION INCREASES OTHER ENTITIES IEPEC, CTMSGI World 13nk-1f40r2 WILL BE INCORPORATED.
lbE
0l1 ANNEX 2 Attachment 2
POWER BALANCE IN ARGENTINA'S INTERCONNECTED SYSTEM (MW)
(Greater Buenos Aires, Litoral, Buenos Aires South, Comahue and Cordoba)
1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1/ 2/ 3/ ~~~4/1 5/ 6/ Installed Capacity 4,500 5,225.1/ 5,625- 5,895-/ 7,255- 8,186- 9,896- 9,896 9,896 9,896 9,896 9,896 (I.C.) Reserve - A
(22% of I.C.) 990 1,150 1,238 1,297 1,596 1,800 2,177 2,177 2,177 2,177 2,177 2,177 Firm Power - A 3,510 4,075 4,387 4,598 5,659 6,386 7,719 7,719 7,719 7,719 7,719 7,719
Reserve - B (350 MW + 20% of I.C. u-ntil 1979, and 15% thereafter) 1,250 1,395 1,475 1,529 1,438 1,578 1,834 1,834 1,834 1,834 1,834 1,834 Z Reseive of I.C. 28 27 26 26 20 19 19 19 19 19 19 19 Firm Power - B 3,250 3,830 4,150 4,366 5,817 6,608 8,062 8,062 8,062 8,062 8,062 8,062
Peak Demand MH (Medium Forecast) 3,100 3,570 3,856 4,164 4,497 4,857 5,246 5,665 6,118 6,683 7,218 7,795 Peak Demand8/ H (Hligh Forecast) 3,100 3,570 3,856 4,241 4,665 5,132 5,645 6,209 6,830 7,513 8?265 9,091
Excess Iastalled Capacity: A - M 410 505 531 434 1,162 1,529 2,473 2,054 1,601 1,036 501 (76) A - H 410 505 531 359 994 1,254 2,074 1,510 889 206 (546) (1,372)
B - M 150 260 294 202 1,320 1,751 2,816 2,397 1,944 1,379 844 267 B - H 150 260 294 125 1,552 1,476 2,417 1,853 1,232 549 (20.3) (1,029)
Average excess capacity 280 383 413 280 1,257 1,503 2,445 1,954 1,417 793 149 (553) Average idle investment US$ x 106 9/ 196 268 289 196 880 1,052 1,712 1,368 992 555 104 -
1/ Interconnection with Cordoba (500 MW) plus 1 unit of Planicie Banderita (225 MW). 2/ Incorporation of compensating dam for El Chocon (400 MW). 3/ Incorporationof 2 units of Salto Grande Power Station (270 MW). 4/ Incorporation of 1 unit SEGBA steam (310 MW); plus Sorrento steam unit (160 MW) plus San Nicolas steam unit (350 MW), plus 4 units of Salto Grande (540 MW). 5/ Incorporation of second unit of Planicie Banderita due to compensating dam (225 MW) plus 120 MW of generating capacity installed at compensating dam of El Chocon, plus 4 machines (540 MW) at Salto Grande, plus 56 MW at compensating dam of Planicie Banderita plus 310 MW (steam) at San Nicolas, minus 320 MW of steam units taken out of service. 6' Incorporation of nuclear plant (640 MW) ,and pump-storage station in Cordoba (760 MW), plus San Nicolas 310 MW steam unit. 7/ Interconnection with Cordoba (300 MW) plus 5% in 1977, 8% tnureafter. 8/ Interconnection with Cordoba (300 MW) plus 5% in 1977, 8% in 1978 and 10% thereafter. 9/ Estimated at US$ 700/kW in 1976 prices.
August26, 1976 ANNEX 3 Page 1 of 3 pages
APPRAISAL OF THE FOURTH BUENOS AIRES POWERPROJECT
SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
GREATER BUENOS AIRES SUBREGION
General
1. The city of Buenos Aires, the capital of the country, and its surroundings are served by SEGBA and CIAE. The greater Buenos Aires area contains 71% of the population of the Buenos Aires - Litoral Region, and accounts for 70% of the Region's electric consumption. SEGBA's concession covers an area of 13,586 km2 and includes CIAE's smaller concession area. In 1975 the main characteristics of the subregion were the following:
Population living in the area: 9,900,000 inhabitants
Population with access to electricity: 8,839,000 inhabitants
Number of power consumers:
SEGBA 2,674,700
CIAE 402,500
Total 3,077,200 consumers
Sales:
SEGBA 8,834 GWh
CIAE 1,470 GWh
Total sales 10,304 GWh
Peak demand (non-coincident):
SEGBA 1,974 MW
CIAE 523 MW
Generating capacity:
SEGBA 2,386 MW (1976)
CIAE 585 MW
Total Generating Capacity 2,971 MW ANUEX3 Page 2 of a pcg e:
1-t 1975, v'ri?c gencrsr,-:dglonts 1,4CO GWh, in part as a by-prod!U't 6f iT.dt-ot2i.al r,Oc*Css stew._ Liuc t-r the it:^ea &nt. in public service rci-1.Ptlfty, it is expctt.ed tT.t- those seli-atlt;yin? co-r&.umcrsvhich trc!.-zairtUc tnt½.ir own t-zli facilitieE in service for reliability reasons wi.ll d1s ;-cnLilT1C thlpi. paver sencL_.t.ion. ThEe ciubrtegion imports pzwer from Sav. U{colv:; AvEB) a,---4Atvl (NlE.A) pl.antz via a 2AC kV douhle-circuit line and a .L. c'rA-ft 132 ItV nec . 14-to,; s and from the E1 Chocon hyvdr,e'lctric ,'lant (HliRC!T 1ti l double-- i cuit 500 kV line at Ezeiza CuLEtatIca (sace Lap 11442R). C--- Er n z-. ,Lre - is inrterconnected with the western sector cf Buenct- Airen Prcvince s &,d-uble-circuit 132 kY linC which is alse cornnccLea to Moron sutc".tion. T.ie expansions of the San Niccl.s plant end the pir-Lr genei a ed at SaO o Grande requires the eiparnsion of the transmission s3etcrn .the, Greater Etienos I res region included in the project.
3. The table I (attached) shows the power and energy balance of SECkA'c system. The Icad will be covered by SLGBA's own generation and increaeir.. avauntE of imported plower from other regions. Th-e following generatior. expar;sic'.s, nc; underway, are -maorethan ample to satisfy SEGBA's requirements:
(a) HIDRONOR will be able tc use the additional output (400 M0 of its hydro power station at El Choc6n once the compensating dam at Arroyito is completed (1977-1978).
(b) One unit (225 MW) of HIDRONOR's hydro power station at Planicie Bandeiita will be completed in 1977. The second unit will be available when the compensating dam is completed in 1981.
(c) AyEE will commiseion two new steam units of 310 MWy eaclh and one of 350 MW at its San Nicolas power station between the years 1980- 1982.
(d) CTMSG will bring on line the first two units (270 MW) of the Salto Grande hydro station in 1 9 7 9 and further units in 1980 and 1981.
The table also shows the considerable imTprovement in SEGBA's transmission and distribution losses v.hichlwere 20% of sales 1967, and had declined to 16% by 1975, as a result of the systems rehabilitation under the previoue project. It has been conservatively estimated that a further decline to 14.3% by 1981 would be achieved under the project. Because of the transmission losses associated with imported power, it will be difficult to achieve further reductions in the percentage losses.
SEGBA's Existing Facilities
4. As at July 1, 1976 SEGBA owned the following facilities:
(a) Generation Capacity Station Type (MW)
Puerto Nuevo steam 904
Dock Sud steam 110
Costanera steam 950
Several stations gas turbine 422
Total 2,386 ANNEX 3 Page 3 of 3 pages
350 MW of SEGBA's generating units have exceeded their useful life (30 years) and will be dismantled by 1980.
(b) Transmissionand DistributionLines 1/
19.4km of 220 kV
771 km of 132 kV (with some 66 kV)
10,700 km of 13.2 kV (with some 33, 27.5 and 6.5 kV) 39,000 km of 380/220 volts (c) Substations
1,200 MVA transformer capacity of 220/132 kV
4,100 MVA transformer capacity of 132/13.2 kV
1,000 MVA transformer capacity of 66 and 27.5/13.2 kV
(d) Consumer connections and meters
2,700,000
1/ In circuit/km.
September 1, 1976 POWER AND ENERGY BALANCE OF SEGBA SYSTEM
ACTUAL FORECAST 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 '981 Unit
GWh Sales 6,160 6,861 7,461 8,165 8,270 8,381 8,834 8,906 9,351 10,100 10,907 11,781 12,725
" Losses 1,123 1,133 1,277 1,287 1,335 1,384 1,420 1,402 1,447 1,509 1,601 1,698 1,818
Delivered to the system 7,283 7,994 8,738 9,452 9,605 9,765 10,254 10,308 10,798 11,609 12,508 13,479 14,543
SEGBA's generation- 6,314 6,539 7,384 7,630 7,979 6,518 5,729 5,708 5,878 6,554 6,618 6,249 6,673
Purchases 969 1,455 1,354 1,822 1,626 3,247 4,525 4,600 4,920 5,055 5,890 7,230 7,870
% Load Factor 53 54 55 57 58 57 59 59 59 59 59 59 60
MW Peak at feeding points - 1,547 1,697 1,808 1,902 1,899 1,968 1,974 1,994 2,079 2,227 2,396 2,573 2,767
Contribution to peak:
MW SEGBA 1,244 1,423 1,531 1,637 1,659 1,623 1,167 1,194 1,309 1,300 1,150 1,000 1,100
MW Purchased 303 274 277 265 240 345 807 800 770 927 1,246 1,573 1,767
% Transmission & Distribution
Losses (% of Sales) 18.2 16.5 17.1 15.7 16.2 16.5 16.0 15.7 15.5 14.9 14.7 14.4 14.3
(% of delivered to System) 15.4 14.2 14.6 13.6 13.9 14.2 13.8 13.6 13.4 13.0 12.8 12.6 12.5
l/ Net 2/ SEGBA's generating stations and receiving substations at the 220 kV ring for imported energy.
August 26, 1976 I . ANNEX 4 Page 1 of 4 pages
APPRAISAL OF THE FOURTHBUENOS AIRES POWERPROJECT SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
TARIFF REGULATION AND STRUCTURE
Power Tariff Regulation
1. The tariffs charged by the national enterprises SEGBA,1 HIDRONOR and AyEE and by the private company CIAE are approved by the Secretarla de Energ.a in the light of the stipulations of the various Concession Agreements (SEGBA, HIDRONOR and CIAE) and of Decree No. 404/67 (AyEE). In the case of the provincial enterprises DEBA and EPEC, tariffs are approved by the provincial government. Atucha's (CNEA) tariffs are fixed under agreements with the Secretaria. Both the level and structure of power rates charged by the different utilities are not uniform.
2. No uniform procedure exists for revaluing the assets of power utilities; some itemize their assets in service in US dollars, with adjust- ments for the dollar parity as stipulated by IMF while others revalue them in accordance with the general legal provisions on taxation.
3. The study on sector organization (Annex 2) will include a proposal for a uniform methodology of asset revaluation and for a national tariff structure.
SEGBA's Tariffs
4. Article 14 of the Concession Agreement, provides that SEGBA's rates should generate revenues sufficient to produce a return of 8% on the average value, expressed in US dollars, of net plant in service, plus a notional value of working capital equal to 5% of the average value of net plant in service. Depreciation charges are computed on the value, also expressed in dollars, of gross plant in service at year-end, at 3% on all assets (except furniture and fixtures, 10%; and vehicles, 20%). These rates are considered satisfactory; however, since depreciation rates are not specified in the Concession Agreement, SEGBA and the Government have agreed to continue charging depreciation at these rates.
5. According to the terms of Article 14, power rates are revised annually, effective with the first meter reading of January, on the basis of a detailed application submitted by SEGBA to the Secretaria de Energfa, for approval. The Article provides that, if the 8% return to which SEGBA is entitled has not been achieved (or has been exceeded) in any past year,
1/ See Annex 2 for a description of the entities involved in the power sector. ANNEX 4 Page 2 of 4 pages
the shortfall (or surplus) must be compensated for by revenues of the year immediately succeeding. Changes arising in labor and fuel cost during the year are to be automatically compensatedfor by interim rate adjustments. Furthermore, if changes in economic circumstances,such as lower sales, devaluation of currency, etc., could be expected to result in an insuf- ficient earnings for the current year, SEGBA can adjust its rates propor- tionally after informing the Secretar'a.
6. In 1969 SEGBA earned more than 8% and so, in accordance with Article 14, rates were reduced by 1.3% effective January 1, 1970, to compensate for the excess earnings. This was the last time that the Article was observed. SEGBA has failed to earn its stipulated 8% return since 1970 and, although it submitted applicationsfor rate adjustments in accordance with Article 14, the Government did not grant the full increase requested. The provisions which call for recovery of prior years' short- falls and automatic rate increases to offset rising costs, were not applied.
Tariff Levels
7. When the new Government came into power in March 1976, it immediately took action to impLove the financial situation of the public sector enterprises which had all experienced operating deficits in 1975 as a result of the unrealistic price policies of the previous Government. A 10% monthly increase of SEGBA's tariffs was applied starting in April 1976 with an additional 20% increase in July. The Government intends to continue with this 10% monthly accumulative increase until December 1976 with perhaps and additional 20% increase in September or October 1976. Additional increases in 1977-1979would be applied to permit SEGBA to cover higher costs of fuel and purchased power (para. 2.14) and obtain a 9% rate of return in 1977-1979 in order to recover past earnings shortfalls. After 1979, the rate of return would be 8% and the average selling price per kWh including sales taxes will be about 4.8US4 (in end-1976 US$). The analysis in Annex 7 shows that this would be somewhat higher than the long-termmarginal cost.
Tariff Structure
8. The general pattern of relative price levels for the categories shown below appears reasonable,as it contemplatesthe highest price level for commercial consumption, followed by large residential consumption,large industrial consumption and, finally, a lower level of "social" price corre- sponding to the smaller residential consumers. To increase unit price progressivelywith consumption for residential consumers seems appropriate as it discourages waste and increases the participation of the high income groups in the financing of the power s '.vice. The relatively high level of tariffs for commercial consumers, has, however, created problems, since consumers try to avoid being classified in this category, and a rather elaborate "reglamento"had to be introduced for this purpose. There would appear to be a good case for introducinga somewhat more elaborate tariff structure for medium-sized industrial and commercial users (i.e. of less ANNEX4 Page 3 of 4 pages
than 50 kW connected capacity) which would include some incentives for accepting supply at higher voltage and for off-peak consumption. There also appears to be a need for strengtheningthese incentives in Tariff No. 5; only 12% of SEGBA's sales are currently at mid-tension, and 6% at high-tension. The Government and SEGBA intend to carry out a tariff study which would take into account the above recommendations. Table No. 1 shows the average price (with and without taxes) at July 1976 and December 1976 for typical consumption.
Tariff Schedules
9. The SEGBA tariff structure as per July 1, 1976, covers 7 categories which are shown below. The main categories of the tariff schedule are:
Tariff 1 for residential consumers Tariff 2 for commercial and small industrial consumers Tariff 5 for large consumers (over 50 kW connected)
The remaining 4 categories relate to public lighting, Government, electric traction (BuenosAires underground) and public water pumping services.
Main Features of SEGBA's Tariffs
Tariff No. 1 - Residential
Fixed charge: $a 118.46/bimonthly,independent of consumption
Energy charge: $a 1.272/kWh for the first 120 kWh/bimonthly 4.46/kWh the next 30 kWh/bimonthly 7.03/kWh for the next 80 kWh/bimonthly 11.437/kWh/bimonthlyfor consumption over 230 kWh
Tariff No. 2 - General Service (Commercial)
Fixed charge: $a 453.1 bimonthly
Energy charge: $a 10.334/kWh/ for the first 8,000 kWh/bimonthly 6.426/kWh/bimonthlyfor consumption over 8,000/kWh.
Tariff No. 3 - Public Lighting
Includes lamp replacement $a 58.17 per month per lamp of 100 W + $a 2.026 per month for each W over or below 100 W ANNEX4 Page 4 of 4 pages
Tariff No. 4 - Government and Non-Profit Organizationis
Fixed charge: $a 453.10/bimonthly
Energy charge: $a 6.979/kWh
Tariff No. 5 - Large Consumption (Industrial)
For connected capacity of 50 kW or over, low tension
Fixed charge: $a 341.89 per month per kW of connected capacity. This price is applicable for peak loads that do not exceed 60% of the connected capacity during the period between 17:00 and 21:00. The excess of peaking demand over the above is charged at $a 569.82 per month per kW.
Energy charge.: $a 5.372/kWh for the first 5,000 kWh per month $a 4.355/kWh for the following 35,000 kWh per month $a 3.173/kWh for the following 360,000 kWh per month $a 2.574 for monthly consumption over 400,000 kWh
For connected capacity exceeding 200 kW there is a discount on the energy charge of $a 0.8614/kWh for consumption during the period between 22:30 and 6:30. For power delivered at mid-tension and high-tension up to 66 kV, there is a discount on the energy charge of $a 0.2929/kWh. For power delivered at 132 kVtthere is an additional discount of $a 0.2314/kWh.
Tariff No. 6 - Electric Traction
Supplied at DC
$a 5.477/kWh for the first 400,000 kWh per month $a 4.541/kWh for the following 1,200,000 kWh per month $a 3.903/kWh for monthly consumption over 1,600,000 kWh
For power delivered at A.C. there is a discount of $a 0.3461/kWh and for power delivered at A.C. and high voltage there is an additional discount of $a 0.3461/kWh.
Tariff No. 7 - Public Water Pumping
$a 2.743/kwh for consumption during the period 6:30 - 17:00 $a 4.035/kWh for consumption during the period 17:00 - 22:30 $a 1.810/kWh for consumption during the period 22:30 - 6:30
NOTE: Tariffs Nos. 2,3,4, 5, and 7 have a surcharge of $a 0.825/kWh for monthly average power factors lower than 0.8
August 26, 1976 AVERAGE kWh PRICE FOR SOME TYPICAL CONSUMERLEVELS
US1 Y
Average Price2, Average Price Monthly (Without taxes) - Paid by Consumer 3 ConsumerCategory Consumption July 1976 December 1976 July 1976 December 1976
Residential (a) 25 1.82 2.34 2.08 2.68 (b) 60 1.13 1.46 1.29 1.66 (c) 100 1.89 2.43 2.19 2.82 (d) 400 4.68 6.03 5.37 6.92
Commercial -/ (e) 500 5.39 6.94 7.04 9.07 (f) 2,000 5.22 6.72 6.82 8.78 (g) 5,000 5/ 4.80 6.18 6.27 8.08 (h) 20,000 - 3.61 4.65 4.73 6.09
Industrial (i) 20,000 6/ 2.79 3.59 3.66 4.71 (j) 100,000 7/ 2.40 3.09 3.16 4.07 (k) 100,000- 2.29 2.95 3.02 3.89
Large Industrial(13.2 or (1) 66 KV) 1,000,0009/ 1.93 2.49 2.55 3.28 (m) 1,000,0001-/ 1.58 2.04 2.09 2.69
1/ Convertedinto US$ cents at 1US$/200$aJuly 1976 and lUS$/250$aDecember 1976. 2/ See note 5 Annex 8. 3/ Consumersin the Provinciade Buenos Aires. Includes Sales taxes. 4/ Commercialand small industry below 50 KW connected. 5/ Maximum demand 45 KW (withoutdemand charge). 6/ Maximum demand 57 KW (with demand charge). b 7/ Maximum demand 195 KW (withoutdiscount on the energy charge for consumptionduring the period between 22:30 and 6:30) a M 8/ Maximum demand 195 KW (with discounton the energy charge for consumptionduring the period between 22:30 and 6:30). 9 x 9/ Maximum demand 2500 KW (withoutdiscount on the energy charge for consumptionduring the period between 22:30 and 6:30) 10/ Maximum demand 2500 KW (with discounton the energy charge for consumptionduring the period between 22:30 and 6:30).
August 26, 1976 ANNEX 5 Page 1 of 4 pages
APPRAISAL OF THE FOURTH BUENOS AIRES POWER PROJECT
SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
PROJECT IMPLEMENTATIONSCHEDULE
Transmission and SubtransmissionLinesl/ Number of Date of Installation Name Length Circuits Commencement Completion
500 kV
Conversion of 220 kV double-circuit between Ezeiza and Rodriguez to 500 kV single-circuit 62 1 4/80 11/80
Ezeiza-Rodriguez 62 1 4/78 6/79
Conversion of 220 kV double-circuit between Ezeiza and Abasto to 500 kV single-circuit 58 1 3/81 11/81
Ezeiza-Abasto 58 1 6/80 6/81
220 kV (overhead lines and underground cables)
Rodriguez - Matheu 23 2 1/78 12178
Matheu - Empalme Tigre 30 2 1/78 12/78
Rodriguez - Moron 24 2 3/79 3/80
Moron - Malaver 15 2 1/79 11/79
Ezeiza - Empalme 35 2 3/80 6/81
Empalme - Perito Moreno 6 2 1/81 6/81
1/ Of over 1 km length. ANNEX 5 Page 2 of 4 pages 132 kV (overhead lines and underground cables) Number of Date of Installation Name Length Circuits Commencement Completion
Empalme - Quilmes Este 14 2 9/79 6/80
Bosques - Gutierrez II 3.5 2 7/80 12/80
Matheu - Pilar 16 2 3/80 12/80
Merlo - La Reja 10 2 6/78 12/78
Matheu - Empalme Tigre 1 2 9/78 12/78
F. Varela - Monte Chingolo 8.5 2 7/78 2/79
Escalada - Gerli 6 2 4/78 12/78
Agronomia - Santa Rita 3 2 4/80 10/80
Malaver - San Andres 5 2 1/81 6/81
Coghlan - Padilla 2.5 2 9/80 3/81
Ramos Mejia - Empalme 6.5 2 1/80 6/80
Escalada - Lanus 4 2 2/81 6/81
Substations Transformer Date of Installation Name Capacity Commencement Completion
500/220 kV
Rodriguez 1,600 10/78 6/80
Abasto 1,600 10/79 5/81
220/132 kV
Matheu 600 1/78 12/78
Malaver 600 7/78 10/79
Perito Moreno 600 1/80 5/81
132/mid-tension kV (new)
Quilmes 80 3/79 7/80
Florida 80 9/78 12/79
Pilar 120 9/79 12/80
La Reja 80 1/77 12/78
San Miguel 80 3/77 8/78
Monte Chingolo 80 11/77 2/79 ANNEX 5 Page 3 of 4 pages
Transformer Date of Installation Name Capacity Commencement Completion
San Isidro II 80 4/78 7/79
Gerli 80 9/77 12/78
Santa Rita 80 6/79 10/80
Ciudadela 80 9/78 1/80
Patricios 80 1/78 6/79
San Andres 80 5/80 6/81
Ituziango 80 11/78 2/80
Salta 80 1/79 4/80
Gutierrez II 80 8/78 10/79
Padilla 80 1/80 4/81
Sarandi 80 5/79 8/80
City Bell 80 9/79 2/81
Hacdo 80 8/79 1/81
Calchaqui 80 8/77 10178
Lanus 80 3/80 5/81
132 kV/mid-tension (extensions)
Agronomia switchgear only 2/80 8/80
Matheu 5/77 12/78
Escalada 6/77 4/78
Costanera 6/77 6/79
Malaver 3/79 10/79
Perito Moreno 2/80 5/81
Ramos Mejia 1/80 6/81
Colegiales " 10/79 7/80
Dique 40 8/77 3/78
Santa Catalina 80 11/80 5/81
Rivadavia 40 1/80 6/80 ANNEX 5 Page 4 of 4 pages
Date of Installation Commencement Completion
Distribution 6/77 6/81
2661 km of 13.2 kV line
5580 kImof low-tension lines 380/220 volts
900 MVA of distribution transformer
180,000 service connections
300,000 meters
21,000 public lighting fixtures. Other distribution equipment
Communicationsand load dispatching equipment 6/77 6/81
VHF and UHF equipment, carrier equipment, telephone, switching equipment, cables, etc. Telemetering and telecontrol equipment.
August 26, 1976 ANNEX 6 Page 1 of 3 pages
APPRAISAL OF THE FOURTHBUENOS AIRES POWERPROJECT
SERVICIOS ELECTRICOSDEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
PROJECT DESCRIPTION
I - Project works to be carried out by SEGBA
1. TransmissionLines
Constructionof 60 km of a single-circuit500 kV transmissionline connecting the Ezeiza and Abasto substationsand the conversionof the double-circuit 220 kV line between the Rodriguez, Ezeiza and Abasto substationsto a single- circuit 500 kV line.
The constructionof 120 km of 220 kV double-circuitlines and 42 km of 220 kV underground cable to interconnectthe ring and the feeding points into the subtransmission(132 kV) system.
The constructionof 62 km of 132 kV double-cireuittransmission lines and 70 km of 132 kV underground cables.
2. Substations
Installationof 1,600 MVA - 500/220 kV transformercapacity at each of the Rcdriguez and Abasto substations.
Installationof 2,100 MVA - 220/132 kV transformercapacity and 1,880 MVA - 132/MT kV.
The installationof this transformercapacity in the different substations also entails the installationof switchgears,control, communicationand load dispatching equipment,as well as 600 MVAR of (132 kV) reactive capacity.
3. Distribution
2,661km of 13.2 kV lines of which approximately50% in underground cable.
5,580km of low-tension,380/220 volts distributionof which approximately 15% is underground cable.
884 MVA of distributiontransformers (13.2/.38- .22 kV) distributedamong 4,600 distributionsubstations.
180,000 service connections.
300,000 meters
21,000 public lighting fixtures and other distributionequipment. ANNEX 6 Page 2 of 3 pages
The breakdown between foreign and local cost of the project works, shown in para. 4.05 of the text, is based on the following assumptions:
(a) 65% of all equipmentwould be purchased from local manufacturers. This percentage is lower than that obtained in SEGBA's third power project (80%) because local industry has little or no experience in 500 kV techniques.
(b) The average price differencebetween local and foreign bids was estimated at 12.5%, in line with SEGBA's past experience.
(c) The average indirect foreign component of goods manufactured locally was estimated at 60%, following the results of studies carried out by SEGBA.
II - Studies to be carried out by the Governmentwith the assistance of consultants(para. 2.13)
1. A national power sector organizationstudy to rationalizesector planning, financing and operation.
2. The study of a national power expansion plan based on the least cost program for expanding generationand transmissionwhich would incorporate,inter alia, acceptable criteria for establishingsystem reserves and recommendationsfor the expansion of coal production for power generation.
The estimated unit cost of consulting services as shown below is based on market prices for services of individual experts of high calibre required for the type of work to be performed in the carrying out of a national power expansion plan and a national power sector organizationstudy. This cost is substantiallyhigher than the average cost per man-month of regular engineering studies of the sort where a large number of individuals of different professionallevels are required.
(a) National Power Expansion Program
Cost per man-month in the field:
Salary and overhead US$ 5,000.00
Living allowance at US$50 per day 1,500.00
US$ 6,500.00 per month
36 man-months at US$6,500.00 US$234$000.00
Cost per man-month in home office:
Salary and overhead US$ 4,500.00
12 man-months at US$4,500.00 54,000.00
12 round trips at US$1,000.00 each 12,000.00
Computer and other specialized technical services US$76,000.00 ANNEX6 Page 3 of 3 pages
(b) National Power Sector OrganizationStudy
Cost per man-month in the field:
salary and overhead US$ 5,000.00
living allowance at US$50.00/day 1,500.00
US$ 6,500.00
8 man-months at US$6,500.00 US$52,000.00
Cost per man-month in home office:
salary and overhead US$ 4,500.00
4 man-months at US$4,500.00 18,000.00
4 round trips at US$1,000.00 each 4,000.00
Total base cost IS$450,000.00
contingenciesand price escalation 50,000.00
Total cost U$500,000.00
(c) Overall average cost per man-month US$ 4,870.00
September 1, 1976 ANNEX 7 Page 1 of 5 pages
APPRAISAL OF THE FOURTHBUENOS AIRES POWERPROJECT
SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)
ARGENTINA
JUSTIFICATION OF THE PROJECT
I. ANALYSIS OF DISTRIBUTION EXPANSION PROGRAM
Required DistributionCapacity (mid and low-tension)
1. The distribution expansion program is based on load studies for individual substations. To verify that the overall capacity figures are reasonable, an analysis was made on the basis of the overall system demand and energy loss projections shown in Annex 3. The annual and projected peak demand data in Annex 3 are at the feeding points of SEGBA's system. In order to determine the required capacity for the distribution system (mid and low-tension)it is necessary to estimate the demand at the 13.2 kV side of the distributionsubstations. To do this it is necessary to translate energy losses into an equivalent peak demand loss. This peak demand loss must then be divided between the low-tension portion of the network and the rest of the system. The required distribution capacity is then estimated on basis of a diversity factor of 1.3 and a reserve capacity of 20%, resulting in a capacity of 1.56 times power demand.
Peak Demand Loss
2. From the annual energy losses, which are shown in Annex 3, table 1, and the annual load duration curve, the load factor of losses was calculated. for the expected annual load factor of 0.56 arriving to a load factor of losses of 0.38.
The power losses (MW) expressed in percentage of peak demand will be:
0.56 0.38 x % energy losses = about 1.5 x % energy losses
High-Tension Losses
3. These are estimated at 30% of the total losses and the power losses for the high-tension system would therefore be 1.50 x 0.3 = 0.45 times the total % of energy losses of the system. ANNEX 7 Page 2 of 5 pages
Calculationof Required Transformer Capacity at Mid-Tension (13.2 kV)
4. 1975 1976 1977 1978 1979 1980 1981
(a) Total energy losses (%)I/ 13.8 13.6 13.4 13.0 12.8 12.6 12.5
(b) High-tension power losses (%) 6.2 6.1 6.0 5.9 5.8 5.7 5.6
(c) Peak demand at feeding points (MW) 1974 1994 2079 2227 2396 2573 2767
(d) Peak demand losses at high-tension:(b)x (c) (MW) 122 122 125 131 139 147 155
(e) Peak demand at mid- tension (c) - (d) 1852 1872 1954 2096 2257 2426 2612
(f) Required capacity at mid-tension 1.56 x (e) (11W) 2889 2920 3048 3270 3521 3785 4075
(g) Required capacity at mid-tension (f) 0.85 (MVA) 3399 3435 3586 3847 4142 4453 4794
5. By end-1975 SEGBA had installed 3818 MVA of distribution transformer capacity and expects to install 214 MVA during 1976, bringing the total by end-1976 to 4032 MVA. The project includes the installationof 884 MVA of distribution transformer capacity of which about 15%, i.e. about 133 MVA can be assigned to rehabilitationand 85%, i.e. 751 MVA to serve the load growth requirements. These percentages are in line with SEGBA's past experience. Under these conditions the final capacity of distributiontransformers in 1981 would be 4032 plus 751 MVA, i.e. 4783 MVA which coincides very closely with the projected capacity required in 1981 (see para 4.) of 4794 MVA.
Unit Cost
6. The total cost (base plus physical contingency)for the distribution expansion and rehabilitationcomponent of the project is US$154.3 million (mid- 1976 prices). The unit cost is therefore US$175/kVAwhich is reasonable.
1/ Related to the energy delivered to the system (Annex 3). ANNEX7 Page 3 of 5 pages
II. Costs - Benefits Equalizing Return
Basis of Calculation
7. All costs were evaluated at mid-1976 levels and then estimated in end-1976 prices by adding a price escalation of 4.5%. Local costs were calculated in local currency and converted at the free rate of exchange of lUS$1250$a. Shadow pricing of foreign exchange and other project imports was not deemed necessary.
IncremientalEnergy Sold During the Project Period
8. The expansion of the distribution system contemplated in the project, corresponds to the load growth in the four-year period 1978-1981, while maintaining a reasonable standard of service. Based on the sales shown in Annex 3, the incremental energy for the period will be:
Year GWh
1978 10,000 - 9,351 = 749
1979 10,907 - 9,351 = 1,556
1980 11,781 - 9,351 = 2,430
1981 12,725 - 9,351 = 3,374
1982 onwards 3,374
Benefits
9. It has been assumed that the benefits obtained from the project correspond to the value of electric energy used by the ultimate consumer minus the marginal cost of the energy supplied to SEGBA's transmission and distribution systems. The benefits of electricity to the consumers should at least be equal to the price (includingsale taxes) paid by them. This price, after all future tariff adjustments for bulk purchases by SEGBA and final fuel prices (see para. 2.14) converted to end-1976 values was calculated to be 0.0482 US$/kWh (average sales price per kWh).
As SEGBA is not planning to expand its installed generating capacity (the new 310 MW unit (para. 4.01) is assumed to replace obsolete equipment which will be eliminated) all incremental energy for SEGBA's system will be purchased from bulk suppliers such as HIDRONOR, CTMSG, and CNEA with a small proportion from the San Nicolas steam power plant of AyEE. Ideally the internal rate of return calculation would specifically incorporate incremental costs for generation, transmission and distribution. However, in the absence of adequate iiLvfrmationof incremental costs for generation and transmaissionin Argentina a slightly different approach has therefore been used. As a proxy for incremental cost, energy costs were calculated as follows: ANNEX 7 Page 4 of 5 pages
The cost of energy was evaluated under the conditions explained in (para. 2.14) i.e. costs corresponding to reasonable rates of return and fuel prices, and when expressed in end-1976 values was found to be 0.0174 US$/kWh.
The net value of benefits is therefore:
0.0482 - 0.0174 = 0.0.308 US$/kWh
It is not possible to estimate exactly the allocation of the incremental energy shown in para. 8 between the project and existing facilities. As an approximation, it was assumed that the project would contribute 40% in 1978, 60% in 1979, 80% in 1980, 90% in 1981 and a 100% thereafter. The total benefits would therefore be:
Year GWh US$ x 106
1978 0.4 x 749 = 300 9.2 1979 0.6 x 1,556 934 28.8 1980 0.8 x 2,430 = 1,944 59.9 1981 0.9 x 3,374 3,037 93.5 1982 onwards 1.0 x 3,374 = 3,374 103.9
Costs
10. The following table shows the annual and cumulative disbursements for the project (excluding price contingencies and expressed at end-1976 values):
Year US$ x 106 us$ x 106
1977 13.2 13.2 1978 99.4 112.6 1979 124.9 237.5 1980 128.3 -365.8 1981 50.6 416.4
Marginal Operating and Maintenance Cost
11. Present cost of operation, maintenance and administration for SEGBA's transmission and distribution system is approximately 6% of investment. Together with SEGBA's technical staff, an evaluation was carried out to determine the marginal operating maintenance and administration cost of the transmission and distribution systems and it was found that this would be approximately 3% of marginal investment. For the purpose of calculating the rate of return of the project a conservative value of 3.5% was assumed to take into account any possible increases in real terms of salary levels in Argentina. On this basis the 0 and M costs for the different years are:
Year us$ x lo6
1977 o.46 1978 3.94 1979 8.30 1980 12.80 1981 14.60 1982 onwards 14.60 ANNEX 7 Page 5 of 5 pages
Cost-BenefitsEqualizing Return
12. US$ x 10o6 1977 1978 1979 1980 1981 1982-on
Costs
Investments 13.2 99.4 124.9 128.3 50.6
0 and M 0.5 3.9 8.3 12.8 14.6 14.6
Total Costs 13.7 103.3 133.2 141.1 65.2 14.6
Benefits 9.2 28.8 59.9 93.5 103.9
Cost-Benefitsequalizing return: 21%.
SensitivityAnalysis
13. If investmentand operating costs are assumed to rise by 10% the rate of return would be 18.5%. If the cost of incremental energy purchased by SEGBA were to rise by 20%.,net benefit would decrease by 11% to 0,0273 US$/kWh, and the rate of return would still be 18.3%. This could be the case under the following circumstances:
(a) fuel prices were to increase in real terms by a larger factor than assumed;
(b) net assets of Hidronor and/or CNEA were calculatedbased on replacementvalue instead of historical costs and tariffs adjusted accordingly,or
(c) the price paid by SEGBA to CTMSG were higher than the price paid to Hidronor. (In the calculationof the rate of return it was assumed that all hydro energy to be purchasedwould cost 0,0176 US$/kWh, which correspondsto an 8% rate of return for Hidronor on assets valued in US$ at historical costs.)
If the cost of this incrementalenergy would rise by 40%, net benefit would decrease by 23% to 0,0238 US$/kWh, and the rate of return would be 15.3%.
Since the above rates of return exceed the probable opportunitycost of capital in Argentina, they suggest that wasteful use of electricityand premature expansion of SEGBA's system would be avoided, as consumers will, on the average, be requested to pay a price higher than marginal systems costs.
Project Timing
14. The possibilityof postponing the project for one year was evaluated by computing the discount rate which equalizes the savings in investment and operating costs which would result with the benefits that would be lost. Since this rate is above 21% it would not be economic to postpone the project. APPRAISAL OF THE FOURTH BUENOSAIRES POWERPROJECT
SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBPA
ARGENTINA
ACTUALAND FORECAST INCOMESTATEMENTS
(in millions of US$ unless otherwise stated)
------ACTUAL2/------ESTIMATFD / ------YEAR ENDING DECEMBER31 1973 1974 1975 1976 1977 1978 1979 1980 1981
Sales billed in GWh 8,270 8,381 i,834 8,906 9,351 10,100 10,907 11,781 12,725
Average Revenue per 100 kWh, including taxes (in US$) 3.99 5.24 1.83 3.25 5.11 5.93 6.43 6.64 6.92
Average Revenue per 100 kWh, excluding taxes (in US$) 3.42 4.56 1.55 2.80 4.32 5.03 5.45 5.63 5.87
Total Revenues 330.1 439.3 16 .9 289.7 477.4 599.3 701.2 782.5 880.7
Less: Taxes -/ 47.2 57.3 25.1 44.7 73.7 91.6 106.4 118.8 133.5
Operating Revenues 282.9 382.0 136.8 245.0 403.7 507.7 594.8 663.7 747.2
Adjustment for unbilled sales 6.9 9.0 26.0 - - -
Total Operating Revenues 289.8 391.0 162.8 245.0 403.7 507.7 594.8 663.7 747.2
Operating Expenses
Salaries, Wages and Social Benefits 147.3 211.2 91.5 90.8 83.6 87.3 97.2 107.3 118.3
Fuel / 49.6 51.2 15.8 29.2 49.6 97.0 127.7 126.9 144.1
Purchased Power 2/ 18.0 34.1 23.3 37.4 67.8 104.8 134.3 176.4 203.6
Taxes _° 16.8 23.5 8.2 14.7 24.2 30.5 35.6 39.8 44.8
Other Expenses 17.5 38.2 14.4 19.4 17.6 18.3 20.4 22.5 24.8
Depreciation / 35.6 44.7 46.4 51.7 55.7 59.4 63.6 74.0 79.9
Total Operating Expenses 284.8 402.9 199.6 243.2 298.5 397.3 478.8 546.9 615.5
Operating Income 5.0 (11.9) (36.8) 1.8 105.2 110.4 116.0 116.8 131.7
Other Income (Expenses) (0.3) 6.3 4.1 0.3 - -
Income Before Interest 4.7 (5.6) (32.7) 2.1 105.2 110.4 116.0 116.8 131.7
Interest 29.2 42.0 25.1 28.0 32.2 33.6 35.4 39.0 42.6
Less: Interest Capitalized / (4.7) (8.5) (12.5) .9.2 15.5 18.3 21.8 11.1 12.9
Net Interest charged to income 24.5 33.5 12.6 18.8 16.7 15.3 13.6 27.9 29.7
Net Profit (19.8) (39.1) (45.3) (16.7) 88.5 95.1 102.4 88.9 102.0
Rate Base 2Ž/ 753.6 878.2 983.3 1,058.9 1,162.1 1,227.7 1,293.3 1,459.9 1,645.9
Nate of Return (%) LI 0.7 (1.4) (3.7) 0.2 9.0 9.0 9.0 8.o 8.0 0
August 27, 1976 0 ANNEX 8 Page 2 of 4 pages
NOTES ON INCOME STATEMENTS
1. SEGBA's income statements for the period 1973-75 are rendered difficult to interpret by the country's high inflation -(31%,36% and 349% at the end of each year) and the existence of exchange controls. They have been converted into US dollars at the exchange rate applicable on December 31 each year (1973 and 1974 lUS$/9.98$a;1975 lUS$/60.97$a).
2. The 1976 income statement has been estimated in pesos month by month in anzattempt to eliminate distortions caused by inflation. The total for the year has been converted to US dollars at the estimated average exchange rate of the year, (lUS$/200$a). The projected income statements for the year 1977 are based on the December 1976 figures converted into US dollars at the estimated rate of exchange at that date, i.e. $a250/lUS$. The following years have been estimated directly in US dollars. Interest on local currency loans has been calculated at the average estimated exchange rate for each year (1977 lUS$/300$a; 1978 lUS$/400$a; 1979 lUS$/520$a; 1980 lUS$/680$a; and 1981 lUS$/880$a).
3. The 1975 income statement has been adjusted in accordance with the Concession Agreement of February 1, 1962. In December 1975, the former management of SEGBA began proceedings to amend the Concession Agreement. Amend- ments were made by SEGBA and the Secretarla de Energla (but not approved by the other competent authorities)to Articles 13 and 14, which had provided that the value of plant in service and depreciationreserves should be itemized in US dollars at the free exchange rate, while Article 15, laying down norms for the US$ parity as stipulated by IMF, was eliminated.The proposed Concessionprovided that the value of plant in service and depreciationreserves held as of January 1, 1975, be converted to pesos at the financial exchange rate applicable on that date ($a 9.98 to US$1). Thereafter, the values in question were to be adjusted in step with the cost-increaseindexes fixed by the Directorate General of Taxation. SEGBA's new management stated that the amendments to the Concession Agreement had in fact not been approved and that they would continue to apply the provisions of the 1962 Concession Agreement. Study of an appropriate procedure for revaluing assets forms part of the general study on sector organization (Annex 2). While the study is in progress, the best solution seems to be that of leaving assets values in US dollars owing to the fact that the Government intends to maintain realistic exchange rates.
4. Operating costs have increased substantiallysince 1971 owing mainly to inflation and the devaluationof the peso. The SEGBA Concession provides that higher costs attributableto inflation and devaluation should be covered by rate increases calculated to maintain the authorized rate of return (8%). From 1970 on, rate increases did not match cost increases, so that SEGBA income fell steadily. Since April 1976, sizeable rate increases have been introduced (see Annex 4). SEGBA is expected to achieve an 8% return (on an annualized basis) in December 1976.
5. These taxes are surcharges collected by SEGBA for account of the federal, provincial and municipal authorities. They represent approximately 18% of the basic rate and comprise the following: ANNEX 8 Page 3 of 4 pages
a) Fondo Nacional de la Energia Electrica,federal tax of $a 0.003 per kWh sold (Law 15336 of September 20, 1960, and Law 16656 of December 30, 1964).
b) Fondo Chocon-CerrosColorados, 5% federal tax on all sales to final consumers (Law 17574 and Decree 8054 of December 17, 1968).
c) Fondo Grandes Obras Electricas,5% federal tax on all sales (Law 19287 of October 5, 1975, and Decree 5941 of December 15, 1971).
d) Fondo Desarrollo Electrico de la Provincia de Buenos Aires, provincial tax of 20% on industrialand commercialconsumers and 4% on residentialconsumers in the province (ProvincialLaw 7290 of July 20, 1967 and Provincial Law 8016 of March 7, 1973).
e) Fondo Especial Central La Brava, provincialtax of $a 0.0625 per kWh sold in Buenos Aires province (ProvincialLaw 8372 of March 20, 1975).
f) Federal Capital Consumer Tax, tax of 1.5% on industrialand commercial consumers and 1% on residential consumers in the federal capital (Buenos Aires City Tariff Order).
Certain sales are exempt from some of these taxes (those made to the railways and subway, government agencies and subscribers consuming less than 70 kWh per month).
6. This adjustmentis made in SEGBA accounts to reflect the revenues of the year on a basis of consumptionrather than billing. It represents the differencebetween the estimated value of energy billed during the last part of the year and the correspondingestimate at the end of the previous year. This adjustmenthas not been projected in the forecast for 1976 through 1981, since it would not materiallyaffect the forecasts.
7. Expenditureon salaries, wages and social benefits for 1976 has been estimated on the basis of present figures plus a possible 15% increment in September. The payroll as of December 1976 was used as a basis for projecting 1977-81 expenses in US dollars as follows:
1975 1976 1977 1978 1979 1980 1981 Number of employees (thousands) 26.3 25.0 23.8 22.8 23.3 23.8 24.3 Number of employees (excluding construction) (thousands). 21.0 20.8 19.0 18.2 18.6 19.0 19.4 Average labor cost 4357 4365 4400 4797 5226 5647 6098 Increase (%) N.A. 0.3 0.8 9 9 8 8 Total personnel cost (US$million) 91.5 90.8 83.6 87.3 97.2 107.3 118.3
Personnel costs, which amounted to 45.8% of total operating costs in 1975, will fall to 19.2% by 1981 owing to the fact that cost of other inputs - mainly fuel and purchased energy will increase.
8. Fuel prices (see para. 2.14) have been projected to reach 75-80% of ANNEX 8 Page 4 of 4 pages the internationalprice by December 1978.
9. The price of energy bought by SEGBA has been calculated according to the following criteria:
a) Between late 1976 and late 1977, HIDRONOR rates will be increased gradually to the point where income covers operating costs including sinking fund depreciation and gives the rate of return laid down in its Concession Agreement (8% on net fixed assets valued in US$).
b) Rates for the output of the Atucha nuclear power plant (CNEA) will be increased gradually so that by late 1977 income will cover operating costs (including fuel costs at internationalprices) and give an 8% rate of return on investment valued in US dollars.
c) The price of thermal energy purchased from AyEE and CIAE will be increased progressively and in step with fuel prices (see note 8).
10. The Concession Agreement provides that, in lieu of income and all other taxes, SEGBA shall pay two taxes on sales, one to the municipalities and the other to the province of Buenos Aires. The municipal tax of 6% - on all sales except to railways and for public lighting - is set off quarterly against the power bills of municipalities. The provincial tax of 6%. - on sales in the province to the same categories of consumers as the municipal tax - is set off from time to time, by ad hoc arrangements, against the province's power bills.
11. Other expenses have been estimated at 21% of the salaries, wages and social benefits, which is somewhat higher than the long-term trend, not in line with 1976 actual experience.
12. Depreciationof utility plant in service is charged at one single rate of 3%, applied to the dollar value of the aggregate plant, rather than at different rates applying to the different classes of assets. Depreciation of assets other than utility plant, which are also valued in dollars and represent together a relatively insignificantproportion of the fixed assets, is charged at 10% for furniture and fixtures and 20% for automobiles, trucks, etc.
13. SEGBA capitalizes interest at the rate of 8% of average work in progress.
14. The rate base has been set in accordancewith the terms of the Concession Agreement (see Annex 4).
15. Tariffs have been projected to achieve the 8% rate of return allowed under the Concession and recover part of the earning shortfall during 1977, 1978 and 1979 (para. 6.10). ANNEX9 Page 1 of 3 pages.
APPRAISAL OF THE FOURTHBUENOS AIRES POWERPROJECT
SERVICIOS ELECTRICOSDEL GRAlNBUENOS AIRES (SEGBA)
ARGENTINA
ACTUALAND FORECASTBALANCE SHEETS
(in millions of US$)
______ACTUAL I/ ------__ ------S ESIMATES ------AS OF DECEMBER31 1973 1974 1975 1976 1977 1978 1979 1980 1981
ASSETS
Fixed Assets 2,496.5 Plant in Service 1,105.3 1,389.6 1,436.5 1,616.5 1,74o.5 1,856.5 1,988.5 2,311.5 876.5 Less: Depreciation 355.0 453.2 490.6 543.9 599.6 659.0 722.6 796.6
Customers' Contribution 6.2 7.7 1.6 1.7 1.8 1.9 2.0 2.1 2.2 1,617.8 Net Plant in Service 744.1 928.7 944.3 1,070.9 1,139.1 1,195.6 1,263.9 1,512.8
Wbrk in Progress 59.0 110.2 181.7 128.7 193.2 229.4 272.4 139.2 161.0
Total Fixed Assets 803.1 1,038.9 1,126.0 1,199.6 1,332.3 1,429.0 1,536.3 1,652.0 1,778.8
Current Assets
Cash and Banks 10.5 38.3 14.5 3.6 6.3 9.1 10.8 10.7 11.6 183.4 Accounts Receivable 104.1 131.1 72.0 65.7 99.4 124.8 146.0 163.0
Inventories 33.5 34.2 28.5 14.9 17.8 19.9 21.9 24.1 26.5 18.7 Other Current Assets 11.1 32.0 20.8 15.9 12.2 14.0 15.7 17.2 240.2 Total Current Assets 159.2 235.6 135.8 100.1 134.7 161.8 194.4 215.0 12.0 Deferred Assets 9.7 12.0 12.2 12.0 12.0 12.0 12.0 12.0
TOTAL ASSETS 972.0 1,286.5 1,274.0 1,311.7 1,479.0 1,604.8 1,742.7 1,879.0 2,031.0
CAPITAL AND LIA73I.tTTES 1,307.8 .apital and Feserves 486.8 597.1 744.4 820.6 942.7 1,033.8 1,120,6 1,204.2
Long-Iert Debt / 81.4 Proposed IBRD Loan - SEGBA IV - - - - 10.2 41.6 75.0 91.0 99.8 Existing IBRD Loans 163.2 185.8 168.2 158.3 1148.0 137.1 125.5 113.1
Other Existing Loans 125.2 209.9 144.2 195.5 197.1 174.2 149.2 131.4 119.4 102.9 Loars related to the Project - - - - 22.9 53.7 91.7 137.3
- 5.0 101.5 Future Loans ------
Total Long-Term Debt 288.4 395.7 312.4 353.8 378.2 406.6 441.4 477.8 505.0
Current Liabilities 6/
Accounts and Notes Payable 111.4 164.o 110.0 87.1 S93.7 81.2 84.3 89.7 92.7
Short-Term Loans 18.2 27.6 20.7 4.5 4,8 '1.3 2.5 2S5 2.5 89.8 Current Portion of Long-Term Debt 40.1 62.2 63.1 35.2 41.5 58.6 67.4 75.3
Taxes 26.8 39.6 23.1 10.3 17.9 22.5 26.3 29.3 33.0
Total Current Liabilities 196.5 293.4 216.9 137.1 1$7.9 164.2 180.5 196.8 218.0
Other Liabilities 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2
TOTAL CAPITAL AND LIABILITIES 972.0 1,286.5 1,2e4.0 *1117 1,479.0 1,604.8 1,5741.7 11879.0 2,031.0
August 27, 1976 ANNEX 9 Page 2 of 3 pages
NOTES ON BALANCE SHEETS
1. Balance sheets for 1973, 1974 and 1975 have been converted into US dollars at the exchange rate applicableon December 31 each year except for plant in service and depreciation,which are shown at their US dollar value under the terms of the ConcessionAgreement. The 1975 balance sheet has been adjusted according to the terms of the Concession (see note 3, Annex 8), while the value of works in progress has been converted to dollars at the monthly exchange rates (resultingweighted average rate of lUS$/24.3$a)with subsequent correction of capital and reserves.
2. The exchange rate used for 1976 is 1US$/250$a, except for works in progress, for which expected monthly exchange rates (resultingin a weighted average rate of lUS$/168$a)are taken. Other years were estimated directly in US$.
3. Accounts receivable for energy sales as of December 31, 1975, are as follows:
Million US$ $a Private consumers 22.1 1,348.4 National Government 11.2 684.6 ProvincialGovernment 1.2 71.9 Municipalities 4.1 246.5 Sub-total 38.6 2,351.4 Unbilled Energy 33.7 2,054.0 Provision for doubtful debts 0.3 15.0 Net Accounts Receivable for Energy Sales 72.0 4,390.4
Unbilled Energy includes estimated amounts sold in December which would, under SEGBA's bimonthly hilling cycle, be billed in January at the higher January tariff. This tends to distort the ratio of receivables to annual sales in periods of rapidly rising tariffs such as 1975-76. Provincial and municipal taxes and surchargesare offset periodicallyagainst the corresponding power bills.
4. In order to increase its use of coal, SEGBA converted two of its boilers to coal consumption. The investment,made by SEGBA itself, is excluded from the rate base and will be paid off over 30 years. This part of the plant cannot be operated owing to delays in the expansion of coal producing capacity (see Annex 1) and is therefore consideredas a deferred asset.
5. See Annex 10 for details of long-term loans contracted for as of December 31, 1975. The following terms have been assumed for the loans from foreign and local banks connected with the project and needed to fund works scheduled for commencementin 1980: maturity, seven years (includingone year of grace); interest, 11%. ANNEX 9 Page 3 of 3 pages
6. Current liabilitiesas of December 1975 included US$23.1 million owing to the federal, provincial and municipal governments in respect of the special funds collectedby SEGBA. In mid 1976, SEGBA began payment of the funds collected during the year. Current liabilities also include obligations pending for energy purchases amounting to US$8.1 million; payment of these has also begun.
August 31, 1976 ANNEX10
APPRAISALOF THE FOURTHBUENOS AIRES POWERPROJECT
SERVICIOS ELECTRICOSDEL GRANBUENOS AIRES (SEGBA)
ARGENTINA
DEBT CONTRACTEDUP TO DECEESER31, 1975
(millions of indicated currency)
GROSS LONG RATE OF ORIGINALAOWNT TERM DEBT INTEREST AMORTIZATION (millions of 12/31/75 CONTRACTED SOURCE PERIOD5510 (respeptivecurrency) PURPOSEmilost $
A LOCALCURRENCY
09.01.73 Caja Nacional de Ahorro y Seguro 19.00 74/78 $a 100.0 Expansion Program 1.0 05.16.73 CaJa Nacional de Ahorro y Seguro 19.00 73/78 $a 50.0 Expansion Program 0.5 06.28.73 Caja Nacional de Ahorro y Seguro 23.00 74/76 $a 70.0 Expansion Program 0.5 09.11.72 Banco Nacion Argentina 33.00 74/77 $a 130.0 Expansion Program 1.1 .73 Banco Nacior. Argentina 21.00 74/76 $a 45.0 Expansion Program 0.2 12.26.73 Banco Nacion Argentina 36.oo 74/79 $a 60.0 Expansion Program 0 8 .74 Banco Nacion Argentina 18.00 74/76 $a 55.5 Expansion Program 0.2 .74 Banco Ciudad de Buenos Aires 28.03 74/79 $a 5.0 Expansion Program 0.1 .73 Banco Provincia de Buenos Aires 21.00 74/76 $a 20.0 Expansion Program o.1 .73 Banco Nacional de Desarrollo 48.oo 74/78 $a 120.0 Expansion Program 1 2 .74 Banco Nacional de Desarrollo 26.03 75/82 $a 30.0 Expansion Program 0 5 01.2).74 Banco Nacional de Desarrollo 48.oo 74/76 $a 30.0 Expansion Program J.2 01.2 .74 Banso Nacional de Desarrollo 48.oo 74/78 $a 10.0 Expansion Program 0.1 .74 Banco Nacional de Desarrollo 26.00 76/82 $a 14.1 Expansion Program .74 Banco Nacional de Desarrollo 26.00 78/92 $a 135.9 Expansion Program .2 .75 Banco Nacional de Desarrollo 26.o3 78/93 $a 808.8 Expansion Program 13.3 37.24.75 Banco Nacional de Desarrollo 26.00 76/83 $a 200.0 Expansion Program 3.3 09.25.75 Banco Nacional de Desarrollo 26.00 79/93 $a 210.0 Expansion Program _4 10.25.75 Ban.o Nacional de Desarrollo 26.oo 76/93 $a 180.0 Expansion Program 3.0 .75 Banco Nacional de Desarrollo 26.00 77/83 $a 400.0 Expansion Program 6.6 .75 Banco Nacional de Desarrollo 26.00 77/92 $a 103.0 Expansion Program 1.7 .75 Banco Nacional de Desarrollo 26.oo 78/92 $a 483.1 Expansion Program 7.9 .75 Banco Nacional de Desarrollo 26.00 77192 $a 124.0 Expansion Program 2.0 N.A. Circular 1058 (Local Suppliers) 33.00 76/81 $a N.A. Sundry Materials 13.7 N.A. Other Loans Several Several $a N.A. Expansion Program i.G4
TOTAL A 70.2 B FOREIGN CURRENCY
31.19.62 IBRD - 303-AR 5.75 65/86 US$ 93.0 First Project 62/64 62.2 01.25.68 IBRD - 525-AR 6.25 71/78 us$ 51.0 Second Project 67/69 57.7 oi.14.69) IBRD - 644-AR 7.00 73/89 us$ 6o.o Third Project 70/72 58.2 01.04.62 Eximbank 1056 5.75 65/76 US$ 9.9 Unit No. 8 Puerto Nuevo 0.8 0.24.(8 Eximbank 2500 6.oo 70/80 us$ 4.4 No. 17 Boiler Puerto Nuevo 2.1 07.22.69 Eximbank 2543 6.oo 71/79 uS$ 3.1 Modification of Boilers 1.3 ll.i9.65 Obligaciones SEGBA 5.75 68/80 us$ 4.6 Expansion Program 65/66 1.8 03.29).74 City Bank of New York 12.00 76/81 us$ 30.0 Expansion Program 30.0 11.03,72 Bank of Tokyo 12.00 75/79 US$ 1.0 Erection Unit No. 6 Costanera 2.7 07.26.73 American Express 12,00 75/79 US$ 20.0 Expansion Program 73/75 17.8 -2.09.74 Pananeris 12.0D 76/82 us$ 10.0 Expansion Program 10.0 .0.30.75 Luxembourg Bank l1H0O 76/80 us$ 8.o Expansion Program 8.o 11.23.74 Bank of America 12.00 77/81 us$ 1.7 Unit No. 6 Costanera 1.1 01.04.67 Fiat S.p.A. 7.5 72/82 us$ 15.4 Peaking Units 10.0 05.03.71 Brown Boveri 7,50 31/80 DM 25.5 Peaking Units 4.4 05.07.75 Babsox and Wilco 8.So 75/85 DM 15.2 Unit No. 6 Costanera 5.5 10.08.75 Alargo 9.50 76/79 DM o.8 Expansion Program 0.3 01.06.71 John Brown 5.50 72/82 , 3.1 Peaking Units 3.9 04.04.75 Italtrafo 7.00 76/84 Lit. 1,327.9 Transformers 1.4 05.21.74 Nordon 6.95 75/80 FF 5.6 Unit No. 6 Costanera 1.3 02.28.73 Westinghouse 6.5o 75180 Ptas. 29.1 Unit No. 6 Costanera 0.4 07.31.73 Hitachi 6.75 75/63 Yen 3,102.8 Unit No. 6 Costanera 9.6 N.A. Other Loans Several Several Several N.A. frpansion Program 14.8
TOTAL B 305.3
TOTAL 375.5
August 26, 1976 ANNEX 11
APPRAISAL OF THE FOURTHBUENOS AIRES POWER PROJECT SERVICIOS ELECTRICOSDEL GRANBUENOS AIRES (SEGBA)
ARGENTINA
FORECASTSOURCES AND APPLICATIONS OF FUNDS
(in millions of US$) Total YEAR ENDING DECEMBER 31 1976 1977 1978 1979 1980 1981 1977-1981
SOURCES OF FUNDS Internal Cash Generation Net Income before Interest 2.1 105.2 110.4 116.0 116.8 131.7 580.1 Depreciation 51.7 55.7 59.4 63.6 74.0 79.9 332.6 Total Internal Cash Generation 53.8 160.9 169.8 179.6 190.8 211.6 912.7 Less: Debt Service Interest .ProposedIBRD Loan - SEGBA IV - 1.2 3.1 6.5 9.0 8.8 28.6 Existing IBRD Loans 10.9 10.3 9.7 9.0 8.2 7.3 44.5 Other Existing Loans 17.1 20.1 16.9 11.8 8.0 4.9 61.7 Loans related to the Project - 0.6 3.9 8.1 13.6 17.6 43.8 Future Loans - - 0.2 4.0 4.2 Total Interest 28.0 32.2 33.6 35.4 39.0 42.6 182.8 Amortization Proposed IBRD Loan- SEGBA IV - - - 4.8 9.6 9.6 24.0 Existing IBRD Loans 9.7 9.9 10.3 10.9 11.6 12.4 55.1 Other Existing Toans 21.9 25.3 29.1 31.7 25.2 17.9 129.2 Loans related to the Project - - 2.1 11.2 21.0 34.4 68.7 Future Loans - - - - - 1.0 1.0 Total Amortization 31.6 35.2 41.5 58.6 67.4 75.3 278.0 Total Debt Service 59.6 67.4 75.1 94.0 106.4 117.9 460.8 Interest Capitalized 9.2 15.5 18.3 21.8 11.1 12.9 79.6 Net Debt Service 50.4 51.9 56.8 72.2 95.3 105.0 381.2 Net Internal Cash Generation 3.4 109.0 113.0 107.4 95.5 106.6 531.5 Contributions Customers 0.1 0.1 0.1 0.1 0.1 0.1 0.5 Government 50.3 36.5 - 36.5 Total Contributions 50.4 3-6. 0-. 0.1 0.1 0.1 37.0 Borrowings Proposed IBRD Loan - SEGBA IV - 10.2 36.2 43.0 25.6 - 115.0 Other Existing Foreign Currency Loans 11.6 30.4 8.6 - - - 39.0 Other Existing Local Currency Loans 33.5 0.3 0.2 0.2 0.1 - 0.8 Loans related to the Project - 25.0 42.0 59.0 80.0 - 206.0 Future Loans _ 6.0 117.0 123.0 Total Borrowings 45.1 65.9 87.0 102.2 111.7 117.0 483.8 TOTAL SOURCES 98.9 211.5 200.1 209.7 207.3 223.7 1,052.3
APPLICATIONS OF FUNDS ConstructionExpenditures Project - 14.0 102.5 143.3 165.6 69.8 495.2 Works in Execution 73.4 152.8 38.9 20.1 11.5 11.2 234.5 Future Works - - - - 2.8 109.0 111.8 Other 12.' 15.4 13.6 14.2 12.0 16.8 72.0 Interest Capitalized 9.2 1u.5 18.3 21.8 11.1 12.9 79.6 Total ConstructionExpenditures 94.9 197.7 173.3 199.4 203.0 219.7 993.1 Increase in Working Capital Cash (10.9) 1.7 3.8 1.7 (0.1) 0.9 8.0 Other than Cash 14.9 12.1 23.0 8.6 4.4 3.1 51.2 Total Increase in Working Capital 4.0 13.8 26.8 10.3 4.3 4.0 59.2 TOTAL APPLICATIONS 98.9 211.5 200.1 209.7 207.3 223.7 1,052.3 ======__======~t===== ANNEX 12
APPRAISAL OF THE FOURTHBUENOS AIRES POWERPROJECT
SERVICIOS ELECTRICOS DEL GRANBUENOS AIRES (SEGBA)
ARGENTINA
FORECAST SCHEDULE OF LOAN DISBURSEMENTS (in thousands of US$)
Assumptions
Loan Signing: October 1976 Effective Date: February 1977 Closing Date: December 1981
IBRD Fiscal Year Disbursements Cumulative Disbursements and Semester During Semester at end of Semester
1976/1977 June 30, 1977 0.7 0.7
1977/78 December 31, 1977 9.5 10.2 June 30, 1978 16.7 26.9
1978/79 December 31, 1978 19.5 46.4 June 30, 1979 22.5 68.9
1979/80 December 31, 1979 20.5 89.4 June 30, 1980 20.0 109.4
1980/81 December 31, 1980 5.6 115.0
August 27, 1976 APPRAISAL OF THE FOURTH BUENOS AIRES.POWER PROJECT SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA) ARGENTINA FORECAST KEY OPERATIONAL AND FINANCIAL INDICATORS
Year Ending December 31 1975 1976 1977 1978 1979- 1980 1981
1. Ratio of receivables to sales, 1/ including taxes 0,26 - 0,23 0,21 0,21 0,2t 0,21 0,21
2. Debt service coverage (times) 0.22 0.90 2.39 2.26 1.91 1.79 1.79
3. Operating ratio (%) 123 99 74 78 80 82 82
4. Sales (GWh) 8834 8906 9351 10100 10907 11781 12725
5. Energy losses (% of sales) 16.1 15.7 15.5 14.9 14.7 14.4 14.3
6. Number of consumers (millions) 2.68 2.74 2.81 2.87 2.94 3.00 3.07
7. Consumer/employees 102 110 118 126 126 126 126
/ The operating revenues for 1975 have been adjusted in accordance with the tariff applied as at December 1975. APPRAISAL OF THE FOURTH BUENOS AIRES POWER PROJECT SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA) ARGENTINA FINANCIAL RATIOS (figuresin millions of US$ unless otherwise stated)
Year ending December 31 1975 1976 1977 1978 1979 1980 1981
1. Internal cash generation 9.6 53.8 160.9 169.8 179.6 190.8 211.6 2. Total debt service 44.5 59.6 67.4 75.1 94.0 106.4 117.9 3. Debt service coverage (times) 0.22 0.90 2.39 2.26 1.91 1.79 1.79 4. Operating income (36.8) 1.8 105.2 110.4 116.0 116.8 131.7 5. Total interest charges 25.1 28.0 32.2 33.6 35.4 39.0 42.6
6. Interestcoverage ratio - 0.06 3.27 3.29 3.28 2.99 3.09 7. Average net assets in operation 941.2 1,009.3 1,106.8 1,169.2 1,231.7 1,390.4 1,567.5 8. Rate base (1.05 x (7)) 988.3 1,059.8 1,162.1 1,227.7 1,293.3 1,459.9 1,645.9 9. Rate of return M% (3.7) 0.2 9.0 9.0 9.0 8.0 8.0 10. Long-term debt (includingcurrent portion) 375.5 389.0 419.7 465.2 508.8 553.1 594.8 11. Equity 744.4 820.6 942.7 1,033.8 1,120.6 1,204.2 1,307.8 12. Debt/Equityratio 34/66 32/68 31/69 31/69 31/69 31/69 31/69 13. Operatingrevenue 162.8 245.0 403.7 507.7 594.8 663.7 747.2 14. Operatingexpenses 199.6 243.2 298.5 397.3 478.8 546.9 615.5 15. Operating ratio ()123 99 74 78 80 82 82 I4 IBRD-11441F
VI7: I
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