Document ef The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

- ' Hhpi;'! s.. f . ' 1H .'Report No. 10696-AR

k/ I . ,.. I ., 1! '

STAFF APPRAISAL REPORT Public Disclosure Authorized ARGENTINA

YACYRETAHYDROELECTRIC PROJECT II

AUGUST 31, 1992 Public Disclosure Authorized

Public Disclosure Authorized Infrastructureand Energy Division Country Department IV Latin America and the Caribbean Regional Office

This documenthas a restricteddistribution and may be used by recipientsonly in the perfonnanceof their official duties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS

Currency = Peso (P) P1.00 = US$1.00

[exchange rate as of January 1, 1992 (fixed in March 1991)]

E:ASURES

MMTOE million tons of oil equivalent W watt Wh watt-hour V volt VA volt ampere k kilo thousand (103) M mega million (106) G giga billion (109) T tera trillion (1012)

ACRONYMS

AyE Agua y Energia Electrica S. E. (federally-owned, nationwide electric utility and irrigation agency) CFE Consejo Federal de Electricidad (Federal Electricity Council) CNEA Comisi6n Nacional de Energia At6mica (National Nuclear Energy Commission) CTMSG Comisi6n T6cnica Mixta del Salto Grande (A-gentine/Uruguayan commission in charge of the Salto Grande hydroelectric plant) DC Despacho Unificado de Carga (Dispatch Center) EBY Entidad Binacional Yacyreta (Argentine/Paraguayan entity in charge of the Yacyreta hydroelectric plant) HIDRONOR Hidroelectrica Norpatag6nica (federally owned, electricity generation aaud transmission utility) ME Ministerio de Economia y Obras y Servicios Piablicos (Ministry of Economy and Public Works and Services) NIS National Interconnected System SE Sucretaria de Energia Electrica (Secretariat of Electric Energy, under the ME) SEGBA Servicios Electricos del Gran Buenos Aires (federally owned, electric utility serving the Buenos Aires metropolitan area) UESTY Unidad de Ejecuci6n del Sistema de Transmisi6n de Yacyret& (Execution Unit for the Yacyret& Transmission System, under the SE) UNDP United Nations Development Program

FISCAL YEAR

January 1 - December 31 FOR OmCL USE ONLY AROBTRWI

YACYRET& II PROJECT

STAFF APPRAISAL REPORT

Table of Cantents

LOAN AND PROJECT S .T...RY ...... iii-iVi......

1. THE ENERGY AND POWER SECTORS

A. The Energy Sector .1...... I Energy Resources, Demand and Supply ...... 1 Energy Policy, Sector Objectives, and Institutional Structure 1

B. The Electric Power Sector ...... 2 Organization, Regulation, and Private Participation . . . . . 2 Expansion Planning ...... 5 Investment and Finances ...... 9 Sector Strategy ...... 12 Bank Participation: Lesoons Learned, Assistance Strategy, and Rationale ...... 12

2. TH PROJECT

A. Background .16 Project Origin and Status of Preparation .16 Project Objectives and Description ...... 18 Estimated Cost and Financing Plan ...... 20

B. Execution .. 23 Legal Arrangements .. 23 The Beneficiary .. 23 Implementation and Monitoring .. 27 Resettlement and Environttental Management Programs. . . 30 Procurement and Disbursement .. 32

C. Economic Justification ...... 35

D. Risks ...... 36

3. AGRBEE1NTS REACHED AND REC.NDATIO ...... 37

7his repo s basedon the fndingsof an rsl miion conist of Meu. Nesonde Francoodison LAder),Ricado Kiockner, Hean Garcia, Vrliam Paridge, nd GeorgeLed, whichvisied Agni d theproject site in April 992. Mesrs. Jor6Lreono Vieti, Robet Schneider,nd BdwinMoore wee pecrreviewer. SupervisonManue include:Mr. minIhys, DivisionChief and Mr. PiFngCbeungLob, Depament Direcor.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents -nay not otherwise be disclosed without World Bank authorization. (ii)

LIST OF ANNBXS

1.1 Energy Sector Organization Chart ...... 1.2 The New Regulatory Fri tework ...... 1.3 The Power Market ...... i ...... Attachments 1-2, Demand Projections for High and Low Scenario . . . . . 1.4 Capacity and Energy Balances ...... Attachment 1, Installed Capacity ...... Attachment 2, Energy Requiremants for High and Low Demand Scenarios . . Attachments 3-6, Balances for High/Low Scenarios & Normal/Dry Conditions 1.5 Finances of the National Utilities ...... Attachment 1, Electricity Tariff of SEGBA and Provincial Utilities Attachment 2, Combined Income and Source, and Application of Fund Statemento of the National Utilities (1991-1992) . . . . . Attachment 3, Balance Sheets of the National Utilities (1991-1992). . .. 2.1 The Yacyret& Treaty...... 2.2 The Yacyreta Hydroelectric Sclenme ...... Attachment 1, Status of Execution ...... Attachment 2, Execution Schedule ...... Attachment 3, Estimated Cost of the Hydro Project Component (19Q2-1995) Attachment 4, Estimated Cost and Financing (1992-1995) ...... Attachment 5, Cost Variations Since the Project's Inception ...... Attachment 6, Reduced Elevation Operation Study ...... 2.3 The Yacyret& Transmission System ...... Attachment 1, Estimated Cost and Financing ...... 2.4 -Estimated Project Costs and Financing (1992-1995) ...... Attachment 1, Summary of Estimated Project Cost and Financing . . . . . Attachment 2, Project Financing Plan ...... 2.5 EBY's Organization Chart ...... 2.6 BBY's Finances ...... Attachment 1, Detailed Total Cost and Financing ...... Attachment 2, Actual and Forecast Income Statements ...... Attachment 3, Actual and Forecast Balance Sheets ...... Attachment 4, Long-term Debt Schedule ...... Attachment 5, Forecast of Debt Service - Amortization ...... Attachment 6, Forecast of Debt Service - Interest ...... Attachment 7, Disbursement of Loans and Credits ...... 2.7 Resettlement and Environmental Management Progrms ...... Attachment 1, Resettlement Program ...... Attachment 2, Environmental Management Program ...... Attachment 3, Execution Timetable for the Resettlement and Environmental Management Programs ...... 2.8 Project Disbursement ...... 2.9 Bconomic Justification ...... Attachments 1-5, Net Present Value and Rate of Return for Various Schemes ...... 2.10 Project File ......

IS=: IBRD Nos. 14128R and 21188R - ifii -

ARGZNTINA

YACYRSTI HMDROBLECTRICPROJZCT IT

ETAFF APPRAISAL REPORT

LOANAND PROIRCT SX-MARY

Borrower: The Argentine Republic

Beneficiaries: Entidad Binacional Yacyrett (EBY) and the Executing Unit for the Yacyret6 TransmissionSystem (URSTY)

Amount: US$300 million equivalentof which US$299 million for EBY and US$1 million for URSTY

Terms: Repayment in 17 years including four years of grace, with interest at the Bank's standard variable rate.

Proiect Oblectives: The project is designed to achieve the following objectives: (a) help provide efficient supply of energy in the mid 19905 by ensuring completion of Yacyret§'s civil works and commissioning of its first six units with an adequate transmission system; (b) bring about tighter environrmcntal protection and appropriate handling of social aspects in Yacyreta; and (c) encourage private capital participation in EBY.

Prolect Benefits: The project would enhance the allocation of Argentina's scarce financial resources by facilitatingthe completion of the two largest ongoing projects (Yacyreta, by direct financing,and Piedra del Aguila, by use of 4reed Treasury resources originally shared with Yacyrera) with relatively modest additional investments. Yacyreta's cost of completion is about half of the cost of the next best option for system expansion.

Risk: The major risks facing the Project would be: a) unavailabilityof siafficientfunds or supply of electromechanical equipment at the time required for proper execution of the works, mainly due to: (i) untimely contributionfrom Goverzment for payment of the ccntractorsand; (ii) delays in the negotiation with suppliers (or export credit agencies) for financing of electrical equipment that remains to be contracted out; (b) failure to implement satisfactorily the programs for Rer.ttlementand EnvironmentalManagement; and (c) failure to implement the transmissionsystem in a timely manner. - iv -

La Cas Foreiun lecal CetCt TotalcostC - -

YacyretfGeneration pj 402.5 814.0 1216.5 48

Yacyret6Transmission 54.5 51.3 105.8 4

Base Cost bt 457.0 865.3 1322.3 52

PhysicalContingencies 29.0 31.4 60.4 2

PriceContingencies 29.0 78.1 107.1 4

Total Investuent 515.0 974.8 1489.8 58

DebtService Interest/OtherCharges S/ 27.6 630.8 658.4 25

Amortization 41.1 401.8 442.9 17

TotalDebt Service 68.7 1032.6 1101.3 42

|Investnt and Debt Service 583.7 2007.4 2591.1 100

[_ _I ' -- -' -"LL Net Internal Funds 57.1 37.7 94.8 3

Loans Governoent 335.8 1268.8 1604.6 62

IBRD S/ 137.4 162.6 300.0 12

IDB 15.8 15.7 31.5 1

Export/Supplier Credits 37.6 522.6 560.2 22

Estimated Disbursement: 1" I "" I I 1 tow Annualt 196 68 31 4 1 Cumulative 196 264 295 299 300

Rate of Return: Economic Rate of Return: 17*

IBRD Nos. 14128R and 21188R

I/ Thisbasically corresponds to theperiod 1992-1995, except for someUSS1.5 million of Bank-financed technicalassistance for resettlementand environmentalmanagement programs after this period. ki January 1992price level. I/ Includes US$390million interest during theperiod 1992-95 on currentand proposed IBRD and IOBloans financing the YacyretUproject. SV Local componentof existing civil worksand engineering services already procured internationally according to Bankguidelines. 1. 5HE EERGY AdD POWER SBCTORS

T The JEner-cvSector

Bnerav Resources. Demand. nduly

1.1 Resources. Argentina's energy resources are diverse and abundant. Proven and potential gas reservesere estimatedat 481 MMTOE (milliontons of oil equivalent)and proven and potential oil reserves at 221 MNTOE. Potential coal reserves are also trge,estimated at 280 HMTOE, but the low quality of deposits, as well as their distance from consumption centers, makes their commercial exploitationdoubtful. Uranium proven reserves are est.mated at 107 MMTOE--or the consumption of about 7000 MW of nuclaar installed capacity for 30 years. Hydropower potential is estimated at 44,000 NW, equivalent to about 44 MMTOE p.a.--or 2200 MMTEO over 50 years.

1.2 Demand and Su=D1v. The country's gross energy production in 19901' is estimated at 48.8 MMTOE, resulting in a per capita consumptionof 1.52 tons of oil equivalent (TOE)p.a., comparedwith the Latin American average of 1.0 TOE p.a. It can be considered self sufficient, although it has imported modest amounts of gas from Bolivia since 1972; a recent agreement extended supply unt.1 the end of 1993. The patterns of energy consumptionhave changed significantly lately. As proven gas reserves have increasedand gas fields have developed,gas has substituted for oil in industry and electricity generation. Thus gas' participation in the country's energy balanco has increased from 341 in 1985 to 401 in 1990. This trend is expected to continue during the 1990s, following the recent hydrocarbonderegulation, price rises and greater incentivesfor private participation,with increased use of natural gas in power generation, industry and households. The share of hydroelectricityin the overall energy consumption is expected to grow, rising from a current level of 11* to 15* by 1996 with commissioningof three plants currently under construction (para. 1.21).

Enerav Policy. Sector Obiectives and InstitutionalStructure

1.3 Snerav Policy. Traditionally,Argentina's energy policies have not fostered efficient use of the country's energy resources. Distorted pricing policies were the main problem since, for long periods of time, the Government allowed prices of oil derivativesand electricityto decrease in real terms. In the oil and gas oector, Government monopolies on exploration and exploitation resulted in inefficiency and inadequate development. In the power sector, decisions taken without due regard to least-cost principles led to the developmentof an expensivenuclear power program, while electricityplanning did not appropriately weigh the financial and cost uncertai.itiesassociated with large hydroplants.

1.4 Sector Objectives. New Governmentpolicies in the energy sector are consistentwith its overall effort to reduce the size of the governmentthrough diveetiture and to increase efficiency in the entities which will remain controlledby the state. A recently completed energy plan aims at establishing an environment of open competition and equal opportunity for both public and

3/ The latest year with reliable information. -2-

private companies in the exploration, production, sales, ariddistribution of energy resources. The Government would limit its own function to setting the general parameters for the development of the sector and to regulating its operations. The Government deregulatedcrude oil and refined product prices and trade, opening competition at all levelp and attracting private in'.estors. Previously reserved explorationareas, as wbe.las margina. producing areas, have been opened to private acquiLition,which have attractcnicomm.tments of up to US$1 billion from private oil comranies. In the power sector, the Government is also undertakingsweeping reforms; it is divesting importantassets and cutting back on public management in favor of private capital operation under arm's length Government regulation. It will renounce investment across the board in new generation and transmissionfacilities (para. 1.z,.

1.5 InstitutionalStructure. The MN .stry of Economy (ME) controls the energy sector through the Secretariatsof Electric Energy (SE) and Fuels (SF) (organizationalchart shown in Annex 1.1). The SE and SF are jointly in charge of defining sector policies; their major responsibilitiesare: (a) overall energy planning; (b) granting of concessions; (c) defining pricing policies; and (d) policies for energy conservationand development of new sources of energy. The ME still retains the final authorizationfor electricitytariff adjustments until the new regulatory framework is implemented (para. 1.6). Deregulationof gas and oil prices and the new electricitylegislation will make unnecessary BE's intervention,which has aimed at a consistent, overall price setting policy. Government has actively participatedin the energy sector as the sole owner or major shareholder of huge utilities which report to the SF (such as the vertically integrated YPF and its subsidiary, Gas del Estado, for gas transportationand distribution)and to the SE (suchas the vertically integrated SEGBA and AyE, and HIDRONOR for bulk generation and transmission) (para. 3.8).

1.6 To achieve the institutional restructuring of the energy sector, Government has devised new regulatory frameworks for the power and gas sectors; the former was establishedby law No. 24065 of December 20th, 1991 and enacted by presidential decree No. 13192 of January 3rd, 1992 (para. 1.12), while Congress is still discussing the Government proposal for the gas sector. In addition, it has deregulated the oil sector. Independent regulatory agencies would be created for the power and gas sectors, which would report to the Government through the SE and SF respectively. To implement one of its key objectives in the public sector privatization, Government is promoting the progressiveprivate capital participationin YPF, Gas del Estado, and HIDRONOR, the liquidationof SEGHA by privatization of its differentbusiness units and the transformation of AyE in a priva^; transmissionutility after the divestitureof its other assets.

B. Tbh Electric Power Sector

Or_anization.Reoulation and Private Participation

1.7 Oraaniation. The focal point for Government'sparticipation in the power sector is the SE. The SE has limitations for contracting personnel and usually resorts to borrowing staff from the national utilities. Loans 2998-AR -3-

(Electric Power Sector Project) and 2592-AR (Gas Utilization and Technical Assistance Project) provided funds to support the strengthening of the SE's technical staff ane to carry out studies, which have been pivotal for the discharging of its responsibilities. A plan for adjustiig the SE to the roles defined in the recently approved energy regulatory frameworkis under execution. The Federal and Provincial Governments interact in the Federal Electricity Council (CFE),which includes representativesof the SE, the national utilities and provincial authorities. It is responsible for coordinatingplanning and policies in the power sector, as well as administering national electricity investments.

1.8 Most of the power facilitiesare owned by the federal and provincial governments,although captive generation,mainly in the hydrocarbon and mining industries, contributes an important share of the total production (about l0o in 1990). Electric.power in Argentina is provided by three national uXilities, one national nuclear entity, one binational entity, 19 provincial utilities, and several cooperatives. The national utilities are: (a) Agua y Energia Blectrica (AyE), responsible for generation and transmissionnationwide, also distributes electricity in four provinces; (b) Servicios Elfctricos del Gran Buenos Aires (SEGBA), which generates, transmits and distributes electricity within the Buenos Aires metropolitan area; and Hidroelectrica Norpatag6nica (HIDRONOR), which develops the hydro resources of the North Patagonia region and transmits to the Buenos Aires metropolitan area. The Comisifn Nacional de Energia Atomica (CNBA) is responsible for all matters regarding nuclear activi.nes in the country, including design, construction and operation of nuclear power plants. The binational (Argentina/Uruguay)agency is the Comisi6n T6cnica Mixta del Se' .o Grande (CTNSG) that owns and operates the 1890 NW Salto Grande hydro plant. En-idad Binacional Yacyreta (EBY), another binational entity (Argentina/Paraguay) is in charge of the construction of the Yacyreta hydro plant. National utilities report to the SE. CNEA reports to the Presidency, whereas the Argentine segment of CTMSG and EBY report to the Ministry of Foreign Affairs. The National Dispatch Center, located in Rosaric, ensures the economic use of the country generation facilities; it reports to the SE and is staffed with AyE personnel.

1.9 Performance of the national utilities is uneven and has reflected the sector's lack of clear objectives and regulationsV. Ays is weakest in all aspects - managerial, staffing, operations and finances - after years of political interference, high rotation of personnel, poor maintenance of thermal power plants and financial difficulties. SEGRAhas also been affected by the sector institutional and financial deterioration. Power losses have reached about 25t of net get.eration,of which 16* correspondsto non-technical losses, and some thermal power plants have deteriorated due to lack of maintenance. HIDRONORis the least affected sector utility although its performance has worsened in the last five years. EBY has also been affected by politAcal interference, weak management, and overstaffing, a situation which is now being reversed (paras. 1.49 and 2.21-2.23).

1.10 Electrical services in the provinces fall under the responsibilityof the 19 provincial utilities, which are under the jurisdiction of either the

3/ See section on pest ffnanciaL perforamce (para. 1.30) whichalso includes in itsrelated Arnex 1.5 the main market,operatifnal and manaerialdata of eachnational utility. 4-

Ministry of Economy, Finance, or Public Works of each province. All provincial utilities,except thone in Chubut, Santa Cruz, Tierra del Fuago and Nisiones, are integrated into the national interconnectedsystem. Provincial lutilitiesset financial rules and electricity rates that subsequAntlyhave to be approved by rrovincial authorities. The autonomy provided to the provinces by the Constitutionhas contributedto sector inefficienciesthrough the establishment of royaltieson the use of hydro resources,setting of tariffs to final customers which depart from economic costs, applicationof taxes and other surchargesover and above electricity rates, and other distortions. Cooperatives partially provide services in 16 p,ovinces, representing 10W of the total electricity consumed in the country.

1.11 The Argentine power sector, like many others in the region, evolved from mostly isulated, privately owned utilities of the 1940s into larger national utilities concentrated in the hands of the Government as a result of tne nationalisticwaves of the 1950s and the 1960e. SEGBA was created in 1958 to serve the Buenos Aires metropolitanarea and absorbed the last of the private- owned utilities (CIAN, formerly Italo) ir 1982. AyE was created in 1947 for developingelectricity in the whole country,but twenty years later, HIDRONOR was established with the specific mandate of developing the hydro resources of the '7omahueRegion. In 1980 the Government decided to transfer most of AyE'S distributionfacilities to the provinces in a disorderlyprocess which resulted in the formation of 19 distributionutilities with uneven capabilities. The above process coupled with poorly conceived, unstable and rolitically applied regulations,in addition to the past unfavorablemacroeconomic environment, have precluded until recentlyany meaningfulparticipation of private ventures in the sector.

1.12 The New Framework. The Government has begun a ewoeping reform in the sector to improve efficiency and reduce its financial gap; it is centered on divestitureand reorganizationof the national utilities, further participation of private investors in new undertakings, and a new regulatory framework (para. 1.6) designed to provide clear rules to the existing actors and to potential investors, as detailed in Annex 1.2. This new framework also encourages the transparent bulk supply pricing mechanism and a fund for mitigating regional tariff differences (para. 1.29). The regulatory nystem has provisions to correct the above-mentioned distortions in provinces which adhere to the regulatory framework (paras. 1.10 and 1.11). In line with the sector reform , the SE should concentrate on indicative power planning, grant of hydro concession, coordination of a national power dispatch center, and Retting of the overall country policies. It would also be the channel th%-uSh which the regulatory agency, to be created, would report to the Government.

1.13 The Privatizationasd Restructuring Process of the national utilities started in 1990, with Government'sdecision to privatizeSEGBA' s distributionand commercialization (Law No. 23696 and Decree No. 2074). With ongoing Bank technical assi-t'--nce, this privatization is completed, except for a small area representing6* of SEGBA'sconsumption. In accordance with Government Decree No. 634 of April 12, 1991, SEGBA and AyE are implementing the privatization of their thermal generation. ROSBAhas already sold its steam plants, amounting to over 2000 MW or some 85t of its installed capacity. Upon promptly transferring the distribution and flood control facilitien to the hosting provinces, and progressively divesting the hydro generation, AyR wi,ll merge its 500 Kv transmissionsystem with HIDRONOR's to form the new grid company. This company will be privatizedby year-end 1992, if marlcot conditiorisare favorable. Besides the transfer of its 500 kV facilities to a new grid compaxny, HIDRONOR will undergo a financial restructuring, and organizational streamlining, thus creating the conritions for private capital participation through the public sale of shares. IDB will finance technical assistcuicefor AyE's and HIDRONOR's transformation through a loan for the power sector refov'rnrecently signed. Government has displayed resolve in implementing the privatization process thoroughly and promptly.

Rxoansion Planninct

1.14 Power Market. The degree of electrificationin Argentina (90%) is high compared to the Latin American average of 70a. 959 of urban population and about 45% of the rural population have electrical set-vice. Per capita electricity consumptionwas about 1290 kWh in 1991, above the average level of 1000 kWh for Latin America. Consumptionincreased at a rate of 6.1% p.a. in the period 1970-1980. It slowed after 1980, reflecting the difficult economic situation of the country, averaging 2.8% p.a. in 1980-1984and 1.3% p.a. in 1984- 1990 (Annex 1.3). This modest growth was due in part to a severe drought which, associated with low availabilityof the thermal facilities,resulted in energy curtailmentsduring the veriod 1988-1989. Consumptionin 1991, however increased at a rate of 4.1%, the highest growth in a single yea ,since 1985.

1.15 Existing Facilities. Despite the vastness of its territory, electric facilities are highly integrated in Argentina. Most of the country's power facilitieswith a total installed capacity of 12,102 Ml (para. 1.21) are linked through the National InterconnectedSystem (NIS),which covers about 92% of the nation's electricitymarket. A 500 IcVtransmission system, consisting of 7,560 km of lines and 24 substations,and complementedby a network of 230 KV lines, links the major consumptionareas with the productioncenters and is used for the transfer of large blocks of energy. This network currently belongs to AyE, HIDRONOR and SEGBA and interconnectsArgentina to Urugutaythrough the Salto Grande hydro plant which belongs to CTMSG, facilitating energy interchanges between the two countries. A centralized dispatch center is in charge of optimizingthe generation system operationwhile seeking a satisfactorylevel of system reliability.

1.16 Plannina Methodologv. Under the sector's ? iditional centralized planning, sector expansion plans have been prepared by .e SE, which developed a sound methodologicalapproach to this end. Electricitxydemand(Annex 1.3) is estimated on the basis of a sectoral econometricmodel, with sub-modelsfor the residential, commercial, and induatrial sectors; consistency checks are made by correlationbetween the total cons:'mptiongrovth and the GDP growth. Prices are represented in the model, though itferences regardingprice elasticity hive not been conclusivebecause electricity.ias been underpricedfor long periods and the distortion to the price signal introuucedby high inflationperiods. Generation exoansion 2lans are based on least cost analyses using a set of mathematical models: (i) a linear prograzmingmodel to selezctthe besc expansionalternatives fromAthe inventoryof all thermaland hydro optionsavailable, (ii) a oimulation model whichdefines the appropriatetiming for the selecteeprojects, and (iii) a lossof loadprobability model which evaluatesthe expectedreliability of the generationplus transmisuionsystem. TraMinsion exoansionplans are prepared by the utilitiesthat own the trunk transmissionsystem (AyEand RIDRONOR)and approvedby the SE. Diatributionolannina is made by SEGBA and ths provincial utilities.

1.17 Sector planningprocedures are likely to evolve with the gradual transitiontowards a mostlyprivatixed sector, since the private sectorwil4 considerparameters, criteria and constraintsthat will certainlybe different from those that have prevailedin a centralizedpublic sector. However,it is important to ensure that, during the transition period the sector would only implement with public funds those projects that respond to the most efficient use of resources. Thus, during negotiations, it was agreed with the Government that it will only authorize or undertake the construction of major public power generationor transmissionprojects that meet the least-costexpansion criteria, and have adequatefinancing [para.3.01(a)3. In assessingthe adequacyof financing,the Bank willensure that any envisagedGovernment contributions would not adverselyaffect the achievementof fiscaltargets agreed in the framework of our continuingmacroeconomic dialogue with the Government. 1.18 DemandProlections. The currentnational demand projections for 1992- 2000,prepared by the SE for the wholecountry are basedon an aversgeGDP growth of 3.6*, and do not take into acco;unt the consumers' response to price corrections to reflect costs. During appraisal of the proposed project, two demandscenarios were preparedwhich cover a sufficiently wide range of possible variations in demand growth: (a) Hiah Demand Scenario. Corresponds to the projections prepared by the SE, but takes into account price elasticity to electric consumption of -0.15 and 15 price increases to the residential sector during the period 1992-1995, which would bring all prices to the LRMClevels. This projectionresults in an averageelectricity consumption growth of 6.61 p.a. (b) Low DemandScenario. Assumesa more modestGDP growthof 2.5* p.a. for 1992-2000,a -0.20price elasticityto electricconsumption and 15 increasein prices to the residentialsector during the period 1992-1995. This resultsin an averageenergy growth of 5.41 p.a.

1.19 The demand projections are compatible with GDPelasticity to electric -,nsumption of 1.75m which is of the same order as the values obtained for other LAC countries.WV

A/ WhenGDP f1 correctedto reflectparticipatIon of the informalecono=; or 2.55for officially recordedGDP.

Braifl:1.70; Colombia: 1.71; Chile: 1.27; Nexico: 1.70; Uruuay: 1.60. -7-

1.20 NIS' 8neray Reauirements for both demand scenarios are detailed in Annex 1.4. They are based on a regionalizationof the national demand and the addition of energy losses. Current subtransmissionplus distributionlosses, at 20 of the energy supplied (or 2.,*of the sales), are very high. They occur mainly in SEGBA's system due to the poor status of the distribution system and loose commercial practices which have been unable to control electricity theft and fraud. Despite loss reductionprograms being developedby SEGBA, losses have not actually decreased. However it is expected that they will progressivelyin the future,as a result of the utility's improvedefficiency brought about by the privatization of its distribution facilities. For purposes of the energy and power balances, total losses were supposedto 6ecrease to 13.8W by the year 2000, which includean estimated12% for normal technicallosses plus 1.8% for residual fraud losses whose attempted eliminationwould not be cost effective. On these bases, the energy requirements for the NIS, currently at 43.5 TWh, are expected to grow to 74.7 TWh by the year 2000 (6.2% p.a. increase)under the High Demand scenario and to 67.8 TWh by the year 2000 (5.1 p.a. increase) under the Low Demand scenario.

1.21 Generation Exoansion. The total installed capacity of the NIS by end 1991 was 12,102 MW of which 5,171 MW (43%*)was hydro; 5,984 MW (49%) conventional thermal, and 947 MW (8%) nuclear; net generation reached 44,070 GWh, being 30% hydro, 53% fossil fuel, and 17% nuclear (Attachment1 of Annex 1.4 presents a summary of available installations). The following plants are currently under construction: (a) Piedra del Aguila, hydro, 1,400 MW, currently in the final phase of constructionand to be commissionedin 1992-1993; (b) Yacyret&, hydro, 930 MW, to be commissionedin the period 1994-1995,is the basis of the proposed project, as detailed in Chapter 2 (its final installed capacity of 3,100 MW is planned to be reached in 1998); its total output will be delivered to the NIS; (c) Pichi-Picun-Leufu, hydro, 250 MW, whose construction is progressing satisfactorily and, is expected to be commissioned in 1996; and Atucha II, nuclear, 745 MW, a project which has progressed slowly becauiseof financial difficulties and whose earliest date of commissioning, were the financing available, would be 1997.

1.22 The current expansion plan constitutes the initial part of the least cost sequence to meet the estimateddemand growth for the period 1992-2000,vnder the High Demand scenario. The NIS generation optimization,prepared by the SE, under the High Demand scenario, shows that the implementation of the above projects would supply adequately the demand until 1999, except for some potential in the years 1992 and 1993 (para. 1.26). This plan also shows that the best alternative for expanding generation beyond 1999 would be gas fueled combined cycle plants (554 MW in 2000).

1.23 During appraisal, the position of plants under constructionY was reviewed under both demand scenarios by reviewing the NIS, capacity and energy balances (Annex 1.4) with the following conclusions:

Et YacyreUand Atuche only, as Piedradol Aguilais nearlycompleted and Pichi-Picun-Leufu is a small plantwith earmarked finencing. (a) Under the High-Deman scenario, completion of Yacyret6 in the years 1994-1998,of Pichi-Picun-Leufuin 1996, and of Atucha II in 1997 are required to supply the demand with adequate reliability;and

(b) Under the Low Demand scenario,completion of Yacyreta could be delayed by one year and completion of Atucha II could be delayed until 1999.

1.24 From an economic perspective, however, as discussed in para. 2.52 delaying the full completionof Yacyreta would be more costly than its completion as planned because the economic generation cost of the project would be much lower than the NIS marginal thermal cost. With regard to Atucha II, no immediate decision on reprogrammingis advisableon the grounds of a low demand scenario. Given that the SE follows up on the market evolution as part of its well discharged responsibilities,and in case the current low demand scenario represents the most probable trend, it will analyze the convenience of such reprogramming in the light of the status of the civil works and equipment manufacturing,and possible contractpenalties. Notwithstandingthis, to ensure that public funds are given the proper priority, during negotiations,agreement was reached with the Governmentthat it would not assign public funds to finance the completion of Atucha II unless the appropriate funding for completion of Yacyreta is secured [para. 3.01 (b)].

1.25 Transmission Expansion. Piedra del Aguila, Pichi-Picun-Leufu,and Atucha XI will not require expansion of the 500 kV system. The final Yacyreti transmission ssheme comprises 1,600 km of 500 kV lines; initially it will connect the plant to the NIS in Resistencia through a 270 km line and later to the Salto Grande plant through two 570 km lines running south via the site of the future Garabi hydroplant, complemented by a 220 km line connectionfrom Colonia Elia to Buenos Aires.

1.26 SUOl1V Prostects. Short term supply is expected to be precarious due to the low availability of some of the thermal plants. Energy balances show that, even with the commissioning of Piedra del Aguila (1992-1993),energy restrictions are likely to occur in 1992 and 1993. The reliability of the thermal plants is expected to improve as result of rehabilitationby private owners and this has been considered in the planning process. Energy balances prepared for the period 1992-2000 (Annex 1.4) show that:

(a) Under the High Demand scenario the hydro to thermal generation ratio (includingnuclear) is expected to increase from 30/70 in 1991 to 42/58 by 1995 and to 53/47 by 2000. Peak reserve margins are expected to be in the range of 38-44% in the period 1992-1996,when the high level of installed capacity of Piedra del Aguila and Yacyret& comes into the system. They will decrease to the more normal range of 27- 35% in the period 1997-2000;and

(b) Under the Low Demand scenario, the hydro to thermal ratio would increase to 43/57 by 1995 and to 58/42 in 2000. Peak reserve margins would be in the range of 41-44% in the period 1992-1996and 31-45% in the period 1997-2000. -9-

These levels are considered reasonable because of the high proportion of hydro capacity being added to the system in the mid 1990e and the need to provide thermal reserve for droughts expected to occur with a one-in-twenty year frequency, as shown in the energy balances for dry hydro conditions.

Sector Investment and Finances

1.27 Investment. Under the reshaped sector structure, responsibilityfor investmentswill be shared by the Federal Government,the Provincialgovernments and private investors. The correspondingshares of these investmentsdepend on the Sector's ability to attract private capitaland their exact amountsare still to be defined. Because of these uncertainties,it is not warranted to present a typical sector financialplan.W Investmentneeds are: (a) rehabilitationof generation plants (formerlyor still owned by SEGBA and Ay8); (b) completion of generation works (under execution by HIDRONOR, EBY and CNEA); (c) distribution expansion (in the SEGRA's original concession area and by the provincial utilities) and (d) general plant (all the utilities). The 1992-1995 sector investmentprogram has an estimated cost of about US$4.8 billion as sumnarized below:

- - ,~~922',99S .Rfito:Thetoffit (iA constant VS$ iilllon at 7zuwary1q992 pric..)ZA : Arls of Resporsibility as 1992 1993 1994 1995 Total of _ec.1991 AyE 102.5 66.0 36.0 182.5

SE6A 179.1 323.0 178.6 177.6 858.3 HIORONOR 361.9 163.2 103.1 41.0 669.2 COE 360.6 263.6 215.1 91.5 930.8 EBY 371.5 369.2 343.3 178.8 1262.8

YalLyretiTruiuinissicy 17.5 141.7 157.6 125.5 442.3 Provincial UtiLities 100.0 106.0 112.0 118.0 436.0 Total Sector 1493.1 1410.7 1145.7 732.4 4781.9

In the above table, the investmentsare grouped under the utilities which have been in charge of the projects before the privatization process. Generation investments,of whic.i401 correspond to the Yacyreta hydro project, account for 65* of the total. Transmission investments, of which 781 correspond to the Yacyreti transmission system, amount to 11 of the total investment. Distributionrepresents about 201 of the total investment,while investmentsfor general plant account for the remaining 4%. Investmentsdecline sharply toward

6/ FederalGovernment financial participation is discussed in paras.1.32 and 1.33.

L/ Includesphysical contingencies. Di Theproposed project covers some 25X of thisinvestment; it is to be implementedby an executing unitespecially created for this purpose uider the SE.while the remainderwill be aessignedto privateinvestors. - 10 -

the end of the period, due to the completion of large generation projects. Investments for new generation, expected to be made by the private sector to supply energy for the year 2000 and beyond would not be required before the year .996 as new generation is likely to consist of combined cycle, thermal plants whose constructionperiod is about four years.

1.28 Electricity Pricing. The Government policy on electricity pricing is in line with the overall country policy of letting market prices establish prices of goods and services. The bulk sales market is composed of a free market, in which producers and distributorsare entitled to agree on bulk sale prices, and a spot market, in which the energy not committed in the free market is sold at the economic cost, including a margin for non-served energy (Annex 1.2). In this case, a reference price to be paid by the distribution companies is determinedeach semester by the Dispatch Center, on the basis of a methodologyestablished by the SE and centered on the short term marginal cost. Currently,producers are selling energy to distributorsat about US04.5/kWh9/, which also coincides with the average long term marginal cost at transmission level. The prices to the final consumer will be set by the regulatoryagency in the case of SEGBA (andits successors)and the provincialutilities which adhere to the centralized regulatory system. Provinces that do not adhere to the centralized regulatory system will retain their ability to set prices to the final consumers. The average value added by distribution is estimated in the range of USC4.0-4.5/kWh. Thus, the price to the final consumer at the distribution level, that would reflect long term marginal cost, is USC8.5-9.0/kWh.

1.29 Special Funds. Two special funds are contemplated in the new electricitylaw. The first one is intended to give the SE a better handle on the funds of the national utilities and CINA. The national utilities and CNEA formally sell to the distributorsat the established supply price (spotmarket), but they will only recover their operating and maintenance costs, while the binational utilities will be paid according to the existing contracts. The difference between supply price and the cost of production of the national utilities and CNEA, and the contracted price of the binational entities will go into a unified fund to be administered by the SE. This fund will be redistributed for earmarked investments and debt service of the national utilities and EBY. The second fund will be administered by the CFE. It is formed by a surchargeof US$3/MWh over the basic prices paid by distributorsand large industrial customers. Sixty percent of this fund will be used as a compensationpricing mechanism for the provinces which adhere to the centrally regulated system and 40* to finance investmentsof the national utilities. The surchargeamount is small enough not to cause any tariff distortion;however, the

2/ Uponcomissioning of Piedradel Aguila, the short term marginal cost is expectedto lowerby some USC0.5/kWh.The sale price of Yacyretw"ill be US03/kWh(Deceffber 1991 price level) at theplant outlet.This is roughlyequivalent to US03.5/kWhat thegrid Level. The sale price of Yacyretd reflects mainly the debt of EBY,recenti? restructured by the Governmentsof Argentina and Pareguay, and the ArgentineGovernment's desire to keepit below the short and long term marginal costs. This causesno distortion, as distributors wilt pay according to the systemsupply price; as in the current case of CTSMG,differences betweenthe supply price and the sales rate of EBYwill be collected by the SE(para. 1.29). fund for compensatingtariffs will have a reasonable size (some US$ 75 million annually)so as to representa strong incentiveto the provinces'adhesion to the centrally regulated system.

1.30 Past Performance. The financialperformance of the national utilities (Ayg, HIDRONOR and SBOBA) has deteriorated considerablyin the last 10 years. The main reasons are: (a) electricityprices have not been adjusted to keep up with inflation; (b) without an adequate capitalmarket, utilitieshave relied on loans due to reduced government contributions (unfortunately much of it short term); and (c) high interest rates. During the last decade, the average electricitytariff to the final customer including taxes fell from USC¢O/kWh in 1980 to about US¢5/kWh in 1982-1984,and then increased up to USO8/kWh in 1990. This representeda reduction of revenues of over US$10 billion to the national utilities. In the past, electrical and energy funds were a major source of investmentfinancing. These funds were generated through surcharges levied on electricity,fuel and gas consumption,and taxes on oil processing. In the late 1980s, these funds were reduced by tax reforms and partially apportionedby the Treamury. This representsan estimatedannual income reductionof US$0.8 billion for the sector. Additionally, a tax reform set up in 1990 obliged the power utilities to pay taxes on operating assets, which represent some US$280 million per year. Because of such losses, the Government had to transfer about US$1.9 billion to the national utilities to cover barely operational expenses and investments, in addition to full foreign debt service, during the last four years. Annex 1.5 gives a detailed descriptionof the finances of the national utilities.

1.31 The changing economic policies of the late 1980s resulted in a deterioration of financial discipline among public sector utilities. The aforementionedreasons caused problems for sector investmentand debt service. As of December 31, 1991, total indeotednessof the national utilities amounted to US$5 billion. Utilities also owed about US$3.4 billion in arrears to contractors and local suppliers.

1.32 Future Prog2ects. The privatizationof the national utilities would reduce the burden of the sector on public finances. The Government would receive about US$2.4 billion for the sale of assets of the national utilities. Additionally, as the national utilities would be transformed into profitable power companies, the Government will be able to increase its collection of income taxes.

1.33 Government cartiCI2atin in financing the sector investment needs (outlined in para. 1.27) would be directed to the national utilities, CNEA and EBY, concentrating mainly on the completion of Piedra del Aguila, YacyretS (including part of the transmission) and Atucha II; this participation would amount to roughly US$1.5 billion during the period 1992-1995. The 1992 national budget includes US$0.9 billion to cover the financial gap of the national utilities,in addition to US$0.8 billion for CNBA and EBY to cover investmentand debt service. Additionally, during the period 1993-1995, the Government would service the debt of the national utilities estimated at US$2.1 billion, in addition to lending US$0.8 billion to 8BY for debt ser,ice.-l One of the jQ/ Data for CNEAldepends on the ftm ncg plan for cmpletton of Atucha 11 to be fInalized by year-end. - 12 -

benefits of the propozed project is to enhance the allocation of Argentina's scarce financial rec-ource.shy facilitating the completion of the two largest ongoing projects: Yacyrat&, ;iydirect financing, and Piedra del Aguila, by use of freed Treasury resources originally shared with Yacyretg.

Sector Strate_q

1.34 Taking this body of experience into account, the Argentines have concluded that the required long-term sector improvements and lessening of public finance support will not readily come about from intensified internal sector efficiency measures, attempts at tightening Government controls and the like. Instead, the authoritieshave fundamentallyrecast Argentina' s strategyfor power operations,which the Bank staff considersappropriate to the situation.

1.35 The decision to enlist private capital and introduce private enterprise management (para. 1.12) is constructive,especially in view of the need for greater entrepreneurshipand efficiency in sector activities. The initiation of the new regulatoxy framework (para. 1.6) helps to provide an important distinction between the Government's oversight role and its policy making, management and operational functions, which have been blurred. The decision to confineupcoming investmentsto completionof ongoing works reflects a prudent appreciation of Argentina's limited development resources and understanding of the limited prospects for any quick improvement in internal resource mobilization. 'she decentralization of power distribution to the provinces is consistent with the increasing local autonomy and national objectives as effective running of the dispatch center. Moreover, the emerging strategy is more embedded in macroeconomicpolicies than before. The new sector guidelinesparticularly reflect the Government'sexpenditure levels and the way it mobilizes revenues. The strategy also is governed by new national policies aimed at fostering the growth of the private sector. Substantial Government contributionsare needed to put the sector on a sounder financialbasis, but the developmentsoutlined in paras. 1.32 and 1.33 shc.ld provide many of the elements required for that achievement.

Ban Partici?ation: Lessons Learned, A sistance Strater ad Raionale

1.36 The Bank has made nine loans to Argentina's power sector, totalling nearly US$1.2 billion. Five loans (US$ 601 million) have helped finance SEGBA's expansionof the thermalgeneration, as rwellas the transmission,subtransmission and distributionsystems. Loan 577-AR (US$ 82 million) financeathe construction of HIDRONOR's 1200 MW El Choc6n hydro plant. The constructionof the Yacyreta hydro project was supportedwith two loans: 1761-AR,US$250 million in 1979; and 2998-AR, US$252 million in 1988, out of which US$250 million was for Yacyreta. The latter (Power Sector Loan) also financed a technical assistance program to strengthen the SE. In 1987, Loan 2751-AR helped finance the Power Engineering Project which provided the basis for improving the efficiency and economy of distributionexpansion country-wide. Loan 2854-AR (US$ 276 million, 1988) which finances the SEGBA V Project, has helped to finance the technical assistance required for the sector reform (paras. 1.12 and 1.13). Discussions with the Government have led to an agreement on using US$100 million out of the US$165 - 13 -

million outstandingbalance of the SEGRA V loan to accelerate the completion of Yacyreta (para. 2.12), recomiendationson which will be submitted to the Board shortly. The allocation of the remainingUS$65 million of the loan's balance is being worked out with the Government.

1.37 Lessons Learned. Project performance audits have concluded that, while the physical objectives of the first five projects were largely met, their financial objectives were not. The latest of these reports (SEGBA IV project, Loan 1330-AR, completed in June 1985) concluded that: (a) SEGRA successfully improved its overall efficiency during project implementation,and largely met the project's technical und physical objectives; (b) lower than expected demand and SEGBA's poor finances had caused the 4.5 year completiondelay and 40 percent increase in total costs; and (c) these financialdifficulties and the failure to meet all loan covenants were mainly caused by inadequate tariff increases.

1.38 The SEGNA IV experience, typical in Argentina's power sector history in recent years, must be judged in the light of the recurrent hyperinflation, civil disturbances,deep recessionand other destabilizingevents that caused the country's secular economic decline. In this environment,sector planning and operations became increasingly complex and mired in uncertainties, severely weakening management of pricing, power demand, investment authorizations, financial controls,etc. More specifically,Government policies did not provide the required stable framework for the sound operation of a sector whose actions have very long-range implications.

1.39 This applied most perversely to power sector finances. In frequent attempts to curb inflation, for example, Government restricted tariffs to insufficientlevels and, save for occasional "catch up" rises, kept them too low. This exacerbated past sector financial losses. Another injurious practice was the transfer of funds raised from hydrocarbon industry and energy consumer taxes for the promotion of the nuclear industry, supplementing budget allocations for the latter. One of the consequences of these practices has been a elci down of the projects, buildup of arrears with contractors and spiraling financial burdens, that have particularly impaired Yacyrett's completion.

1.40 Moreover, due to the prolonged recession, there has been lower than expected growth in demand, complicated by rigidity in the generation expansion program. This led, in conjunction with an unduly low cost of capital assumption, to the development of large, long-gestation, capital-intensiveprojects. In addition, expansionplanning, distorted by an unrealistic low value assigned to the opportunity cost of capital, brought about a high reliance on hydro and nuclear-based generat-ion.

1.41 A third general deficiency has been the Government's pattern, more often than not, of appointing managers with less than satisfactory qualifications,who were replacedafter a brief period. The rate of turnoverof key officers has been undesirablyhigh. Also, managers have not had the mandate to carry out the required changes, been unable to lead their staff, and not had political support to negotiate adequately with employee unions. Operational efficiency improvements could not materialize under these circumstances, and good maintenance practices, comany leadership and staff morale deteriorated accordingly. - 14 -

1.42 Experiencewith the initialresettlement of some 1,700 families (about 8,500 people) from the vicinity of the new internationalbridge linking Posadas and Encarnaci6n, constructed as part of the later phases of the resettlement operation, provides a number of lessons for improvementof later phases of the resettlement operation. Housing, which initially did not meet the needs of resettledfamilies for affordable,low maintenancedwellings, will in the future be built by the resettled families. EBY will restrict its assistance to provision of serviced houseplots (tubedwater, electricity,drainage and waste disposal systems) together with building materials and technical assistance. While an earlier attempt was made to charge resettled families for improvements made in housing, in the new resettlementprogram (para. 2.42) all housing costs will be paid by EBY, and legal fees associated with issuance of titles to replacementland and houses will a.so be paid by EBY. Some families affected by loss of employment, but not housing, were initially not covered, but the new Action Plan provides economic development assistance to re-establish affected sources of employment. It was also discovered that special attention is needed to ensure that female-headedhouseholds are provided title to replacementhousing and houseplots. Implementation of the resettlement operation, which was excessivelycentralized within EBY, will be decentralizedfrom EBY to relevant institutionsof local provincial and municipal government, as well as to the private sector and non-governmentalorganizations.

1.43 Assistance Stratecv. As indicated in para. 1.36, up through the 1970s, the Bank concentratedits assistancein power sector lendingto individual utilities,mainly SEGRA, and was also instrumentalin helping Argentina prepare a national expansion program based or. least-costcriteria. In parallel, the IDB concentrated its efforts on other companies, stemming in part from the fragmentation of the sector organization and limited national control. Subsequently, as the economic environment and conduct of the power program deteriorated, the Bank shifted its focus to an overall sector, approach in order -to deal more directly with the aforementionedgeneric issues. Implicit in this approach was the concept of concentratingmore on selected short-term targets within a broader framework. In addition, added importance was attached to obtaining up front actions by the Government and the sector before Board considerationof proposed new lending operations.

1.44 The initial agenda for action in support of major remedial initiatives included: (a) optimizing financial resource allocation; (b) increasing the utilities'contributions to investment;and (c) streamliningand improvingsector organization. The first power sector loan (2998-AR)therefore stressed these objectiveswhile its proceeds were directed to the continuationof Yacyreti, the most important operation underway. In concert with this approach, the IDB has supported similar policy objectives within its power lending which also has largely been employed for Yacyret&'s progress.

1.45 Loan 2998's last disbursement occurred in October 1991: some of its endeavorswere successful albeit to a somewhat limited externt. One of the most exemplary accomplishmentswas the Government's progress in putting the power investment program on a more balanced basis. Applying the methodology and assumptions agreed with the Bank to govern new generation investments, the - 15 - authorities successfully confined the latter to the least cost program (paras. 1.21-1.24'. A particularly notable feature in addition was, for the first time, the application of the same criteria to the nuclear program. Second, an effective start was made in rationalizing the sector organization, culminating initially in the new electricity law, and plans for separating Government's regulatory and managerial responsibilities (paras. 1.05-1.07). Third, the upgrading and more rigorous application of environmental safeguards governing hydro and thermal plants are commendable.

1.46 Unfortunately, much less was accomplished on sector finances, essentially because of the perpetuation of some of the macroeconomic problems outlined in para. 1.38 that deterred fiscal balance in the economy until 1991. And the aforementioned internal management problems (para. 1.41) continued to cause unduly high losses in the power system, impeding utility earnings.

1.47 The country strategy calls for structural reform of public finances as the key to Argentina's macroeconomic stability, and fo: the Bank to match sustained policy improvements with significant lending. Much more needs to be done, especially accelerating the process of privatization and other changes to reduce the fiscal deficit, foster investment, and improve the quality of services. Eliminating the financial deficit in the power sector is central to these objectives. Accordingly, the administration's dramatic changes to delimit Government's role in the sector, replacing the past effort to improve matters internally, warrants the support requested to help resolve these problems. The Bank is already providing technical assistance for SEGRA's privatization of distribution, and coordinating the effort of the sector transformation with IDB, that will provide technical assistance financing to AyE and HIDRONOR (para. 1.13).

1.48 From the Bank's standpoint also, the implications of the "lessons learned" are twofold. In terms of overall lending strategy for the sector, the recommended approach is to: (a) concentrate resources on the commissioning of the Yacyreta power plant and the associated transmission system; (b) continue assistance for further sector restructuring and divestiture, and implementation of the regulatory function, if IDB resources and actions need to be complemented; and (c) defer lending for individual utilities until these improvements are further advanced, and the private sector role is clear.

1.49 At the project level, the Bank's experience indicates several significant requirements. As elaborated in Chapter 2, Yacyreta has suffered from instability in the management of the project entity, lapses in technical direction, constant uncertainties of assurance and levels of future funding, excessive Board interference, strains between the owners and in their dealings with the international contractors, and a not fully satisfactory design of the resettlement and environment protection plan, as well as its slow implementation. On these accounts, the design of the proposed loan reflects the application of corrective measures for the key past problems. These include more rigorous assurances on the availability of Government funding and its timely possession by EBY through advanced budget allocation and the establishment of a project account; improved higher level management and technical staffing; transfer of all staff to the project site, except for a few key financial positions; EBY's retention of an independent engineering expert who will inform the Bank directly - 16 -

of project progress; safeguards against the renewed accumulation of payment arrears to civil works contractors; and a new program for Resettlement and EnvironmentalManagement.

1.50 Rationale for Bank Involvement. In connectionwith the nacroeconomic and sectoral interests presented above, Yacyret4 is essential to Argentinaw economic recovery and subsequent growth, because of the large amount of energy (40k of present consumption when fully completed) that can be made available within a short time (3 years for tne first fourth of the total output as per the proposed project) at a completion cost with an ERR of 17k and equivalentto two- thirds the long-term marginal cost. The Bank's presence in the proposed project would be crucial for overcoming the past "stop and go" pattern of project executionand achievingthe 1994 commissioninggoal. Already, in connectionwith preparation of this proposed project, the authoritieshave begun to resolve the many problems which have plagued Yacyret&, such as inadequate Government contributions, inefficient organization, and unsatisfactory management, with promising signs of resolution. An appropriatefinancing plan and the acquisition of new commercial credits for the remaining electrical equipment are unlikely without the Bank's involvement and continuing supervision. That role is considerednecessary moreover for effectingthe planned sector privatizationand creating opportunitiesfor additional private sector investment, including the Yacyreti transmissionsystem. In addition,considering the large debt overhang, EBY's lack of earnings capacityuntil 1994 and access to medium term financemake the financial support from the Bank and the IDB essential. The proposed loan is moreover justified on the grounds that the project is still economically justifiednotwithstanding the higher costs (paras.2.57-2.56); the project cannot be further reduced to fit the available resources (para.2.8); and the Government alone cannot finance the additional costs, which are due to exceptional circumstances (paras.2.2 and 2.14).

2. MH PROJeCT

A. Backaround

Project Oriain and Status of Prevaration

2.1 Background. The Yacyreta hydroelectric scheme, for which the Bank approved in 1979 a US$210 million loan (Loan 1761-AR),along with an IDB loan of equal amount, is an Argentine-Paraguayanjoint venture being developedunder the InternationalTreaty of Yacyreta, ratified by both Governments in 1973 (Annex 2.1). Yacyreta is a complex, US$5.5 billion investment endeavor, consisting of a large earth dam, a power house with an ultimate capacity of 3,100 MW, a navigation lock, fish passage and other support facilities as well as a large program of infrastructurerelocation, population resettlement and environmental impact alleviation (See Annex 2.2 for a project description). Despite its equally shared co-ownershipwith Paraguay, Argentina agreed in the Treaty to secure total financing for Yacyreta, driven by the then optimisticprospects of economic development and availabilityof internationalcredit. - 17 -

2.2 The project has suffered significant implementationproblems which have resulted in about 8 years delay in completion and a sizeable financial gap. The implementation problems began with a protracted dispute between the Government and the Bank c-rerprocurement procedures, and was not resolved until the end of 1982. Later, works stopped because of the South Atlantic War. The country's economic recession and high inflation during 1983-1984 worsened the sector financialsituation and reduced its capabilityto support the construction works. In 1984, upon taking office, the new civilian Government reassessed the project to determinewhether or not it should be continued. It decided to do so. The Government made important changes in project design, appointed a new management, renegotiated contracts with construction and engineering firms, rescheduled execution and presented what appeared to be a feasible financing plan. It provided the basis for new loans in November 1988 from the Bank (Loan 2998-AR of US$252 million) and IDB (US$250 million)11-1 to finance the civil works and the engineering contracts.

2.3 Financial problems however subsequently worsened as macroeconomic instabilitymounted and sector policies were affected by political expediency. Discontinuity in Ministry of Economy oversight of the project and sector finances, recurrent difficulties with contractors over payment arrears, inadequate management of the project complex and d,'fferencesbetween the Argeutine and Paraguayan owners over changes to the prcaect design required to reduce costs, have combined to form an enormous financing burden. About US$3.4 billion had already been invested in Yacyret6, with US$2.1 billion more required to reach its ultimate capacity, excluding financing charges and tranemission system costs (Annex2.2, Attachment 5). The new Governmenttherefore carried out a new reassessmentof the project in 1991, which concluded that it would be much more expensive to cancel the project than to complete it. The authorities decided to press ahead with the project for this reason, as well as to ensure adequate electric supply in the mid 1990s and to obtain revenues from energy sales early on. At the same time, it has sought to contain further buildup of financing charges.

2.4 The above changes and actions gave renewed impetus to the project implementation, but financial difficulties further compounded because of the sector failure to contribute to the earmarked energy funds which were supposed to provide counterpartfunds and arrears built up. The scarce funding available was mostly directed to the major civil works, whose contractor accepted partial payments to avoid suspension of activities. Despite the above difficulties, construction of the project is well advanced, and progress is as follows: (a) civil works are 80* completed; (b) assembly of the first four turbines is underway; (c) electrical equipment acquisition is being finalized; and (d) resettlementand environmentprograms are 60W completed with respect to the requirementsdefined by the reservoiroperation level under the proposed project (paras.2.5 and 2.8).

2.5 The Reduced Reservoir Level Scheme. Completion of Yacyret& has become an important piece of the overall power sector strategy being implemented by the Government,which the Bank has agreed to support. Given the seriousdifficulties in obtaining additional financing for the completion of the undertaking, the

II/ IDBmade another USS250million Loanin Decenber1989 for the samepurposes. - 18 -

Governments of Argentina and Paraguay have agreed on a phased implementation of Yacyret& as a prudent way to proceed. Technical studies have shown that the plant could operate with a head as low as two-thirds of the nominal head. The initial operation of the reservoir at a reduced level allows the postponement of a substantial amount of investment in resettlement, infrastructure, environmental mitigation, and land acquisition, and therefore facilitates the building of a feasible financial plan for the commissioning of the plant at an early date. Additionally, the income produced by sale of energy generated with the reservoir at a reduced level would help finance the deferred investment. The proposed project takes on this scheme of reduced operating level and defines a financially feasible and physically well-defined part of the whole undertaking whose implementation can be achieved in the minimum time (para. 2.8).

2.6 The agreement between Argentina and Paraguay on the reduced elevation scheme was the outcome of lengthy negotiations, which also included the setting of tariff, streamlining of EBY's organization, revising the commissioning date of the plant and associated investment timetables, and reducing the financial burden from loan servicing and royalties. In order to implement the ensuing Treaty amendments, EBY has: (a) modified the completion schedules of the project and negotiated the corresponding agreements with the major civil works contractor; (b) renegotiated the contracta for the electromechanical equipment already placed, so as to adjust their execution to the new project schedule; (c) made substantial changes to the entity's organization and staffing, including the transfer of the technical staff to the project site (paras. 2.21 and 2.22); and (d) ensured financial support from the Argentine Government (para. 2.29)

2.7 The Transmission System associated to the Yacyreta hydroplant was originally assigned to AyE. In 1989, AyE completed the basic studies for definition of the system configuration (see para. 1.21 and Annex 2.3). The connection of the plant to the NIS is made in Resistencia through a 270 km, 500 kV line, the tin.ely implementation of which has caused the creation of an executing unit, under the direction of the SE, in view of the inefficiency of AyE.

Proiect Obiectives and Descrintion

2.8 The proposed project concentrates on the implementation of the first six units of the Yacyret& power plant and its connection to the NIS (para. 2.7), to be carried out during the period 1992-1995. This is deemed to be the minimum part of the whole Yacyreta undertaking that stands by itself and could produce a significant amount of energy in such a short time. The commissioning of the first generating unit, planned for September 1994, would be at reservoir elevation 76m.Wy About a year later, nearly coinciding with the commissioning of the sixth generating unit, the reservoir would be raised to elevation 78m. These six generating units would have an installed capacity of 930 MW, a"id a maximum power output of 780 MW with the reservoir at elevation 78 m; average energy production would be about 5,200 GWh per year, which is nearly equivalent

3a/ Elevationsrefer to meters above sea level. The maximum elevation at thepower house under normal operatingconditions Is 82m,the corresponding head is 21.3m,and thenormal Level at theturbine dischargeis 60.7m.ELevations along the reservoir vary with location and streamfLows;for relocation/resettlementpurposes a safety margin is added to thenormal reservoir elevation tc providefor wind wave effect (para. 2.37). - 19 -

to the output of the Piedra del Aguila hydroplant (para. 1.21). The proposed projectwould yield approximatelyone fourth of the output of the fully completed Yacyreta scheme.

2.9 Obiectives. The project is designed to: (a) help provide an efficient supply of energy in the mid 1990s by ensuring operation of Yacyretfis first six units with an adequate transmissionsystem; (b) bring about tighter environmentalprotection and appropriatchandling of social aspects in Yacyreta; and (c) encourage private capital participationin EBY.

2.10 Description. The proposed project consists of: (a) completion of Yacyreta s basic permanent structures; (b) installationof Yacyret&'s first six generating units; (c) implementation of the 500 kV Yacyreta-Resistencia transmission link; (d) implementation of Yacyret&'s Resettlement and EnvironmentalManagement Programs (REMP)required for reservoiroperation at 78m and assessmentof the impact of such operation and of the possible rise of the reservoir above 78m; and (e) assessment of the possible private capital participationin EBY. The proposed loan would finance civil works and related engineeringfor (a) and (b), and the technicalassistance for (c), (d), and (e). The project is delimited by the number of units (six) that can be transmitted through the Yacyret&-Resistenciatransmission link. While the basic investments of the proposed project would be completed by September 1995, the technical assistcncefor the REMP would extend beyond this date in order to facilitatea critical review of the reservoir operations at levels 76m and 78m and the implementationof required correctivemeasures, as well as to support EBY actions for a possible raising of the reservoir to elevation 83m and allow Bank's assessment of the reasonablenessof such preparatory activities (para. 2.11). Therefore, the project would be completed in its entirety by June 1998.

2.11 As noted above, the proposed project does not call for the completion of the full Yacyret6 undertakings. This would mainly consist of the installation of units 7 to 20, bringing the installed capacity to 3,100 NW, operation of the reservoir at elevation 83m, and installation of the associated transmission system. In this connection, although there would be no Bank financial participation to help ensure the accomplishment of these tasks, the Bank is concerned that they be achieved satisfactorily. It is particularly important that the resettlementand environmentmitigation measures needed to protect the affected population be executed prior to the reservoir rise, and in compliance with defined standards. It would be appropriateto determinewhether these have been accomplishedin the first semester of 1994 when the Bank would conduct with EBY a mid-term review of the project (para. 2.40). Consequently,the Bank plans to monitor carefully EBY's performance in this area before the level is raised to 76m, and again to 78m. EBY's record in meeting these requirementswould also be consideredin the determinationof further raising the reservoir above 78m, for which during negotiationsagreement was reached with EBY and the Governments of Argentina and Paraguay that such reservoir rise would require prior Bank approval (para.3.01 (c)l. If the decision to proceed beyond the limits of the proposed project is made during 1994 and execution of the REMP is satisfactory, the raising of reservoir elevation to 83m could be achieved by June 1998, at about the same time as the installationof the 20th and last generating unit. Other significant considerationsto this decision relate to: (a) firming up of the plant financing plan for works extending beyond those covered by the proposed - 20

project; (b) the mobilizationof an estimated US$400 million private investment for, and completion of contractual arrangements governing, the transmission system;and (c) locking up comparableprivate sector participationin the entity which will ultimately operate the Yacyreta hydroplant.

2.12 In this connection, the Bank management intends to submit for future Board consideration,the reallocation of US$100 million of the SEGBA V loan (Zn. 2854-AR) (para. 1.36) for further supporting the orderly completion of Yacyreta, by strengthening the financial plan for the execution of the REMP required for operationof the reservoirbeyond 78m (para.2.11) and helping the Governmentmobilize the sizable funds needed for the proposed project investment and clearing of EBY's arrears (paras. 2.15 and 2.28). This would deploy the available proceeds of Loan 2854-AR to higher priority requirements in view of SEGBA'sprivatization. The REMP has been designed under the criterionof minimum investment required by operation at predefined levels and consistent with standards satisfactory to the Bank. However, this additional financing would make it possible to accelerate the execution of some components that would usefully accompany the impact of reservoir operation at 78m on the population affected. Some US$40 million of additional Bank financing would be used for early completion of the water supply and sewerage systems for the cities of Posadas and Encarnaci6n, coastal treatment for selected uirban areas and diverse infrastructure works in the rural areas. The remaining US$60 million of the envisaged SEGBAV reallocation would be directed to the further financing of the civil works and related engineering, which would allow Governmentchanneling of the resulting reduction in its requirements for investment financing into a prompter payment of IBY's arrears (para. 2.28). This would considerably strengthen EBY's position vis-a-vis contractors and suppliers.

Estimated Cost and Financina Plan

2.13 Estimated Cost. The investment base cost of the project at January, 1992 price level is about US$1.3 billion, being US$1.2 billion for having the first six units operational (about 67% of which are foreign costs) and US$0.1 billion for the transmission link (out of which about 49W are foreign costs) (see Annex 2.4). The investment cost in current dollars amounts to nearly US$ 1.5 billion. Under the additional Fiscal Protocol of September 15, 1983 between Argentina and Paraguay, EBY is exempt of any tax, tariff or contribution of any kind on the materials and equipment to be used in the project.

2.14 The total investment cost of the Yacyreta power plant, including the amount invested until the end of 1991 and the necessary to invest beyond the proposed project during the period 1996-1998, is US$5.5 billion, as detailed in Annex 2.6, Attachment 1. This represents an overrun of some 25% with respect to the 1979 appraisal estimate as detailed in Annex 2.2, Attachment 5. - 21 -

PROJXCT INVEBSTiNT COST ESTZKATE (for the Period 1992 - 1995) A/ (US$ million) LocalCost ForefgnCost Total

PuierPlat MajorCivil Works 166.4 205.1 371.5 ArroyosProtection Works 4.5 7.0 11.5 Generating Equipment 59.9 277.5 337.4 ELectromechanicaLEquipment 49.6 211.0 260.6 Land Acquisition & Indemnification 30.8 30.9 61.7 ResettLement,Environment & Infrastructure 25.9 25.9 51.8 DirectCosts - Subtotal: 337.1 757.4 1094.5 Engineeringand Administration 64.9 55.6 120.5 TotalBase Costs:b 402.0 813.0 1215.0 .trawuulssflon CivilWorks/Assembling 23.2 24.2 47.4 Equipment/Materials 25.3 27.1 52.4 EngineerIng 6.0 6.0 Total Baoe Casts:b/ 54.5 51.3 105.8

TotalProject Investment- . _ TotalProject Base Costgy 456.5 864.3 1320.8 PhysicalContingencies 29.0 31.4 60.4 Price Contingencies 29.0 78.1 107.1 TOTAL PRWECT IMNESTENTCOST: Al 514.5 973.8 1488.3

p/ Does not i.-ludeUSS1.5 million for the Bank-financedtechnical assistance for the Resettlementand EnvironmentalManagement Programs to be spentafter thisperiod. gy January1992 price level.

2.15 Financina Plan. The 1992-1995 financing plan is predicated on: (a) sizeable Government contributionsfor investment (US$503million); (b) new export and supplier credits of US$241 million for electrical equipmentyet to be contracted (seeAnnex 2.4); (c) EBY's internallygenerated funds of US$95 million based on a sale rate of USC3/kWh at the December 1991 price level, as agreed between Argentina and Paraguay; and (d) an IDB loan of US$80 million likely to be approved by the end of 1992, US$32 million of which is expected to be disbursed during the period. This plan also covers the EBY debt service during the period; this debt service is unusually high because of the project's long execution. Total financing requirementsamount to US$2.6 billion, out of which some 58* are for investmentand the remaining42t (aboutUS$1.1 billion) for debt servicing. 22 r 1992-1995 FINANCING PLAN a/ (in current US$ million)

18RD mDB- Eport ad SpiIw Craft. 18Y GOVnueim TaS

_ _ _~~. S1 _ tC.minIw . TOBe ...... : s_ k

Inveubuet _____ 1488.3 Hydroahnt 297.5 31 318.9 241.3 94.8 377.9 1361.9

Transmio 1.0 _ 125.4 126.4 DebtSee , 1097.5

interets OtherChrue _ 658.4 oS8.4 Amordzatin 442.9 442.9 Totd 298.5 31.5 318.9 241.3 94.8 1604.6 2589.6 a/ Does not include US$1.5million for the Bank-financedtechnical assistance for the Resettlement and Environmental ManagementPrograms to be spent after this period. b/ Possible loans during this period to clear prior arrears with contractors (pare. 2.28) are not included. S' It could be reduced by USS60million, if reallocation of loan 2854-ARis approved (para. 2.12).

2.16 To ensure that the availability of the multiple sources of financing, including Government's counterpart, is judiciously reflected in the financing plan, during negotiationsagreement with the Governmentand EBY was reached that: (a) by February 28, 1993 and every four months thereafter they will jointly update the project financingplan (para.3.01(d)]; (b) the Governmentwill cover any insufficiencyof funds identified in such reviews of the financing plan (para. 3.01(e)]; and (c) the required Government's contributions to EBY investment and debt service, and to URSTY investment, in the period 1992-1995 will be included in the Government's proposals for the national budget for investment [para. 3.01(f)). Additionally,to ensure that EBY will have timely access to the Government'scontribution for investment,during negotiatione,the Government agreed to: (a) maintain project accounts in a local bank under the names of EBY and UBSTY with a level of deposit equivalent to 1/6 of the amount assigned to these entities in the corresponding yearly national budget for investment [para. 3.01(g)1;and (b) engage the services of independent auditors acceptable to the Bank and present, in accordance with terms of reference acceptable to the Bank, audits of the project accounts quarterly and within four months of the close of the fiscal year [para. 3.01(h)1. Given the underlying importance of satisfactorily completing the Resettlement and Environmental Management programs required for different reservoir operation levels, during negotiations HBY agreed to establish by November 1, 1994, and, thereafter, maintain an Environmental Trust Fund on terms and conditionssatisfactory to the Bank by depositing therein the amounts necessary to finance in a timely manner all activities under these programs and for the Arroyos protection works, such amounts to be derived from the sales of electricity or any other source and be at least US$18.3 million in 1995, US$60.9 million in 1996, US$101.6 million in - 23

1997, and US$20.7 million in 1998 (Annex 2.6); withdrawals from such account would be made exclusively to finance these activities (para. (3.01)(i)].

B. Execution Legal Arrangements

2.17 The Borrower of the proposed US$300 million loan would be the Argentine Republic, which would transfer US$1 million for UESTY (para. 2.07) and onlend the remaining US$299 million under the same terms and conditions to EBY, which would bear the risks related to exchange and interest rates. The Bank would enter into: (a) a Loan Agreement with the Argentine Republic; (b) a Project Agreement with EBY for the execution of its part of the project; and (c) an Owners' Agreement with the Republics of Argentina and Paraguay, which V.uld support obligations contained in the Project Agreement. A subsidiary agreement would be entered between the Argentine Republic and EBY for the onlending of the US$299 million. Additionally, arrangements would be made between the Borrower, represented by its SE, and UESTY for the use of the US$1 million. The execution of these two agreements would be a condition of effectiveness (para. 3.02). Because of the bi-national nature of EBY, the Project Agreement would maintain the provision on arbitration established in previous loans (2998-AR and 1761-AR).

The Beneficiarv

2.18 EBY was constituted on December 3, 1973 under a Treaty between Argentina and Paraguay (Annex 2.1), with the main objective of constructing and eventually operating the Yacyreta hydroelectric plant. EBY was formally established on September 6, 1974 with headquarters in Buenos Aires and Asunci6n and capital of US$100 million equally shared between AyE of Argentina and ANDE of Paraguay.

2.19 Orcanization and Manacement. EBY is administered by a Board of Directors and an Executive Committee. The Board establishes the general policies. of the entity and approves important proposals made by the Executive Committee, such as loan contracts and the annual budget. It has eight members--four from each country--who are appointed for periods of four years. The Board meets monthly presided on a rotating basis.

2.20 The Executive Committee comprises the Executive Director, from Argentina, and the Director from Paraguay. They are in charge of carrying out all the administrative duties necessary to the execution of the Project. The tenure of each director is for a five-year period. The ordinary meeting of the Executive Committee takes place at least twice a month. The Executive Director also participates as a non-voting member in the Board's meetings. The Executive Director is assisted by four Chiefs of Departments: Technical, Finance (both Argentine), Administrative, and Environment and Resettlement (both Paraguayan). Annex 2.5 shows the organization chart of EBY.

2.21 EBY's organization, which was set up by the Treaty, aimed at sharing responsibilities between the two owners in the implementation of Yacyreta and led to a cumbersome administration and overstaffing. The Board of Directors has interfered in matters that should be under total responsibility of the Executive - 24 -

Director. In part, this was due to a progressive reduction of the Executive Committee's autonomy to approve payments under existing contracts and procure materials and equipment. The sharing of responsibilitybetween the Executive Committee and the Board of Directors was perhaps justifiable in the past under unstable political conditions and the recurrent allegations of corruption. Moreover, the high turnover of the Argentine Executive Directors and the appointment of the Argentine members of the Board of Directors on mainly political considerations have appreciably contributed to the slow decisions concerning resettlement, procurement of electromechanical equipment and contractorclaims.

2.22 In addition, currentmid-level organizationand cumbersomeprocedures do not provide for an efficient administrationof the entity nor for a smooth execution process of the project. The number of functionalunits is excessive and internal procedures required for decision-makingare complex. To ensure sustained efficiencyin the implementationof the Project, EBY presented to the Bank a plan of action to improveadministrative and managerial efficiency,based on the recommendationof internationalconsultants who carried out a management audit under terms of reference satisfactory to the Bank. During negotiations EBY agreed to (a) execute this plan of action in a timely manner (para.3.01(j)]; and (b) hire consultants,satisfactory to the Bank, by March 31st, 1993 for studying the feasibility of private capital participation in EBY (management contract ^r ownership) and by August 31, 1993 present to the Bank the recommendationsof this study for comments. Additionally,Argentina and Paraguay agreed to exchange views with the Bank on the recommendationsof this private capital participation study by October 31, 1993 and take all actions necessary to enable EBY to carry out a plan of action emerging from such an exchange. EBY agreed to furnish this plan of action to the Bank, Argentina, and Paraguay by November 30, 1993 and promptly thereafterexecute it in a timely manner [para. 3.01(k)]. Despite the problem with EBY's structure, the new management team which took over in October 1991 has been performingsatisfactorily; moreover, it has developed a very constructive dialogue with the Bank towards the actions necessary to improve the execution of the project.

2.23 Staffing. EBY staff has now reached a satisfactorysize, as a result of cutting personnel to half early this year, following agreement between the Governments of Argentina and Paraguay in January 9, 1992 (Annex 2.1). As of March 31, 1992, the total number of employees was 374, 74% of whom were located at the construction site, 16* in Buenos Aires, and 10% in Asunci6n. By that time, the three executive departments (Technical,Resettlement and Environment, and Financial)completed their moving to the constructionsite, except for a few positions of the latter that are deemed essential in headquarters. With its new human resource policy and staffing, EBY is seeking to improve productivity and reduce costs. The reductionof the Technicaldepartment's size ha 3 been possible by coordinating better the efforts of the existing consultant for project supervisionand EBY's own staff. The management audit to be carried out before negotiationswill include a review of the impact of the new human resourcepolicy and staff reduction on EBY's operations.The following table gives a summary of personnel for each major organizationalunit: - 25 -

ElY' Persowiel Summr

OrguizationatUnit December Decefabe ______As of Nirch31, 1992 1990 1991 Site B. Aires Astmcion Total DirectionL&' 165 130 37 22 20 79 Technical 96 74 49 49 Administration 290 218 78 13 13 104 Finance 107 85 27 20 5 52 Environmentand 195 117 42 42 Resettlement Securityand Other 143 114 46 1 1 48 TOTAL 996 738 279 56 39 374

2.24 Financial Planning. Accounting and Auditina. The Financial Directorate is responsiblefor planning and executing financial operations,and recording accounting transactions. The entity's accounting is adequate for an institution like EBY, and it is properly computerized. Transactions are adequately recorded and can be easily monitored. While the annual budget system is adequate, the entity's financial planning system is weak and needs to be strengthened. For this reason, EBY engaged an expert in financial planning and engineering whose qualificationsare satisfactoryto the Bank.

2.25 Auditing and Internal Control need to be substantiallyimproved. The auditing process at EBY is carried out internally, by its shareholders and externally by independentauditors. The Internal Auditing Unit reports to the Executive Committee. Audit procedures which have mainly dealt with the accounting system and administrativeprocedures, require broadening to monitor performance targetsfor the economic, financial,administrative and construction areas. Internal control needs to be strengthenedas some areas still require adjustments. The strengtheningof these activitieswould be included in the plan of action of the management audit (para. 2.22).

2.26 As required by Argentine law for all Government-ownedcompanies, EBY has its financial statements audited by the Public Enterprises Comptroller (SindicaturaGeneral de Empresas Publicas/SIGEP)which the Bank has found to perform effectively.I4J In the case of Paraguay, at present the auditing firm is Auditoresy ConsultoresAsociados (AYCA),an independentaudit firm acceptable to the Bank. Audit reports have been issued during the last few years without major observations and quarterly audit reports have been issued since September 1991. During project execution, EBY would continue to engage the services of independent auditors acceptable to the Bank and would present, in accordance with terms of reference acceptable to the Bank, quarterly and within four months of the close of the fiscal year: (a) duly audited financial statements; and (b) audits of the Environmental Trust Fund defined in para. 2.16 [para. 3.01(1)].

13/ IncludescoLmseling, general secretariat, public relations, and internalauditing.

JA/ SIGEPwill becomeLa SindicaturaGeneral de ta Nacldn,in accordanceto a proposedlaw, currently uiderdiscussion in the ArgentineCongress. - 26 -

2.27 The insurance policy of the entity is based on a study performed by independentconsultants engaged under IDB Loan 346/90-RG. EBY has an insurance policy to cover all constructionand erection risks for the main works up to a maximum of US$3 billion. Supplementaryworks are insured by the civil works contractorsuntil they are transferredto EBY. After the plant is commissioned, the insurance coverage will be modified accordingly.

2.28 Vast Financial Performance. Annex 2.6 provides a more detailed analysis of EBY's finances. EBY has mainly financed its investments (US$3.4 billion until December 31, 1991,) with loans from multilateralagencies (35W), foreign and local credits (23*), and Argentine Government loans (32%). The remainder correspondsto arrears to contractors,consultants and suppliers (8*) and equity contributions from the Argentine Government (2%). Of the US$284 million in arrears, US$194 million was owed to ERIDAY, the civil works contractor,US$10 million to CIDY, the engineeringconsultant, and US$80 million to suppliers. Part of the arrears to ERIDAY, CIDY, and the suppliers have been paid during the current year.LW Governmentmade available to EBY some US$100 million in addition to th0 1992 budgeted contribution. Given the importanceof being current on payments for a sound management, during negotiations the Government and EBY presented to the Bank a satisfactoryagreement with EBY's major creditors to clear the arrears during the period 1992-1994 and agreed that EBY would take all necessary measures to comply with such actions [para. 3.01(m)].

2.29 The Argentine Government is committed to servicing the foreign and local debt service.As of December 31, 1991, debt owed to foreign and local banks amounted to US$1.7 billion, while the debt to the ArgentineGovernment was US$3.4 billion. For this purpose, the Government is committed to include a provision for servicing EBY's debt in its proposals for the national budget (para. 2.16).

2.30 Future Financial Performance. The Governmentand EBY have taken some financial measures to secure the completion of the project and to lower the heavy debt serviceburden, such as: (a) the establishmentof a flexible arrangementon repayment of the Argentine Government loans: (b) the inclusion of part of the EBY's financial debt in the reschedulingof Government debt; (c) the waiver of EBY's interest payments on existing Argentine Government loans (see Annex 2.1); (d) the continuationof the Government'sservicing of the foreign and local debt; and (e) amortizationof existing and new Government loans would be contingent upon EBY's availabilityof resourcesfor this purpose, after commissioningof the plant. These measures have entailed significantrelief to EBY's finances, thus allowing financing to be concentrated on the construction of the project. Additionally, the Government is committed to include its contributions for investment in the national budget proposals (para. 2.16).

2.31 EBY is financially sustainable in the long term. During the period 1998-2011, net cash generation, after covering the decreasing service of the

15/ EBY's arrears were about US$70 million by the end of July, 1992 and are expected to be reduced to US$60 million by the end of September, 1992. - 27 -

external debt, would leave increasing margin for servicing the accumulated Argentine Government financial debt and paying deferred compensation to the Paraguayan Government (see Annex 2.1). It is estimated that starting in 2011, EBY would be able to transfer operating surpluses to its owners.

Implementationand Monitoring

2.32 Imnlementation of the Yacyret& hydroplant is being done by EBY. Constructionworks of the power plant are being executed by the international consortium ERIDAY, led by Impregilo-Dumez. The corresponding detailed engineeringand supervisionis done by CIDY, an internationalconsortium led by Harza. Based upon recommendationsof individualconsultants engaged under terms of referencesatisfactory to the Bank, EBY is adjustingthe organizationand work program of CIDY in order to improveproject execution. EBY is also assisted by a group of international experts for the assessment of the overall technical development of the project. The implementation of the transmission system component (Annex2.3) will be handled by UNSTY (para.2.7) which will be equipped with a small grouipof experienced technical and financial staff. The design of the transmissionsystem and the related bidding documents have been transferred from AyE to this unit. During negotiations, agreement was reached with the Government that the following targets will be achieved: (a) by November 30, 1992, all contracts related to the acquisition of equipment, materials and construction/assemblyservices necessary for the constructionof the Yacyret&- Resistenciatransmission link will have been signed;and (b) by October 31, 1993, 40t of this link will have been executed [para. 3.01(n)].

2.33 InfrastructureRenlacoment and ImPrqvementWorks. The Treaty contains provisions for which several infrastructure works for electricity, coastal treatment, roads, railroads, ports, and an airport (to be partially or totally affected by the impoundingof the reservoir)would be relocatedor upgraded. The original feasibilitystudy of the project containeda rather loose definitionof these works, and because of the emphasis put lately on the design and construction of the main civil works contract, EBY has not produced detailed design and cost estimates, nor detailed schedules for their execution. Additionally,some of these works fa'llinto provincial jurisdictionand require the signing of agreements with the provinces for their execution. EBY presented a plan, satisfactoryto the Bank, ensuring that the infrastructureworks will be executed in a timely manner and at the least possible cost.

2.34 Some of the infrastructureworks envisaged in the Treaty represent more than the equivalent replacementof the damage caused by the project, as is the case for part of the railroads, ports, and the airport. Their inclusion in the Treaty were concessions by the Argentine Government to Paraguay in the framework of the political negotiationswhich preceded the Treaty signing. The Amendment Letter of January 9, 1992 set the basis for reviewing the inclusion of such works under the responsibilitiesof EBY. During negotiations,Argentina and Paraguay agreed that they will take all necessary actions, includingthe exchange of Amendment Letters if appropriate,in order to ensure that EBY will only carry out and be financially responsible for the works derived directly from the inundation caused by the constructionof Yacyret&. [para. 3.01(o)]. 28 -

2.35 The Arrovos Protection Works. The power plant design includes a lateral earth dam which would save about 40,000 ha of land in the Aguapey river (Arroyo Aguapey) valley, part of which could be potentially developed for agriculturaluse. The cost effectivenessof the design of this dam has been questionedboth by the Bank and by the Panel of Independent Consultants. CIDY is currently reviewing the design with a view to reducing its cost. As these works (currentlyestimated to cost around US$120 million, see Annex 2.6) have an impact on the cost of completion of the full Yacyreta scheme, EBY agreed to present to the Bank a satisfactoryreport with the conclusionsof such study by June 30, 1993 [para. 3.01(p)].

2.36 ElectromechanicalEcuioment SunplV and Suoervisicn. The acquisition, manufacturing,installation and tests of about 15 packages of electromechanical equipment makes che project completionschedule vulnerable to delays in any of the individual timetables for each of the packages. Acquisition and manufacturing of transformers and,SF 6 substation equipment, which have been delayed because of lack of financing and definitionsby the Government and EBY, are now in the critical path for the September 1994 target for plant start-up. EBY awarded the contract for the SF6 equipment by early August and expects to award the transformercontract by early September.The timely executionof these elements of the project requires careful supervision from CIDY. The report prepared by individual consultants (para. 2.32) includes recommendations satisfactoryto the Bank to ensure that the supervisionof the project by CIDY would be done properly and in accordance with the project schedule.

2.37 Flooding Areas. The reservoir levels mentioned in paras. 2.5 and 2.8 correspondto relocationlevels in the areas of Encarnaci6nand Posadas, the most heavily populated resettlementareas. Relocation levels are expected, normal water levels at the area, plus 0.3m to 1.Om safety overheads to-cover for normal wind induced waves, which would ensure adequate safeguards for the affected population. The Parana river flow in the Posadas/Encart-i6n area, which averages 12,000 m3/s, may reach 44,000 m3/s with a probabil..t7-of occurrence of once in 50 years. Reservoir operation procedures would k.ep ievels at the dam site adequatelydepressed with respect to the Posadas/Encarr._c.6nlevels, so as to ensure that the head draft provides for complete evacuation of water through the turbines and spillways, while the water levels at the Posadas/Encarnaci6n area would remain at all times not higher than the "natural" height for the correspondingflow (the level reached by the river in the absence of the dam). The population is currently affected by flooding risks, because water levels higher than 76m can occur during severe flooding conditions; in fact such flooding may occur (and has occurred in the past) independently of the construction of the dam. To avoid the possible public perception that floodings are attributable to dam construction,during negotiations,EBY agreed to: (a) not later than November 30, 1992, present to the Bank a satisfactoryoutline of a media campaign to inform the public that severe floods due to natural river conditions are not attributable to the dam construction and that during dam operation all measures will be taken to avoid flooding to the maximum possible extent,usingthe controllingability of the dam; and (b) put. this media campaign into effect not later than March 31, 1993 (para. 3.01(q)]. - 29 -

2.38 SedimentationStudies. Feasibilitystudies prepared in 1977 for the dam showed that solid discharge would be moderate and that silting of the reservoir would be very slow. Sediments in suspension and the bed load altogether were estimated at 20-30 million tons per year, while silting of the dam was estimated to occur not earlier than 50 years. However, the characteristics of the basin have changed lately because of deforestation, especially on the Brazilian side upstream of the Itaipu dam, and there are indicationsthat sediment suspension in the river has increased substantially. Though most of the sediment brought by the Parana river is currently being trapped by Itaipu, the Bank believes that, to be on the safer side, suspension sediment measurementsand bed load estimatesmust be updated. For this reason, EBY presented satisfactory terms of reference for the updating of studies on sedimentation and estimate of the useful life of the reservoir and during negotiations, agreed to present to the Bank not later than April 30, 1993 an interim report on the preliminary conclusionsof the above study, and the final results of the study by January 31,'1994 [para. 3.01(r)].

2.39 Monitoring. The Bank will supervise the project execution, carrying out field missions at approximate4 month intervals. In addition, it has been agreed at negotiationsthat during the whole execution of the project, EBY will retain a consultant satisfactory to the Bank, to keep the Bank and EBY's internationalcreditors independently informed of the progress of the project and on any technical, financial, administrativeor managerial problem, which could affect project implementation [para. 3.01(s)]. The progress reports will also cover relevant physical aspects of the hydroplant, resettlementand environment protection operations, and transmission; spot potential problems; and recommendationsto address them. In addition, during appraisal, it was agreed that EBY will contractan independentscientific research institutionacceptable to the Bank to carry out an annual evaluation of the progress in the implementationof the Action Plan for Resettlementand EnvironmentManagement by October 31, 1992 (see Annex 2.7, Attachment 3). The UNDP project on Argentine privatization, for which the Bank is the executing agency, would meanwhile monitor segments of sector transformationtargets.

2.40 Notwithstandingthe frequent supervisionmissions (para.2.39), a mid- term review will be conducted by the Bank with EBY, URSTY, and the Argentine Government aimed at a comprehensiveassessment of the progress in carrying out the project and of the performance of their respective obligationsassumed under the proposed loan and possible remedialactions to ensure the efficientexecution of the project. During negotiations, it was agreed with Argentina and EBY to conduct such a mW term review not later than June 30, 1994, for which they would submit a report to the Bank at least one month prior to the review, containing a descriptionof the activitiescarried out, compliancewith the legal agreements and, if by then Argentina and Paraguay have decided to raise the reservoirbeyond level 78m (paras.2.11 and 2.46), the proposed actions to implementit, including a feasible financialplan and the revision of the Resettlementand Environmental Management programs [para. 3.01(t)].

2.41 Dam Safety and Insoection. EBY has taken adequate steps to ensure that the dam,s safety aspects are duly considered. It has appointed a panel of experts, satisfactoryto the Bank, which has reviewed the design of the dam, with particular emphasis on safety aspects, and has included enough instrumentation - 30

to ensure that the dam behavior is properly monitored. A monitoring program during construction is being satisfactorilyhandled by CIDY. To ensure that these considerationscontinue to be properly taken care of, EBY presented to the Bank a satisfactory program for assuming the direct responsibility for the instrument monitoring of the dam, including staff training needs, and during negotiationsagreed to continue seeking advice from the panel of experts and have the dam inspected regularlyby experts acceptableto the Bank during its useful life in accordance with a program to be submitted to the Bank by January 1, 1993 (para. 3.01(u)].

Resettlementand Environmental Management Programs

2.42 Resettlement. The reservoir created under the proposed project, when it is impounded to elevation 78 m, will displace about 3,400 families (16,000 persons) mainly in the cities of Posadas, Argentina and Encarnaci6n,Paraguay. Some 1,700 families (about8,500 persons) have already been resettled. A revised ResettlementProgram has been prepared by EBY, in collaborationwith institutions of the respective local governmentsand local nongovernmentalorganizations; it takes into account lessons learned during the implementationof the initial plan (para.1.42). To avoid premature disruptionof people's lives, the resettlement operationwill be carriedout so that people are required to move only six months prior to inundation. When and if the reservoir is eventually filled to its design level of 83m another 5,600 families (about 26,000 persons) will be resettled.

2.43 Annex 2.7, Attachment 1 describes the Resettlement Program. During appraisal, its implementation schedule was carefully reviewed and the Bank technical assistance for the design and preparatory work required for the implei.,entationof the program was agreed upon. This technical assistance will support: strengtheningthe EBY's Department of Resettlement and Environment; strengtheninglocal government institutionsthat are responsiblefor aspects of the program; detailed soil studies in rural resettlement;design studies for the relocationof ceramics factories;and training local governmentand nongovernment personnel working on the resettlementprogram. The ResettlementProgram is based on the following major features:

(a) the affected populationis defined as all persons who lose their home, means of livelihood or both as a result of the construction of the Yac-ret& civil works, whether or not they are owners of the home or land expropriatedby the project, and who were identified as affected in the resettlementcensus conducted by the project in 1989-1990;

(b) other families taking up residence in the zone to be affected by the Yacyreta civil works after the resettlementcensus of 1989-1990 are not covered under the Action Plan for Resettlement, but will be resettled by their respective local government with assistance from EBY in a form acceptable to the Bank; - 31 -

(c) the population affected by loss of home, means of livelihood or both will be entitled to a choice between monetary compensation or a full replacement at no cost to the affected persons;

(d) replacement means of livelihood in the case of farming families shall consist in replacement farmland of a minimum size of 7.5 ha regardless of whether or not the affected family has legal title to the land affected by the project; and

(e) the legal and administrative costs of providing free hold titles to the replacement houses, houseplots and farmlands will be borne by EBY.

During nt-3otiations,EBY agreed to implement the Resettlement Program (Annex 2.7, Attachment 1) according to the execution timetable indicated in Annex 2.7, Attachment 3 in a manner satisfactory to the Bank [para. 3.01(v)].

2.44 As noted in para. 2.37, to ensure population protection against floods, the reservoir will be operated so as to keep the water levels at Posadas and Encarnaci6n not higher than the river's original levels. This will require a river basin flood forecasting system composed of a network of hydrometeorological instruments and corresponding design of a basin response model. It also requires an advance warning system to report releases fiom the upstream Itaipu dam which now reaches Posadas and Encarnaci6n in about three das a time. During negotiations EBY agreed that the design of the flood forecasting system and the advance warning systems will be completed by March 31, 1993, and the implementation of both systems by June 30, 1994 (para. 3.01(w)]. Also, the flood forecasting system is expected to be linked to a Bank-supported national flood disaster prevention system for the whole Parana river considered under the proposed Flood Rehabilitation Project. Additionally, EBY agreed to present to the Bank by June 30, 1993 an Emergency Preparedness Plan [para. 3.01(x)], which would provide EBY staff with clear instructions to be followed during an emergency situation or unusual occurrence (e.g., failure of the dam) that may result in human casualties or substantial material and environmental losses, including what immediate decisions to make and special actions to take, as well as communications with the Government, police, fire department, and civil defense authorities. EBY already presented to the Bank, satisfactory terms of reference for carrying out the study.

2.45 Environmental Manaaement. An Environmental Assessment (EA)616 was appraised which identifies the environmental consequences of the project, including impacts upon fish and other aquatic life, water quality, wildlands and biodiversity, downriver areas, forestry, water-borne diseases and cultural properties. The EA also proposes an Environmental Management Program (EMP) composed of measures to address and mitigate negative environmental impacts. Annex 2.7, Attachment 2 summarizes the EA findings and outlines the proposed EMP. Under the proposed project, detailed design work and preparation of high priority environmental protection measures for the entire EMP will be completed and implementation of those measures required by operation of the reservoir at elevation 78m will be carried out. At this elevation, the reservoir would inundate about 52,000 ha (520 km2) of land, the majority being sparsely populated

WJ The EA Sumary wascirculated to the EDson May21, 1992. - 32 -

wildlands (natural grasslands, freshwater marshes and other wetlands, and riverine forest). Approximately 38,000 ha are in Paraguay and 14,000 are in Argentina. During appraisal, Bank support for the implementationof the EMP was agreed. The Bank will support detailed design studies for the manageme.\tof the protected areas created under the project, detailed design studies for water supply, sewerage and sanitation systems for the cities of Posadas and Encarnaci6n, detailed design studies for reservoir water release management, monitoring of disease vectors, and studies of fish adaptation to new aquatic conditions. During negotiations, EBY agreed to implement the Environment ManagementProgram (Annex 2.7, Attachment2) accordingto the executiontimetable indicated in Annex 2.7, Attachment 3, in a manner satisfactory to the Bank (para. 3.01(v)]. At full de'velopment,the reservoir may be raised to EL 83m beyond the timeframeof the proposed project. At that point, the reservoirwill be roughly 250 km long, with a surface area of approximately 165,000 ha (1,650 km2), out of which 107,600 ha will correspondto land to be inundated. Of the total flooded area, about 78,200 ha will be in Paraguay and 29,400 ha wi.llbe in Argentina. The great majority of the area to be inundated is sparsely-populated wildlands.

2.46 If, by the first semester of 1994, the Governments of Argentina and Paraguay have made the decision to operate the reservoirabove elevation 78m, the REMP will be revised accordingly with EBY during the mid-term review (para. 2.40), or later (depending on the timing of such a decision) during the supervisionof the project. Whatever the timing, a satisfactoryrevision of the REMP and an adequate financingplan to carry it out are conditionsfor the Bank's endorsement of the docision to raise the reservoir above elevation 78m [para. 3.01(t)]. Bank's approval of the actual rise of the reservoir will be subject to a fully satisfactory completion of the revised REMP. Deposits into the EnvironmentalTrust Fund (para.2.16) would be maintained as necessary to ensure full financing of the revised REMP.

Procurementand Disbursement

2.47 Procurement. Proceeds from the loan would be applied to finance: (a) ongoing contracts for the execution of the Yacyret& project procured under Loan 1761-AR, as follows: (i) the major civil works contract which was awarded through ICS procedures in accordance with Bank procurement guidelines; and (ii) the contract for engineeringservices which was awarded in accordance with Bank guidelines for the use of consultants; and (b) contracts which will be awarded in accordance with Bank guidelines for consulting services for the: (i) implementationof the transmissionsystem; (ii) implementationof Yacyreta's Resettlementand EnvironmentalManagement programs; and (iii) feasibility study of the private capital participation in EBY. The Bank will require prior approvalof contra:tsfor consultingservices. Procurementof goods and services not financed with proceeds from the loan would be procured through a variety of procurementmethods, dependingon the origin of the correspondingfinancing. The following table summarizes procurement arrangements for the project: - 33 -

ProcurementMethod a/ (Millionof currentUS Dollars) ProjectElements ICBb/ OTHERc/ NBF d/ TOTALCOST 1. Works 1.1 MajorCivil Works for the Hydroplant 418.9 418.9 (252.5) (252.5) 1.2 CivilWorks for the ArroyosProtection 15.3 1S.3 . .. . ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~.)_- 1.3 Installationand Assembty of the 56.6 56.6 TransmissionSystem (-) (-) 1.4 InfrastructureRelocation 53.8 53.8

2. Goods 2.1 ElectromechanicalEquipment for the 661.6 661.6 Hydroplant _ _) C-) 2.2 Equipmentand Materialsfor the 62.6 62.6 Transmission System _ t-) t-) 3. Consultancies 3.1 Engineeringfor the Hydroplant 45.1 45.1 (37.0) (37.0) 3.2 Engineeringfor the Transmission System 1.0 °.0 ______( .0) ______( 1.0) 3.3 TechnicalAssistance for: a) Resettlementand Environmental 9.0 9.0 ManagementProgram (9.0) (9.0)

b) PrivatizationStudy 0.5 o.r l (0.5) (0.5) TOTAL 41d.8 55.6 848.9 1324.4 (232.5) (47.5) (-) (300.0)e/

IV Figuresin parenthesesare amountsfinarced by theBank loan. kI ICS:International Coqmetitive Bidding; this contract is alreadyunder execution. g/ Accordingto theBank guidelines for use of consultantsin thecase of Bankfinancing; contract for hydroplantengineering is alreadyunder execution. gy NBF= Not BankFinanced; includes international shopping, direct contracting and acquisition under internationalbidding with financing from suppliers or specificcountries offering bilateral financing. p/ Totalproject cost exceeds the totalcost of procuredelements by the sun of:(a) costof EBY'sown administrationand supervisionexpenditures (US$89.0 million); and (b) land acquisitionand indemnificat½on(US$74.9 million). - 34 -

2.48 Disbursement. The bulk of the proposed loan is expected to be disbursed over a period of three years; however, the technical assistance component would take three additionalyears to be fully disbursed (see Annex 2.8). The disbursement schedule does not follow the Bank's standard profile as it reflects completionof the execution of an ongoing project. The proceeds would be applied to finance:

(a) 100W of expenditures on the major civil works contract for the Yacyreta hydroplant, up to a cumulativewithdrawal of US$130 million and 57% thereafterup to US$252.5 million;

(b) 100% of %.heexpenditures on the engineering contract for the Yacyreta hydroplant (up to US$37 million); and

(c) 100% of the expenditures on the technical assistance for the: (i) implementationof the Yacyreta transmission system (up to US$1 million); (ii) implementation of Yacyret&'s Resettlement and Environmental Management Programs (up to US$9 million); and (iii) feasibility study of private capital participation in EBY (up to US$0.5 million).

2.49 The remainingexpenditures on the contract of item (a) above would be financed with Government loans. IDB has agreed to finance a portion of the Resettlementand EnvironmentManagement programs (paras.2.42-2.46). The closing date would be December 31, 1998.

2.50 In order to improve the timeliness of disbursements and the availability of funds for the project, the Bank would make an advance payment from the loan account into a SpecialAccount, to be opened and maintainedby the Government in US dollars in a bank acceptableto the Bank. The funds would be used to reimburse EBY and UNSTYfor the Bank's share of the project cost, as well as to reflect direct payments in foreign currencies. The total amount in the Special Account (about US$20.0 million equivalent) would not exceed an amount that is about four months of estimated average disbursementsfor the project. Replenishmentof the Special Account would be made in accordancewith standard Bank procedures. Documentationwould be retained by the Borrower and would be made availablefor periodic inspectionby Bank staff. Statementsof Expenditure would be used for all eligible expendituresmade for the technical assistance under contracts not exceeding US$30,000. During negotiations,the Government agreed to engage the services of independentauditors acceptableto the Bank and present, in accordance with terms of reference acceptable to the Bank, audits of the bpecial account quarterly and within fout- months of the close of the fiscal year (3.01(h)].

2.51 The Government has requested, and the Bank agreed to accept, that expenditures made by EBY for execution of civil works and engineering services under their approved contracts due for payment from January 1st, 1992 until signing of the proposed loan be eligible for financing with proceeds from the proposed loan, provided: (a) no payments will have been made in respect to such expendituresat the time the respectivedisbursements under the proposed loan are - 35 -

called for; and (b) such disbursementsare limited to US$60 million (20% of the loan amount). Given the Bank's prior appxzval of these contracts, this is justified by the need to avert further delay in Yacyret&'s orderly completion.

C. Economic Justification

2.52 Position of Yacvreta in the Least Cost Exnansion. The proposed project is part of the least cost power generation expansion program for the period 1992 to 2000 (para. 1.22). Completion of Yacyret& e.snow envisaged with initialreservoir operation at reducedelevation (para. 2.5) representsthe least cost solution under both the High and Low Demand scenarios (Annex 2.9). The definitionof reservoir levels 76m and 78m for the project was made on the basis of an economic optimization which considered trade-offs of foregone energy production versus delaying of relocation costs. The study conducted by CIDY (Annex 2.2, Attachment 6) also showed that ultimate raising of the reservoir level to 83m was more economical than permanent operation at levels 76m or 78m, or any intermediatelevel between 78m and 83m.

2.53 Economic Rate of Return (Annex 2.9). Because the high proportion of investmentsalready made in Yacyreta are considered sunk costs in its economic evaluation, the ERRs under a wide set of assumptions are sufficientlyhigh to ensure that Yacyret& is economically feasible, even under very unfavorable circumstances. The severe assumptionreflected by the project definitionis that Yacyreta would be limited to only six units operating at the maximum reservoir level of 78m. The rate of return of the proposed project was estimated as the discount rate which equalizesthe present value of economic net cost and benefit streams associated with the project. Two different approaches were used to estimate costs and benefits, as follows:

(a) SUoolV at the Grid Level. The project contribution to the NIS was considered. The economic net cost includes the capital investment in generation for the completion of the project and in the transmission expansion to avail its energy to the grid under satisfactory reliability conditions. Operation and maintenance costs during the useful life of the project are also considered; investmentssince the start of the Yacyreta plant constructionuntil 1991 are treated as sunk costs. Costs for resettlementand infrastructurerelocation as well as for environmentalmitigation measures are internalizedin the project investments. The benefits are estimated as the energy generation provided to the grid at the estimated LRMC of US$45/MWh. The resulting ERR for this base case is 13*.

(b) Final User. The project contribution at distribution level was also evaluated. The economic net cost includes, in addition to the costs mentioned in (a), those of the distribution facilities, %itichwould make possible the sales of the project energy production. Benefits for this case were assumed to be the revenues from energy sales expected from the project at the estimated avteragerate to the final consumer of US$ 85/MWh. These revenues can be considered a lower bound for the consumer's willingness to pay. The resulting rate of return for this base case is 17W. - 36

The project energy is totally absorbed by both High and Low Demand scenarios (Annex 1.4) as they are made available to the grid. Therefore there will be no changes in the ERR's indicated above in the case of the Low Demand scenario.

2.54 The Ultimate Yacvreta Configuration. For the purpose of economic analysis, the proposed project should also be examined under the broader approach of full completion of the Yacyreta scheme, as this is the most likely case. This means installation of units 14 to 20 and operation of the reservoir at elevation 83m (para. 2.11). As shown in Annex 2.9 the ERRs would be the following: (a) supply at the grid level: 24W; and (b) final user: 28*.

2.55 Sensitivity Analyses. As noted in Annex 2.9, the economic generation cost associated with the ultimate configuration of Yacyret& is US$16/MWh. This is less than half the NIS long term marginal cost of US$40/MWh, which corresponds to the economic generation cost of a gas-fueled CC plant.LZ This ensures the Yacyretd's robustness in relation to:

(a) the materialization of the Low Demand scenario: in this case, it would be theoretically possible from the energy supply viewpoint to delay the scheduling of Yacyreta units, however that would be uneconomical, as net saving from reduced fuel consumption would be considerable;!8/ and

(b) a period of operation at reduced elevation longer than recommended: even if the dam were to operate at elevation 78m for a much longer time than expected, the ERR would still be satisfactory; under the severe and unlikely scenario of operating at this elevation for the whole of its useful life, the rate of return would be about 16%.

2.56 Other relevant sensitivity analyses for the ultimate configuration base case show that the ERR would assume values of: (a) 20% for a cost overrun of 21%; and (b) 20% for a lower demand scenario in which Yacyret& would only replace fuel consumption in the years 1994-1998.

D. Risk.

2.57 The major risks facing the Project would be (a) unavailability of sufficient funds or supply of electromechanical equipment at the time required for proper execution of the works, mainly due to: (i) untimely contribution from Government for payment of the contractors; and (ii) delays in the negotiation with suppliers (or export credit agencies) for financing of electrical equipment that remains to be contracted out; (b) failure to implement satisfactorily the Resettlement and Environmental Management programs; and (c) failure to implement i/ Investmentcost of US$700/kW,30 yearuseful life, 12% discount rate, fueL cost or USS2.50/million BTU,45% globalefficiency and 70% ptant factor.

JO/ i.e.The presentvalue of fuelcost for additional thermal generation due to oneyear delay of Yacyretawould be US$347million (12% OCC andUS#2.50/million BTUfor naturalgas) as comparedwith US$157million represented by the benefits of postponinginvestments (no economic penalties have beenconsidered for consWruction changes). - 37 - the transmissionsystem in a timely manner. To help minimize these risks, the Bank has: (a) reached agreementwith Governmentfor providing EBY with a regular flow of money for its continuation of the civil works and other essential activities; (b) linked loan disbursementto achievementof physicalproject goals and financial measures; (c) obtained assurance of competentmanagement in EBY; (d) assured EBY of technical assistancefor all preparatorywork required for a proper implementationof the Resettlementand EnvironmentalManagement programs, includingdesign work and training;and (e) assuredUESTY of managerialtechnical assistance for execution of the transmissionsystem.

3. AGREEMENTS REACHBD AND RECOMMENDATION

3.1 During negotiations, agreement was reached with the Borrower, raraguay and EBY as appropriate,on the following:

(a) the Borrower will only authorize or undertake the construction of major public power generationor transmissionprojects that meet the least-cost expansion criteria and have adequate financing (para. 1.17);

(b) the Borrower would not assign public funds to finance the completion of Atucha II unless the appropriatefunding for completionof Yacyret&i is secured (para. 1.24);

(c) the Borrower, Paraguay,and EBY would only raise or cause to raise the reservoir level beyond 78m with prior Bank approval (para. 2.11);

(d) the Borrower and EBY, by February 28, 1993 and every four months thereafter, will jointly update the financing plan of the Project (para. 2.16);

(e) the Borrower will cover any insufficiencyof funds identifiedin the reviews of the financing plans of the Project (para. 2.16);

(f) the Borrower will include the requiredBorrower' s contributionsto EBY investment and debt service, and to UESTY investment in the period 1992-1995 in the Bor:ower's proposals for the national budget (para. 2.16);

(g) the Borrower will maintain project accounts in a local bank under the names of EBY and UBSTY with a level of deposit equivalent to 1/6 of the amount assigned to these entities in the corresponding yearly budget for investment (para. 2.16);

(h) the Borrower will engage the services of independent auditors acceptable to the Bank and present, in accordance with terms of reference acceptable to the Bank, audits of the project accounts and the special account quarterly and within four months of the close of the fiscal year (paras. 2.16 and 2.50); -38-

(i) by November 1, 1994, EBY will establish and, thereafter,maintain an EnvironmentalTrust Fund, on terms and conditions satisfactoryto the Bank, by depossitingtherein the amounts necessary to finance in a timely manner all activities under the Resettlementand Environmental Management Programs (REBP)and for the Arroyos protection works, such amounts to be derived from the sale of electricityor any other source and be at least US$18.3 million in 1995, US$60.9 million in 1996, US$101.6 million in 1997, and US$20.7 million 1998; withdrawals from such account would be made exclusively to finance these activities (para. 2.16);

(j) EBY will take in a timely manner all necessary actions to improve its administrativeand managerial efficiency;such actions to be based on the recommendationsof the management audit study carried out by EBY (para. 2.22);

(k) EBY will: (i) by March 31st, 1993, hire consultantssatisfactory to the Bank for studying the feasibilityof private capital participation in EBY (managementcontract or ownership); (ii) by August 31, 1993 furnish to the Bank the recommendationsof the study for comments; (iii) by November 30, 1993 furnish to the Borrower, Paraguay and the Bank a plan of action for carrying out the recommendationsagreed upon by these parties, and (iv)promptly thereafter,start the carrying out of this plan of action in a timely manner. The Borrower and Paraguay will: (v) by October 31, 1993, exchange views with the Bank on the study recommendations referred to in (ii); and (vi) promptly take all actions necessary to enable EBY to carry out the plan of action referred to in (iii) (para. 2.22).

(1) EBY will continue hiring independentauditors acceptable to the Bank, in accordance with terms of reference acceptable to the Bank, which would present quarterly and within four months of the close of the fiscal year: (i) duly audited financial statements; and (ii) audits of the EnvironmentalTrust Fund (para. 2.26);

(m) the Borrower and EBY would take all necessary measures to clear arrears with contractors, suppliers and consultants, in accordance with a plan agreed with the Bank (para. 2.28);

(n) (i) by November 30, 1992, the Borrower would sign or cause to be signed all the contracts related to the acquisition of equipment, materials and construction/assembly services necessary for the construction of the Yacyreta-Resistencia transmission link; and (ii) by October 31, 1993, 401 of this link will have been executed (para. 2.32);

(o) the Borrower and Paraguay will take all necessary actions, including the exchange of Amendment Letters if appropriate, in order to ensure - 39- 4

that EBY will only carry out and be financially responsible for the works derived directly from the inu-idationcaused by the construction of Yacyreta (para. 2.34);

(p) by June 30, 1993 EBY should present to the Bank a satisfactory report with the conclusions of the study to review the design of the Arroyos protection works with a view to reduce its cost (para. 2.35);

(q) by November 30, 1992, EBY should present to the Bank a satisfactory outline of a media campaign to inform the public that severe floods due to natural river conditions are not attributable to the dam construction and that during dam operation all measures will be taken to avoid flooding to the maximum possible extent, using the controlling ability of the dam; and such media campaign should be in effect not later than March 31, 1993 (para. 2.37);

(r) by April 30, 1993 EBY will present an interim report on the preliminary conclusions of the sedimentation study, and by January 31, 1994 the final results of the study (para. 2.38);

(s) during the whole execution of the project, EBY will retain a consultant satisfactory to the Bank with the purpose of keeping the Bank and EBY's international creditors independently informed on a monthly basis of progress on the project and on any technical, financial, administrative, or managerial problem, which could affect project implenrentation (para. 2.39);

(t) by June 30, 1994 the Borrower and EBY will conduct with the Bank a mid-term review of the project, for which they will submit a report to the Bank at least one month prior to the review, containing a description of the activities carried out, compliance with the legal agreements and, if by then the Borrower and Paraguay have decided to raise the reservoir beyond level 78m, the proposed actions to implement it, including a feasible financial plan and the revision of the Resettlement and Environmental Management programs (para. 2.40). The presentation to the Bank of these proposed actions, whether for mid-term review or any other time, would be required for Bank's approval on the decisions to raise the reservoir beyond 78m (para. 2.46).

(u) EBY will continue seeking advice of the panel of experts and have the dam inspected regularly by experts during its useful life in accordance with a program to be submitted to the Bank by January 1, 1993 (para. 2.41);

(v) EBY will implement the Resettlement and Environmental Management Programs according to the execution timetable shown in Annex 2.7; Attachment 3, in a manner satisfactory to the Bank (paras. 2.43 and 2.45); and - 40 -

(w) EBY will complete the design of the flood forecasting system and the advance warning systems by March 31, 1993, and will implement them by June 30, 1994 (para. 2.44).

(x) by June 30, 1993, EBY will present to the Bank an Emergency Preparedness Plan (para. 2.44)

3.2 As a condition of effectiveness, a subsidiary loan agreement between EBY and the Borrower for the transfer of US$299 million, and an arrangement between the Borrower, represented by the SE, and UBSTY for the use of the remaining US$1 million of the loan, satisfactory to the Bank, should have been executed (para. 2.24).

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ARGENTIN

YACYRUTA II PROJECT

The New Recrulatorv Framework

Backaround

1. A new regulatoryframework is defined by the law #24065, "Generation, Transmissionand Distributionof ElectricityLaw", enacted on January 3, 1992, and by the Resolution #038 issued by the SE in July 13, 1991, which is fully compatiblewith the law. Law #24065 aims at:

(a) setting the rules of the game for the Government, power utilities, and customers in the power sector, including pricing policies and participation of private investors in sector; and (b) creating a regulatory body to control the compliance with the regulations.

2. The main objectives of the law are to:

(a) protect the rights of the customers; (b) promote competitivenessof the generation market by allowing free entry and encourage new investments to ensure power supply in the long-term; (c) regulate the operation and ensure fair access to generation, transmission,and distributionpower facilities; (d) ensure that electricityrates are reasonably set and provide signals to consumers that are based on minimum cost criteria; (e) foster participation of private investor in the generation, transmission, and distribution activities ensuring the competitivenessof the market, where possible.

3. The main objectives of the Resolution #038 are to:

(a) set the physical organizationof the bulk sale power market; (b) define the operationalrules of the power utilities that sell energy to the National Dispatch Center (DC) through the National Interconnected System (NIS); and (c) set the methodologyto calculateelectricity prices among producers, transmitters and distributors.

The Power Market

4. The power market is composed of: (a) the bulk sale market participating producers (generation companies), transmitters (transmission companies) and distributorsof electricity (buyers).In this market would also participate industrial or individual customers with a minimum demand to be regulated by the regulatory body; and (b) final customer market composed by distributors (sellers)and their final customers.Producers may freely negotiate supply contracts with distributors and large industrial customers. The distributorsare entitled to seek the means to satisfy the power demand in their Page 2 of 4

concession area. The shared use of the transmission systems is a part of the competitionpolicy at the generation level. The use of third party lines for transmissionis subject to payment of toll fees.

Reaulatorv Body

5. The Board of the RegulatoryBody will have five members: a President, a Vice president, and three directors. They will be appointed by the Government (based on proposals made by the CFE for two of them and by the SE for the remaining three) with the agreement of a Special Congress Commission (SCC). The members will be nominated for a five-year term, subject to renewal and should be fully dedicated to their functions. These members can not be ousted by the Government without a strong justificationto be endorsed by the SCC. The Board will report to the SE for administrativepurpose.

6. The major functions of the Regulatory Body will be to:

(a) supervise and Lontrol the compliance with the law, with its regulationand with the concessionagreement by the power utilities; (b) avoid monopoly actions among producers, transmitters, distributors and customers; (c) define service responsibilities and enact power sector rules regarding: technical standards, safety operation of the power system,procedures for consumptionmeasuring and billing, connection and re-connectionof supply, and quality of service; (d) issue the general principles to be included in the contractsbetween transmitters and distributors to ensure the free entry to the market; (e) set the bases for the calculation of electricity price to be included in the contract between transmitters and distributors; (f) set the bases for granting concession for the private sector with defined serviceresponsibilities and cancellationprovisions by poor service or other violation of the law and regulations;and (g) supervise the compliance with environmental and safety policies in the construction and operation of power generation, transmission and distribution systems.

7. A supervisory and control rate will be charged to producers, transmitter and distributors to finance the annual budget of the Regulatory Body. The Board should prepare an annual budget, after consultation with the transmitters and distributors, for inclusion in the Government' s budget proposal to the Congress. The National Disnatch Center (DC)

8. The National Dispatch Center (DC) is in charge of the coordination of the operation of the NIS. The DC ensures the economic use of generation facilities and preserves the reliability of the electric system's service. The DC, which currently reports to the SE, will be cransformed in a stock company, with a maximum government participation of 1O0 in equity, retaining the government its veto power. The SB will prepare the rules of the DC aiming at: Page 3 of 4

(a) allowing the execution of freely negotiated contracts between producers, bulk customers and distributors, except for the binational utilities;

(b) dispatching the required energy stated in the contracts, in accordance to Resolution #038 which sets rules of economic dispatch of energy and demand transactionsbased on the minimum economic cost for the power system, including the cost of non-served energy.

Electricity Prices

9. The Government policy on electricity pricing is in line with the overall country policy of letting market forces establish prices of goods and services.Resolution #038 establisheda new methodologyto set commercialization prices o' the bulk sales market, managed by the DC, which has been confirmed by the new law. The bulk sales market is composed of: a free market, in which private producers and major consumers (distributors and large industrial customers) can freely negotiate the price of supply, and a spot market, in which the energy not committed in the free marker is sold at the short-term marginal cost including a margin for the estimated non-served energy. This methodology entails independence from political decision-makers, and fosters the participationof private investorsin the power sector. The concession contract to transmittersand distributorswill includean electricityprice agreement that will be revised and adjusted each five (5) years. A reference price to be paid by the distributorswill be dete_mined each semester.

10. The price to the final consumer will be determined by the regulatory body for SEGBA (and its successors)and for the provincial utilities which adhere to the centrally regulated system. The provinces, which choose not to adhere, will maintain their autonomy in setting the prices to the final consumers. In the former case, the price will be the sum of the bulk sale price (unless considered unreasonable by the regulatory body) and the value added by the distribution (defined in function of standard costs for the specific system).

Unigied Power Enerov Fucd

11. Producers will sell energy to the grid at the established supply cost, but national utilities will only recover their operating and maintenance costs while binational entities will be paid according to existing contracts. The difference between the supply price and the cost of production of the national utilities and the contracted prices of the binational entities will go into a unified fund. SE will administer this fund, which will be redistributed for earmarked investment and debt service of the national utility and BEY. The budget of this fund will be approved by the Congress.

National Power Enerav Fund

12. A surcharge of three pesos (aboutUS$3) per Nwh over the basic price paid by distributorsand large industrialcustomers will go into a national power energy fund, 60t of which will be used as compensation pricing mechanism to regional final customers, while the remaining 40 will fund investment programs of the national utilities. This fund will be administeredby the CFE. The SE is entitled to adjust the surchargeup to a maximum of 20V followingthe economic Page 4 of 4

variations taking place in the power sector. This fund will last up to the privatizationof all national utilities, thus no rules have been issued.

The Functions of the SE

13. In line with the power sector reform, the SE should concentrate on indicativepower planning, grant of hydro concession,coordination of the DC, and setting of the overall country power energy policies. A plan for adjusting the SE to the roles defined in the recently approved regulatory framework is under execution. SE is preparing a new organization scheme, staffing, and job description of its activities.

The Functions of the CFE

14. The Federal ElectricityCouncil (CFE) is composed by representatives of the SE, the national utilities and provincial authorities. The CFE is responsible for:

(a) advising the National and provincial governments on all subjects related to the power sector, including investment priorities, concessions and electricityprices; (b) coordinatingpower sector planning and submitting it to governmentIs approval; (c) proposing modificationto the Electricity Law; and (d) administeringthe National Power Energy Fund.

selatedLaws

15. The following legal provisions are related with the ElectricityLaw #24065:

(a) Law #15336. enacted on Seotember 20. 1960: The former Electricity Law, which governs the activities of the electric industry related to generation, transformation,transmission and distribution,some of its articles have been modified by Law 24065;

(b) Law #19552. enacted on April 4. 1972: Governs rights-of-way;

(c) Law #23696. enacted on Auaust 8. 1989: Its provisions aim at reforming the public utilities, allowing private participation in the sector, and setting the rules for privatizingpublic utilities.

(d) PresidentialDecree #634. issued on Asril 12. 1991: Its provisions aim at carrying out a privatization program for AyE's and SEGBA's thermal generation.

(e) MB Resolution #1185. enacted in 1983: Governs those provincial utilities not directly connected with the NIS and the cooperatives supplied by AyE. Page 1 of 3

ARGBXNUN YACYRETAII PROJECT

Demand Projections

Backciround

1. The national electricity demand is distributedunevenly among the nine electricalregions: Northwest, Northeast, Central, Coast, Cuyo, Buenos Aires Metropolitanarea, Buenos Aires Province, Comahue and Patagonia. The Buenos Aires metropolitanarea and the Buenos Aires province, being the most active areas of the country economically,concentrate most of the demand, though a few electricity intensive industrieselsewhere account for 231 of the public service industrialconsumption or 101 of the total public service consumption. The Buenos Aires metropolitan area accounts for 351 of the national population and'36V of the electricity consumption. The Coast and the Buenos Aires Province areas represent another 261 of the population and also 261 of consumption. The national per capita electricity consumption reached 1,290 kWh in 1991 and the electricity coverage (percentageof population with access to electricity)reached 94* in urban areas and 441 in rural areas for a national average of 871. Per capita consumption is expected to raise in the period 1992-2000,e.g. per household residential consumption which was about 1500 kWh/year in 1991, is expected to increase to about 1800 kWh/year in 2000.

Historical Consumotion

2. Electricity demand is supplied by public service and auto producers, whose participation in the total country consumptionhas decreased from 251 in 1970 to 81 in 1991. Attachment 1 shows historic consumption by class of consumers. It can be noted that consumption growth has been uneven in the last twenty years, reflecting the economic difficulties experiencedby the country: 6.11 p.a. for 1970-1980; 1.81 p.a. for 1980-1985 and 2.41 p.a. for 1985-1990. A reasonably high growth of 4.11 took place in 1990 due to the economic reactivation. Participationof the different classes of consumers in the total consumptionhas steadily changed since 1970; e.g. industrial consumption,which accounted for 36* of public consumption in 1970 reached 491 in 1991. Conversely, residential consumptionparticipation has decreased from 361 to 29* in the same period.

Demand ProjectionProcedures and Methodoloaies

3. Electricity demand projections have been under the responsibilityof the SE. They are prepared by an ad-hoc group with representationof the national utilities. Statistical data is provided by the utilities. Economic historic data and forecast are provided by the ME. Demand projections are estimated on the basis of a constant income elasticity econometricmodel, with sub-models for the residential, commercial, and industrial sectors. Each submodel includes sectoral income and an autonomous parameter as explanatory variables. Industrial consumption is forecast by considering the general industrial compensation which is correlated to industrial income, and the large Page 2 of 3

electro-intensiveindustries --such as aluminum smeltus-- whose consumption is determined on the basis of their individual expansion programs. Consistency checks are made by correlationbetween the total consumption growth dnd the GDP growth.

4. Although the growth rates of the economy and electricity sales have followed similar trends, the spread between the electricity sales growth rate and the GDP growth rate was 5.2W p.a. in the 1970s and 3.8% p.a. in the 1980s. Implicit income elasticity to electric consumptionin the model (2.55) is higher than the observed in other LAC countries (Brasil: 1.70; Colombia: 1.71; Chile 1.27; Mexico: 1.50; Uruguay: 1.60). To evaluate the consistency of the model the SE investigatedthe causes of such discrepanciesby an analysis of the GDP as measured by the BCRA (Banco Central de la Republica Argentina) and the informal GDP as estimated by an independenteconomist'. Results show that the income (officialplus parallel) elasticity to total electric consumption would be 1.75, a reasonable value.

S. Different attempts have been made to include price elasticity in the model, but inferences regardingprice elasticity have laci statistical significancemainly because electricityhas been underpriced for long periods of time and the distortion to the price signal introduced by high inflation periods. Despite the above, this Annex presents estimates of the possible effect of tariff adjustments still to be made on the residential consumption based on the appraisal mission's assumptions. For this purpose, price elasticity was assumed to vary between -0.15 and -0.20, on the basis of foreign experience. A detailed description of the model is available in the Project File.

1992-2000 Demand Prolections

6. Two scenarios of demand growth were prepared for reviewing the position of Yacyreta in the expansion plan and for its economic evaluation: the Hioh Deman and the Low Demand scenarios.

(a) The High Deman scenario is based on the SE current projection, which assumes an average GDP growth of 3.6* p.a. in the period 1992- 2000, but corrected to include the appraisal mission's estimate for the reduction of residential consumptiondue to price increase. The price elasticity assumed for this scenario was -0.15, while a 15% price increase in real terms was considered in the period 1992-1995. (Residentialtariffs currently amount to about 87% of LRMC on average) No price elasticity correction was applied to other classes of consumers as extrapolatingprice elasticity to productive consumption is questionableand also because their current prices are already close to LRNC.

Guissarri, A, "La Argentina Informal", EMECE Editions, 1989. Page 3 of 3

(b) The Low Demad scenario assumes an average GDP growth of 2.5% p.a. in the period 1992-2000 and includes the appraisal mission's estimate for the effect of price adjustments on residential consumption. However, the response of the consumers to the price signal was assumed to be higher for this scenario. Thus, a -0.20 price elasticity was assumed. A 15 price increase was assumed in the period 1992-1995.

7. National energy demand projections (public service plus auto producers) under both scenarios are shown in Attachments 1 and 2. The High Deman scenario results in an average energy demand growth of 6.6* or 3.O0 over the GDP growth. The ow Demand scenario results in an average energy growth of 5.40 p.a. or 2.9* over the GDP growth. The residential consumption is shown in the tables with and without the correctionmade by the appraisal mission to reflect assumed response from the consumer to price adjustments. VACISETAIPFT

OEMAD PRAJECTOlM)ANDROWa HW RES TOTALCCUNIRY CONSUMPTIIO- IG DEMAD SCENAIW

Amwl I Aslddh (3 j Ciurc | | dso Tal PuiI Suds() upI mmti Totl | VailY doalallCoaQmMl II om PAldTaPa I ali wv4I ca IPWO.UoImaIII dkTdSai I obtn I diaubl NI& *uII otINaWh zw m CTW)t GTv6 I'm Ivwc- flbIa'mI (Gwh[!m C- I &-,A IzIid3 GemIl 4IPTWOLft"'m ITco IGV,h-t* f

1970 4985 27.0 4995 2.0 1832 9.9 4833 26.7 2038 11.0 13799 74.7 4678 25.3 18477 1975 68S1 26.5 5. ml 20 5.6 2232 89 4.0 8885 35.6 125 2680 10.7 5.6 20416 01.8 82 4552 18.2 4.5 24970 62 2.9 1980 UB 26.6 6.0 a862 266 6.0 3150 9.4 7.1 13054 41.6 9.3 3587 10. 6.0 29453 88.4 7.6 38 11.6 4.1 33336 5.9 2.3 1981 6959 27.5 1.1 359 27.5 1.1 3242 9 .9 13277 40.7 *4.2 3638 11.2 1.4 29117 89.3 -1.1 3478 10.7 -10.4 32595 22 46 1982 86s3 26.0 -3.6 6638 26.0 -3.6 3091 93 4.7 14189 4Z7 09 3748 11.3 ao 29666 69.3 1.9 3567 10.7 26 33233 20 4.9 1983 9020 25.5 4.4 9020 25.5 4.4 330 9.3 7.0 15277 432 7.7 3943 11.1 52 31546 89.1 6.3 386 10.9 7.8 35392 65 a0 1984 9578 25.8 6.2 9578 25.0 62 3568 9.6 7.9 15838 42.7 3.7 4112 11.1 4.3 33093 89.3 4.9 3976 10.7 34 37071 4.7 z2 1985 9732 267 1.6 9732 2.7 1.8 3538 9.7 -0.8 15476 42.4 -z3 4095 11.2 4.4 32841 9.0 -0.8 3667 10.0 .7.8 36S50 -1.5 -4.3 1986 1054J 26.7 .3 10540 26.7 .3 3665 9.3 36 16985 43. 9.8 4450 11.3 8.7 35640 90.4 5 3a79 9.6 34 39431 8.0 5.6 196? 11771 28.1 11.7 11771 201t 11.7 3754 8.9 Z4 18174 433 7.0 4697 11.2 5.6 38396 91.5 7.7 3557 8.5 .2 41953 6.4 2.2 1908 11130 26.5 *5.4 11130 26.5 -. 4 3506 84 46 18916 45.1 4.1 4039 11.5 3.0 38391 91.5 -0.0 3575 8.5 0.5 41966 0.0 -27 1989 105t7 26.3 50 10579 26.3 50 3280 82 44 17643 439 46.7 4650 11.6 .37 36160 E9.9 -4.6 4071 10.1 13S 40231 4.1 4.6 199 10656 26.3 0.7 10656 26.3 0.7 3303 82 0.7 17743 43.8 0.6 4693 11.6 0.8 36397 89.9 0.7 4084 10. 03 40481 0.6 -1.3 1981 11338 26.9 6.4 11338 26.9 64 3515 83 6.4 1899 44.9 6.6 4992 11.8 6.4 38754 20 6.5 3383 8.0 -172 42137 4.1 SD

1992 1i161 25.9 4.6 11761 26.7 37 W767 85 7.2 20123 45.6 6.4 5008 11.4 0.3 40659 92.2 4.9 3449 7.8 Zo 44108 4.7 26 1993 12471 2a4 5.1 12271 260 4.3 4098 6. 8.8 21883 46.4 67 5268 11.2 .2 43518 92.3 7.0 3636 7.7 5.4 47154 69 3o 1994 13087 25.8 4.9 12837 25.3 4.6 4441 8a .4 24001 47.1 9.7 5526 10.9 4.9 460 92.4 7.6 3839 7.6 5.6 50644 7.4 3.5 1995 13723 25.4 k.9 13423 24.8 4.0 4801 69 8. 26035 48.1 5 5s79 10.7 4.9 50054 s2.5 6.9 4063 7.5 5.6 54117 6.9 37 1996 14384 24.9 4.8 14034 24.3 4.6 5 79 9.0 7.9 28232 46s 84 6074 10.5 4.8 53519 9z6 6.9 4302 7.4 5.9 5762 6.8 3 1997 15073 24.4 4.8 14673 23.7 4.6 5578 9.0 7.7 30691 49.6 87 6365 10.3 4.8 57307 92.6 7.1 4563 7.4 6. 61870 7.0 3.a 1998 15725 239 4* 15275 232 4.1 5973 9.1 7.1 33140 50.3 8o 6640 10.1 4.3 61028 92.6 6.5 4845 7.4 62 65873 6.5 39 1999 16403 234 4.3 15903 22.7 4.1 6390 9.1 7.0 35788 51.0 0o 6927 9.9 4.3 65008 92.7 .5 5151 7.3 63 70159 6.S 4.0 200 171t7 22.9 4.3 16557 22 4.1 6825 9.1 (.6 38626 51.7 7.9 7224 9.7 4.3 6922 92.7 6.5 5478 7.3 6.3 74710 6.5 4.0 190IMi Adad Dw. I99=oo Pa4sdhd (1)VA8otd Pd. Ad OhM e " WM nr l Ebd o J3) CauIdulng Puloe B IlS, tar ldR I Canuwmm

Fuu DEM40OKW( 0W..~~~~~~~~ ~ ~~ ~~ ~ ~~ ~ ~~ ~ ~ ~ ~ ~ ~ PM.

ft 1n- ARBEH YACYIETA1 PROJECT

OEMANDPROJECTION AND GROWIH RATES TOTALCOUNTfY CONSUMPTON -LOW DEMAD SCENARIO

- sidential) | RI side Xn_i Comnunciu duisral CUier TotalPubic S5i e3) AutoProducets Totl Co I GOP cans. | Perc. Irm I _ I PercI G*hi Pn I <3t h I Con. I Pa GN1 CowT.I Peam Gtln. Penc.T GfoI C olTo etc Glaowlh II h GllWth LOW?~~~o TOW ? ofTOWo (GWh) I CS) I pw%) I t% I (aft) 1__ fl6 of?OWTOW? O T of?TOW (GM-)I M) 1b(GMb) I (IN fM I (af) Ils N I (G-Wh)I% m I m (GWh)I1 ^ 1970 4995 27.0 4995 27.0 1832 9.9 4933 26.7 2039 11.0 13799 74.7 4678 25.3 18477 1975 6621 26.5 s8 o62t 26.5 5.8 2232 6.9 4.0 68 35.6 12.5 2680 10.7 5.6 20418 81.8 8.2 4552 18.2 40.5 24970 6.2 z9 1980 6662 26.6 6. O862 26.6 6o 3150 94 7.1 13854 41.6 9.3 3567 10.8 6.0 29453 88.4 7.6 3883 11.6 43.133336 5.9 2.3 1961 0959 27.5 1.1 8959 27.5 1.1 3242 9.9 2.9 1327? 40.7 -4.2 3839 112 1.4 29117 89.3 -1.1 3478 10.7 -10.4 32595 -2.2 4.6 1982 N63 26.0 -3. 863 26.0 3.6 3091 9.3 4.7 14189 42.7 6.9 3746 11.3 3.0 29666 89.3 1.9 3567 10.7 Z6 33233 2.0 -4.9 1983 9020 z5. 4.4 9020 25.5 4.4 3306 9.3 7.0 15277 43.2 7.7 3943 11.1 5.2 31546 69.1 6.3 3846 10.9 7.8 35392 6.5 3.0 1964 9576 25.8 6.2 9578 25.8 6.2 3566 9.8 7.9 1S836 42.7 3.7 4112 11.1 4.3 33093 69.3 4.9 3978 10.7 3.4 37071 4.7 26 1985 9732 26.7 1.6 9732 26.7 1.6 3538 9.7 -0.6 15476 42.4 *Z3 4095 11.2 40.4 32841 90.0 0.8 3667 10.0 *7.8 36506 -1s 4.3 198 10540 26.7 8.3 10540 26.7 6.3 3665 9.3 36 16985 43.1 9.8 4450 11.3 6.7 35640 90.4 8.5 3791 9.6 3.4 39431 6.0 5.6 1987 11771 26.1 11.7 11771 26.1 11.7 3754 8.9 24 18174 43.3 7.0 4697 112 5.6 38396 91.5 7.7 3557 6.S *6.2 41953 6.4 Z2 1986 11130 26.5 -5.4 11130 26.5 4.4 3506 6.4 48. 18916 45.1 4.1 483s 11.5 3.0 38391 91.5 -0.0 3575 8.5 0.5 41966 0.0 -. 7 199 10579 26.3 *50 10579 26.3 -s0 3280 8.2 .34 17643 43.9 67 4656 11.6 -3.7 36160 89.9 -5.8 4071 10.1 13.9 40231 4.1 4.6 1990 10656 28.3 0.7 S0858 26.3 0.7 3303 8.2 0.7 17743 43.8 0.6 4693 11.6 0.8 36397 89.9 0.7 4084 10.1 0.3 40481 0.6 *1.3 1991 11338 26.9 64 .11338 26.9 6.4 3515 8.3 6.4 18909 44.9 6.6 4992 11.6 6.4 38754 92.0 6.5 3383 8.0 .17.2 42137 4.1 5.0 1992 11861 26.9 4.6 11761 26.7 37 3767 6.5 7.2 20123 45.6 6.4 5008 11.4 03 40659 92.2 4.9 3449 7.8 2.0 44108 4.7 26 1993 12416 26.7 4.7 12166 26.1 34 4049 8.7 7.5 21506 46.2 6.9 5243 11.3 4.7 42966 92.3 5.7 3561 7.7 3.2 46527 5.5 25 1994 12964 26.3 4.4 12614 25.6 17 4337 8.8 7.1 23196 47.0 7.8 5474 11.1 4.4 45821 92.5 6.2 3685 7.5 3.5 49306 6.0 2.5 1995 13522 26.0 4.3 13022 25.1 3.2 4635 8.9 6.9 24725 47.6 6.6 5710 11.0 4.S 48092 92.6 5.4 3821 7.4 3.7 51913 5.3 2.5 1996 14103 25.7 4.3 13553 24.7 4.1 4945 9.0 6.7 26366 48.1 6.6 5955 10.9 4.3 50819 92.8 5.7 3971 7.2 3.9 54790 5.5 2.5 1997 14707 25.3 4.3 14107 24.3 4.1 5270 9.1 6.6 28296 48.8 7.3 8210 10.7 4.3 53885 92.9 6.0 4135 7.1 4.1 58020 5.9 2.5 1998 15272 25.1 3a 14622 24.0 37 5587 9.2 29950 8.0 49.2 5.9 6449 10.6 3.8 56617 92.9 5.1 4314 7.1 4.3 I0931 5.0 2.5 1999 15659 24.7 3.8 15159 23.6 3.7 5918 9.2 5.9 31842 49.7 6.3 6697 10.4 3.6 59616 93.0 5.3 4509 7.0 4.5 64125 52 Z5 2008 16471 24.4 3.9 15721 23.3 3.7 6265 9.3 5.9 33858 50.1 6.3 6955 10.3 3.9 62799 93.0 5.3 4720 7.0 4.7 67519 5.3 2.5 1970.1991Actu lgta: 1992.2000Proged (1) W aOMPfce BWld Elet (2) W? Pdia E1Aa ENect (3) c4nsl"uc Puce Bow*icl lot eIentIa Consna

Pe: DE-LOW.WOI

ft=t Page 1 of 3

ARGENTINA YACYRETA II PROJECT

CaacitY and Enercv Balances

National InterconnectedSystem

Power Losses

1. Demand projections at consumption level (sales) for the whole country under a high and a low demand scenarios are presented in Annex 1.4. The demand forecast requires the regionalizationof the global demand in the nine consumption regions'. Energy requirementsare estimated adding distribution losses to sales (for this purpose distribution losses include sub-transmission losses). Distributionlosses are high in Argentina due to the poor conditions of the networks and a high incidence of electricity fraud and theft. Total distributionlosses reached 19.8% of the energy supplied in 1991. This has been highly influencedby SEGRA, because of its high losses (about 250) and its share of market (40%). Despite loss reduction programs being developed by SEGBA, losses have not actually decreased, however, it is expected that they progressivelywill in the future, as a result of improved commercial practices brought about by the privatization of its distribution facilities. For purposes of the power and energy balances, the SE and the appraisal mission agreed that distributionlosses would be progressivelyreduced to a reasonpble level of 13.8* by year 2000. This level of losses is composed of 12% technical losses and 1.8% of residual non-technical losses2. Results of estimates of distributionlosses and their progressive reduction are shown in Attachment 1, which also shows the total energy requirement at high voltage transmissionlevel for the whole country under both demand scenarios.

NIS Enerav and Power Reauirements

2. As the Yacyreta project (and all other major generating facilities in the sector expansion plan) will supply its power to the NIS, Attachment 1 also shows the energy requirementsfor the NIS. It can be noted that the NIS has progressivelyabsorbed isolated systems and will continue to do so, i.e. the NIS represented90* of the total country consumption in 1991; that proportion is expected to increase to 93* by 2000.

3. The NIS power requirementsare based on a study of the NIS load factor (the ratio between the yearly average power demand and the maximum power demand that is expected during peak hours). Load factors are estimated for every month in the period of the study. It has been found that the most critical month of the year for purposes of the energy balance is August. To

Northwest, Northeast, Central, Coast, Cuyo, Buenos Aires metropolitan area, Buenos Aires province, Comahue and Patagonia

2 The total elimination of non-technical losses are deemed not to be cost effective. Page 2 of 3

estimate the generation requirements,losses in the transmissionsystem should be added.

NIS Current Installed Caoacitv

4. Attachment 2 presents a summary of the NIS's existing generation facilities. Total installed capacity amounts to 12,031 MW of which 42% is hydro, 8 nuclear and the remaining 50 thermal. It should be noted that, because of the high hydro component of the NIS, requirementof new additions to cover increases in demand are defined by the energy balance and not by the capacity balance, as usually happens in a mostly thermal based system. For example, in a dry year (definedas one whose probability of occurrence is one in twenty) the energy generation of all hydro facilities (5,077MW), would be 11,511 GWh. This corresponds to an average 26% plant factor or only the energy correspondingto 1,314 NW of constant power. This contributes to a rather high reserve margin when measured with regard to the total installed capacity.

Power and Enerav Balances

5. Power and energy balances are based on the application of a complex operations simulation model developed by the SE. Attachments 3 through 6 are the 1992-2000 energy and power balances for the NIS under the high and low demand scenarios, for both normal and dry hydro conditions. Conclusions are as follow:

(a) Under the Hiah Demand scenario, completion of Yacyreta in the years 1994-1998, of Pichi-Picun-Leufuin 1996, and of Atucha II in 1997 are required to supply the demand with adequate reliability. Additional capacity would be needed in 2000. Least cost expansion analysis has shown that these additions would consist in a total of 855 MW of gas fueled Combined Cycle (CC) plants, half of which would be installed in the Buenos Aires metropolitan area and half in the Northwest area. Under the reformed institutional setup, such generation expansion would be left to private investors. Since the implementationtime of CC plants is about six years, including four years for construction, it seems that no decision on their comnitment is necessary before 1994.

(b) Under the Low Demand scenario, completion of Yacyreta could be delayed by one year and c.mpletion of Atucha II could be delayed until 1999. From the economic point of view, however, delaying of Yacyreta would result on a higher NPV, as-the economic average generating cost of Yacyreta (at 12% discount rate) would be lower than the marginal thermal generation cost (fuel only; assuming natural gas at an OCC of US$ 2.0/million BTU). With regard to Atucha II, no reprogramming is advisable on the grounds of a low demand scenario. The SE will follow up on the market evolution and in case the current low demand scenario represents the most probable trend, it will analyze the convenience of such reprogrammingin the light of the status of the civil works and equipment manufacturing,and possible contract penalties. Page 3 of 3

System Reliability

6. The application of a stochastic system reliability model developed by the SE for assessing security of supply indicates that except for the years 1992-1993, system reliability indices are adequate. For 1992 and 1993 the low level of availabilityof the part of the thermal facilities leaves the system in critical conditions for either demand scenario. Under the High Demand scenario, the probability of energy shortages is high: 1,100 GWh in 1992 and 1,000 GWh in 1993 for a lS probability of occurrence; 770 GWh in 1992 and 400 GWh in 1993 for a 301 probability of occurrence3. The commissioningof Piedra del Aguila and the first units of Yacyret& is expected to improve substantiallythis situation.

3 Figures would be slightly lower for the Low Demand scenario. ANNEX 1.4 Attachment 1

ARGENTINA YACYRETAII PROJECT

NATIONALINTERCONNECTED SYSTEM AVAILABLEINSTALLED CAPACITY BY AUGUST 1992 (1) (MW)

Combined Gas Total Utility Hydro Nuclear Cycle Steam Turbines Diesel MW %

SEGBA 2132 307 2439 20 ESEBA 852 176 23 1051 9 EPEC 178 233 274 11 696 6 AyE (2) 825 86 1267 535 13 2726 23 - Comahue 20 28 22 70 1 -Cuyo 628 86 112 93 919 8 - Utoral 846 58 904 8 - NEA 40 168 208 2 - NOA 177 241 194 13 625 5 - Rio Grande 0 0 CNEA 947 947 8 HIDRONOR 2833 2833 24 CTMSG (3) 1103 1103 9 Others 138 60 38 236 2

TOTAL MW 5077 947 86 4484 1352 85 12031 100 |TOL % 42 8 1 37 11 1 100

(1)Annual peak demad usuy ocurs InAugust (2)Does not Include Lulan de Cuyo 3 (125MW, out of erwvicewit anexpbded boierand twe Rlo Grance pumpingsonrage faclm (750MW) which Is noteted to contuibuteto te cwegybalance In net fewyews. (3)Only the Argentnecomponent b accounted for (presenly58.4%)

Fie:CAP.92.WOI TAMTflCIM II v1 "r.5 Enm R.quernwt Cp

COUNTRYAND NATIONALINTERCONNECTED SYSTEM (NIS

HIGHAND LOW DEMAND SCENARIOS

PuWceSerw _ Obibution~ andtSublasmsiobn Loss I Requirements(2 Yew Consumpton Technicl | O1r (3) I Total TotI NiS 4 (GWh) I (%) ( I _ GWh) % (GWh) (GWh (%) A B I C-B/H °0 E-Q/H IfB+C G-F/H IH-A+GI I JUl/H

A.-HIGH DEMAND SCENARIO | 19911 387541 631 13.81 2867 .9 9550 19.81 4830414330 90.

102- 40659 6824 13.8 2850 5.7 9783 19.4 50442 45659 90.5 1993 43518 7303 13. z2eo 4.3 9501 18.1 53109 4824 9009 1W94 48805 7763 13.0 1848 33 9611 17.0 56416 51888 9zo 199 50084 8216 13.6 1401 2.3 9617 1.1 59671 55017 92.2 10N 53819 8696 136 ON 1.4 m0 18.2 63124 88328 924 1007 57307 9219 13S 363 0.5 9582 14.3 86889 61834 92.4 1990 61028 903 13.6 270 0.4 10073 14.2 71101 6s87 9ze 1999 65008 10426 13. 166 0.2 10592 14.0 75600 701668 98 2000 62 11116 13.6 0 0.0 11116 13.8 80348 74710 93.0

S.- LOWDEMAND SCENARIO I 1l01 387541 63 13.8 2867 5.91 -9850 19.81 48304l 435301 9o.1

1992 40680 6824 13.0 2859 &.7 9783 19.4 50442 48688 90.5 1W93 42906 7219 13.6 226 4.3 9480 18.1 82446 47710 91.0 1994 45621 782 13. 1794 33 9376 17.0 54897 S067 9Z1 199 48092 7924 13.8 1324 23 4 16.1 57340 83028 sz. 1996 50619 8285 13.8 22 1.4 9107 15.2 59926 58519 sz2 1997 538J 6678 13.6 276 0.4 6956 14.3 62641 58137 sz9 1996 56617 0120 13.6 162 0.3 9302 14.1 65819 61194 9Sz 1999 59616 9587 13.8 78 0.1 96 14.0 69261 64430 93.0 2000 62799 10038 13.8 0 0.0 10036 13.6 72837 67844 93.1

1991Actual 0Datr 922000 Proecte (1) EnergyDevd to Ow Pubic Seio T N Netwdk (dos notIncltde HlghVolt T _enmslonLoe") (2) Oltr Loom we Fraud plus HighorUn NomaI Lose dw to Sysm DetdraloeLack of Invesnett Technal Los1e Incud a Low Leel of Faud (1.8%) I_ e Elblon wouldnot be Cost-ENecl (3) NIS Eer Requemnl Inude de Gdu Intgrmon of Ioated Systemsto Ut NIS

Fle:ENeMNIS.WOI CA8E: HBOSCE -NOAV VLCON

IS1901} I 1#12 1 IS93 I 1ts90 ssai115 I * I *wg 1 1 Cbl E b~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1 11996 2000 1 EE lqqwa6 C E q "vc11 F.@ 1 15t "4 1 4 1 0t I Ft I 1 4 I W4| eq1 t4 1Pt4 _~~~~~~~~~~~~~~~~~~PW I &M"VI wm PA4 wh UN 7 3530 6171 5 am 825 gm Sim5166 Om2706 T 540 207 55017 10421 5032 11043 6124 i1766 So1 231 s4o 2610 t05 325 am 12534 70166 13346 0 OumiGln_tlush *U 34 1504 395 1719 495 6 44070 0376 46220 a 49119 2052 496 224 45 2243 ss 52942 1tl61 56201 1005 6950 11430 63613 12281 67919 13022 72409 13541 713 Bt.SIWPLY

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ARGEtNTIN

YACYRETA II PROJECT

Finances of the National Utilities

1. This annex shows the financial results of the reforms launched by the Governmentto improve efficiencyand reduce the financialgap of the national power utilities (AyE, SEGRA, and HIDRONOR).

Key Data

Key Market and OperationalData (a. of December 31, 1991) l Description AyE HIDRONOR SBEGkA Effective Installed Capacity (MW) Hydro 1/ 2,113 2,883 l Thermal 1/ 2,705 2,439 Annual generation Gwh 16,365 5,911 10,488 500 kV line km 2,887 3,769 218

Energy losses % 25 Annual sales Gwh 22,400 6,230 24,262 Customers thousand 413 1 4000 Employees 11,237 1,500 22195 1 AyEiflaude infPed capacity inisolate systems.

Institutional Framework

2. The Government is implementing the following schedule of privatizaticon and transfer of assets:

(a) &wE.

(i) transfer of the remaining distribution systems to the following provinces of Rio Negro, Formosa, Santiago del Estero, Tucuman and La Rioja (starting July 1, 1992);

(ii) transfer of the remaining irrigation services to the following provinces of La Rioja, Chubut and Santiago del Estero (starting July 1, 1992);

(iii) transfer of the 132 kV sub-transmission system to the provinces (starting July l, 1992)

(iv) transfer of service to final customers to the provinces (starting July 1, 1992), except in the isolated Patagonia system;

(v) sale of the 500 kV transmission system by December 15, 1992; Page 2 of 6

(vi) sale of the following power plants, with the start of the bidding process by:

large thermal plants:

Guemes (245 MW) June 30, 1992; Sorrento (226 MW) June 30, 1992; San Nicolas (670 MW) July 15, 1992; Alto Valle (77 MW) July 31, 1992 Lujan de Cuyo (245 MW) August 31, 1992;

large hvdro plants:

Nihuiles (259 MW) August 1, 1992; Futaleufu (448 MW) August 1, 1992;

small hydro power plants: September 1, 1992; small thermal power plants February 28, 1993.

(vii) transfer of all the remaining thermal plants to the provinces y July 1, 1992, except the Patagonia system;

(b) SBGB:

(i) sale of the 51% of the transmission and distribution companies (created by spin-off of SEGBA) to the private sector, as follows:

(1) EDENOR, sold to a consortium formed by ASTRA, Argentina (40%); Electricite de France, France (20%); Empresa Nacional Hidroel6ctrica del Ribagozana, Spain (20*); ENDESA, Spain (10*); and Societe d'Amenagement Urbain et Rural, France (10%), on August 31, 1992;

(2) EDESUR, sold to a consortium formed by: Perez Companc, Argentina (40.5%); Chilectra Metropolitana, Chile (20%); ENERSIS, Chile (19.5%); ENDESA, Chile (10%);.and PSI, USA (10%), on August 31, 1992;

(3) a company comprising the area of La Plata (with some 6* of SEGBA's consumption) will be sold by December 31, 1992.

(ii) sale of the following large thermal plants:

(1) 60* of the generation company Puerto comprising Nuevo Puerto (420 MW) and Puerto Nuevo (589 MW), sold to a consortium formed by CHILGENER, Chile (82.5*) and CHILQUINTA, Chile (17.5%), on March 19, 1992;

(2) 60% of Costanera (1260 MW), sold to a consortium formed by: ENDESA, Chile (50%); Perez Companc, Argentina (25*); ENERSIS, Chile (15%); CHILECTRA Metropolitana, Chile (55*); and PSI, USA (5%), on May 15, 1992; and Page 3 of 6

(3) Dock Sud, Dique and Pedro de Mendoza (397 MW) starting September 1, 1992; (c) HIDRONOR:

(i) sale of the 500 kV transmission system by December 15, 1992;

(ii) sale of the khydroplants assets (2833 MW in operaticn and 1650 MW under construction) by December 1, 1992.

Electricity Prices

3. The Government policy on electricity pricing, which is in line with the overall country policy of letting market forces establish prices of goods and services, is described in Annex 1.2. Since August 1, 1991, a new methodology is in force to set energy prices at high voltage level based on short-run marginal costs, which is compatible with the new electricity law of December 1991. Bulk electricity prices for the national utilities sales are, on average, around US cent 4.5 per kWh, which is also in line with the estimated average long run marginal cost.

4. SEGBA's electricity tariff to final consumers includes a rate base SEGBA Electricity Tariff and Cost plus VAT (16%) and province (9%) and national (1.2%) taxes. SEGBA's average 1 rate base is estimated to bp about 12* ...... lower than standard cost. As shown in the attached figure, rates of 9 residential consumers are lower by about ..- ... .. 24* as compared to standard costs, while i . rates of commercial consumers are 4* slightly higher than standard costs by - 6%, and rates of industrial consumers are about 5* to 11* lower than standard aOr LV i,urtrU lnd,r W costs. The difference between the average rate and the standard cost could _ wuwff EMeakmbrcom be addressed, for instance, by correcting the residential and HV industrial categories with a rate increase of about 15* SEGRA rates are far from covering the actual costs because of SEGBA's overall inefficiency and, in particular, the high degree of fraud and theft of energy (over 25%). Rate levels do not seem to be a hurdle to the privatization of SEGBA's distribution. A streamlined organization, an efficient management with minimum turnover, a 10% average rate adjustment, and a sound debt equity structure would be the key steps for a profitable distribution utility.

5. There are significant differences among provinice utilities as similar consumers pay prices which are considerably scattered and without relation to their corresponding estimated economic cost (Attachment 1). This has been caused in part by the difficulties associated with the management of the utilities prices in a high inflation environment and the autonomy of the provinces to set their own rates. This issue is addressed in the recent IDS loan for the reform of the national utilities, which provides as condition for disbursement of the second tranche the preparation of a strategy to solve the proolem, and as condition for the third tranche, a satisfactory implementation of the proposed strategy. Past Financial Performance

6. The financialperformance of the national utilities has shown considerable deteriorationin the last 10 years. The main reasons for this deteriorationare: (a) electricityprices (which were adequate during the seventies) have not been adjusted as required to keep up with inflation; (b) power utilities had to rely on long and short term debts due to the gradual reductionof Government contributions; and (c) high level of interest rates. Electrical and energy funds, a major source of investment financing, were reduced by tax reform and partially apportionedby the Treasury. A tax reform set up in 1990 obliged the power utilities to pay taxes on operating fixed assets. The changing economic policies in the late 1980s resulted in a deteriorationof financial discipline among public sector entities. These reasone caused problems to the execution of the sector's investmentprogram and debt serv..ce.

7. During the last four years, the Government has transferred to the national utilities about US$1.9 billion to cover the operational and capital gaps, as follows:

Government Contributionto National Utilities (in US$ million) Utility 1988 1989 1990 1991 TOTAL AyE 259.0 143.1 168.0 60.3 630.4 HIDRONOR 257.6 53.6 178.5 476.4 966.1 SEGBA 82.0 66.1 13.0 149.0 310.1 TOTAL 598.6 262.8 359.5 685.7 1906.6 Note: It includeselectical finds

8. Poor performance of Ay' Is management led to progressivedeterioration of the financial situation, as reflected by the poor collection period (2.3 years of billing). AyE's total revenue amounted to US$630.4 million in 1991, while the total operating cost amounted to US$877.1 million, thus resulting in an operating shortfall of US$246.7 million (Attachmernt2). Internal funds were insufficientto cover debt service payments, which were supported with Government funds.

9. HIDRONOR's total revenue amounted to US$183.9 million in 1991, while the total operating cost amounted to US$101.8 million, thus resulting in an operating surplus of US$82.1 million. Internal funds were insufficientto cover the heavy burden of the debt service and the sizable investment program, thus requiring Government contributions.

10. SEGRA's total revenue amounted to US$1492.0 million in 1991, while the total operating cost amounted to US$1821.0 million, thus resulting in an operating shortfall of US$329.0 million (Attachment2). SEGRA's equity was negative due to the accumulated heavy financial losses because of successive poor operating results. Internal funds were inaufficient to cover debt service payments and investment,which were financedwith Government funds. The level of investmenthas been extremely reduced, because of lack of counter-part funds to match the Page 5 of 6

financingavailable through the SEGBA V Project (Loan 2854-AR) for the acquisition of equipment and materials

11. Tne total indebtednessof the national utilities amounted to US$5.5 billion by December 31, 1991 (Attachment3). They owed about US$ 1 billion in arrears to the external financial institutions,and about US$1.4 billion to contractors and suppliers. Currently, the Government is negotiating the rescheduling of the foreign debt with commercial banks. A consolidation law was enacted in October 1991, to clear commercial debts among Government aq'ncies through consolidation bonds (16 year amortization, 6 year grace, and interest capitalized during the grace period); the interest rate and conditionsof payments are establishedin the correspondingregulation issued at the end of 1991.

Future Financial Performancs

12. The Government included about US$900 million in the national budget for 1992, to cover the financial gap of SEGBA (US$239million), AyE (US$293million), and HIDRONOR (US$371million). Additionally, the Government would provide funds to HIDRONOR to improve its financial position, thus making it more attractive to private investors.

13. The Governmentwould transfer the assets of the national utilitiesto private investorsas follows: 60* to private operatorsunder internationalbidding (51 in a few cases); 10% to employees in accordance with a program to be established in the near future; and 30% to the general public through the sale of shares in the national capital market. The property of the national u:ilities should be transferred to private investors in accordance with the schedule described in paragraph 2.

14. The privatizationof the national utilities would reduce the burden of the sector on public finances. It is estimated that the Governmentwould receive about US$4.0 billion for the sale of assets of the national utilities according to the following scheme:

Busina Unit OperatorI Enmployee's cCapital TOTAL Participation Market

SEGBA

Puerto Nuevo andNuevo Puetohermal plant 92.0 17.0 66.0 | ,5.0

Coanern ThermalPlant 99.0 19.0 76.0 194.0 Dock Sud n.a. n.a. n.c.

Diqueand Pedro de Mendozanerrml Plants 23.6 3.8 I!.2 38.6 SEOBA'sDisbtribution North andSouth 939.0 180.0 720.0 1839.0

A yE______

LujendeCuyolhermal Pant 9.0 1.5 6.5 17.0

GuemeaTbermal Plant 47.0 9.5 36.0 92.5 Sorrento ThermalPlant 2.5 .5 2.0 5.0 SanNicol, ThermalPl nt 37.0 7.0 28.0 72.0 Page 6 of 6

AltoValle Thennal Plant n.a. n.a. n.a.

FutaleufuHydro Plnt 64.0 10.7 32.2 106.9 Transmissionystem 48.5 9.5 37.0 95.0

SmallTherm' Plat n.a. n.a. n.a. Nihuilesand Small Hydro plants 98.5 19.0 75.0 192.5 HNDRONOR

Hydro-GeneratingPlants 452.0 88.5 345.0 885.5

TranamnisionSystem 125.0 24.0 95.0 244.0 TOTAL 2037.1 390.0 1529.9 3957.0 n.a. = not yet available / It does not includeliability of the businessunit.

15. The Government would serve the external financial debt of the national utilities. For the period 1992-1995, the accumulated debt service of the national utilities is expected to amount to about US$2.7 billion, according to the following schedule:

Debt Service of the National Utilities (In USSmillion)

1992 1993 1994 1995 TOTAL Amortization AyE 47.0 42.9 78.1 112.2 280.2 HIDRONOR 104.5 141.6 135.5 165.7 547.3 SEGBA 66.8 64.6 67.9 64.9 264.2

Inerest AyE 181.6 184.2 223.1 162.9 751.8 HIDRONOR 107.7 106.2 99.4 91.3 404.6 SEGBA 83.2 119.7 120.8 116.8 440.5

Total Debt Setvice 590.8 659.2 724.8 713.8 2668.6

16. One of the SEGRA's and AyE's main operational issues, overstaffing, would be addressed by an adequate retirement and compensation plan. Such a plan, which would have a cost of US$108 million for SEGBA end US$49 million for AyE will be directly supported by the Government through funding from the recent IDB loan for the national utilities reform program. ARGENTINA YACYRETA HYDROELECTRIC PROJECT II

SEGBA AND NAllONAL UTILITES ELECTRICITY TARUFF 11 (UScenl")

Residential (120 kWhlmes) Commercial (400 kWhlmes) Utility Area with taxes 2V I lo taxes with taxes 2/ wlo taxes UScent % UScert % UScent % UScent % SEGEA Greater BuenosAires 11.17 100 8.58 100 13.25 100 10.91 100 ESEBA Buenos Aires Province 15.61 140 11.99 140 31.81 240 24.71 226 EPEC Cordoba Province 20.47 63 15.58 182 29.21 220 26.24 241 EPESF SantaFe Province 12.85 115 10.76 125 27.33 206 27.01 248 EPEER Entre Rios Province 12.38 111 7.46 87 25.77 195 18.32 188 EPEN Neuquen Province 10.71 96 8.15 95 23.62 178 21.22 195 SESSE San Juan Province 17.40 156 14.57 170 38.17 288 30.17 277

Industrial LV (166 kWhfmes) Industrial MV (830 kWh(mes) Industrial HV (576 kWh/mes) Utiliy Area with taxes 21 wlo taxes with taxes 21 w/o taxes with taxes 21 wlo taxes UScent % UScent % UScent % UScent % UScent %I UScent % SEGBA Greater Buenos Aires 14.27 100 11.75 100 7.93 100 6.53 100 5.04 100 ESEBA BuenosAires Province 4.15 100 2/ 19.08 134 16.17 138 11.32 143 ._3 147 EPEC Cordoba Province 8.89 176 7.53 181 16.46 115 13.55 115 11.03 139 9.08 139 9.05 180 EPESF Sarta Fe Province 7.45 180 17.13 120 16.93 144 10.38 131 10.26 157 7.19 EPEER Entre Rios 143 7.1 171 Province 14.22 100 12.01 102 9.38 118 7.92 121 EPEN Neuquen Province 14.99 105 14.81 126 8.02 101 7.92 121 SESSE SanJuanProvince 5.84 116 5.77 139 17.21 121 17.01 145 11.37 143 11.24 1721 I/ Taiffs ae referred to the typicalconsumption shown in cach column. 2V Taxer ANX15ATI Tariffs includenational taxes(12%) and provincialtaxes accorditg to the detail shown below. Residential tariffsalso includeVAT(18%) ESEBA tariffs also includemunicipal taxes (6%) for commerdal and industrialcustomers

Provicial Taxes(%) Residential Cmmercial Industrial ci SEGBA 9 20 20 o ESEBA 9 20 10 EPEC 10 10 20 ePESF EPEER 39 39 17 EPEN 10 10 SESSE 25 ARGENTINA YACYRETA HYDROELECTRIC PROJECT II

Combined Income and Sources and Application of Fund Statements of the National Utilities for 1991 and 1992

1991 1992 21-Ua"-W AyE HIDRONOR SEGBA TOTAL AyE HIDRONOR SEGBA TOTAL

Energy Sales (GWh) 22400 6230 24262 52892 12051 4534 12133 28718

Averago Electricity rates (U8centjkWh) 2.8 3.0 5.9 4.2 4..4 S.3 7.2 5.7

Gross Operating revenues 630.4 183.9 1492.0 2306.3 538.1 242.0 871.1 1651.2 Eectricity Sales Revenues 618.0 183.9 1428.0 2227.9 529.0 242.0 871.1 1642.1 Transrrisson Fess 2.3 0.0 0.0 2.3 5.5 0.0 0.0 5.5 Other Revenues 10.1 0.0 66.0 76.1 3.6 0.0 0.0 3.6

Operating expenses 877.1 101.8 1821.0 2799.9 741.2 102.8 1099.3 1943.3 Labor 272.8 51.0 453.0 756.8 265.6 26.7 263.4 555.7 Materils, sewvices,and other 91.8 28.8 149.0 269.2 77.4 23.4 94.5 195.3 Fuel 247.7 0.0 271.0 518.7 192.1 0.0 102.3 294.4 Electriciy Purchased 107.0 0.0 732.0 839.0 151.0 0.0 586.9 737.9 Tranrrission fees 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Royalifes 7.6 29.1 0.0 36.7 7.7 37.8 0.0 45.5 Taxes 24.8 3.6 103.0 131.4 15.4 7.4 44.2 67.0 Depreciadion 125.6 9.5 113.0 248.1 32.0 7.5 8.0 47.5

Net Oporating Income -246.7 82.1 -329.0 -493.6 -203.1 139.2 -228.2 -292.1

Grosa Fund Generation -145.0 91.6 -199.0 -252.4 -181.8 146.7 -220.2 -255.3 Net Operating Income -246.7 62.1 -329.0 -493.6 -203.1 139.2 -228.2 -292.1 Non-operating Income -11.0 0.0 2.0 -9.0 -5.0 -5.0 Deprdciabon 125.6 9.5 113.0 248.1 32.0 7.5 8.0 47.5 Other -12.9 0.0 15.0 2.1 -5.7 0.0 0.0 -5.7

DebtService 17.7 218.3 106.0 342.0 164.0 202.4 97.0 463.4 Amortizatlon 9.9 103.8 66.0 179.7 81.0 105.2 49.0 235.2 InterestCharges 7.8 114.5 40.0 162.3 83.0 97.2 48.0 228.2

Net Internal Funding -162.7 -126.7 -305.0 -594.4 -345.8 -55.7 -317.2 -718.7

Govemment Contributions 60.3 476.4 149.0 685.7 293.2 370.5 239.3 903.0 Electricalfunde 49.3 113.5 0.0 162.8 0.0 0.0 0.0 0.0 Equity Contdbutions 11.0 362.9 149.0 522.9 293.2 370.5 239.3 903.0

Borrowings 1.7 139.9 93.0 234.6 15.0 158.6 0.0 173.6

TOTALSOURCES -100.7 489.6 -83.0 325.9 -37.6 473.4 -77.9 357.9

Investments 46.3 1582 77.0 281.5 67.4 353.2 35.4 456.0

Increa"(decr.ase)InWorklngCapl -147.0 108.1 -140.0 -178.9 -105.0 10&S -113.3 -110.0 Other Appilicatons I 22S.3 223.3 0.0 11.9 0.0 11.9

TOTALAPPLICAlIONS -100.7 489.6 -63.0 325.9 -37.6 473.4 -77.9 357.9 No It ANX1SA72 Attachment 3 ARGENTINA YACYRETAHYDROELECTRIC PROJECT II

Balance Sheets of The Natonal Utilities for 1991 and 1992

1991 1992 AyE HIDRONOR SEGBA AyE HIDRONOR SEGBA

21 May-92 J______Assota 1 58.5.8 509. 3139. 9635.9 4843.8 6

Fixedassets 4843.5 4897.7 2462.0 1962.0 4769.2 140.0 PlantIn Operation 5671.0 2325.0 4053.0 1329.6 1825.0 245.0 Accumulateddepreciatlon 1723.1 89.7 1727.0 266.0 83.4 134.0 Net plantin operation 3947.9 2235.3 2326.0 1063.6 1741.6 111.0 Work In progress v v 895.6 2662.4 1S6.0 898.4 3027.6 29.0

CurrentAsseIQ 1826.4 143.9 605.0 1503.3 37.2 457.0 Cashand Bank 20.0 6.5 48.0 8.0 1.7 6.0 Accountsreceivable 290.0 92.0 283.0 66.8 33.2 132.0 Inventories V 24.4 0.0 11.0 21.5 0.0 7.0 Other 41 1492.0 45.4 263.0 1407.0 2.3 312.0

Other assets 165.4 37.4 72.0 170.6 37.4 72.0

Huan A ablte 835 T39 365 43 669.0

Equity 959.3 3304.3 343.0 1182.0 3220.5 382.0 Capital 3350.7 3128.1 2649.0 727.0 3010.7 538.0 Revaluationreserve 0.0 483.0 194.0 0.0 486.0 194.0 Retainedearnings -2391.4 -309.8 -2959.' e683.0 -276.2 -3236.0 CapitalizedDebt S 0.0 0.0 459.0 3138.0 0.0 2886.0

Long-term debt S/ 3296.0 1139.2 705.0 0.0 1219.6 0.0

CurrentUabilities 2580.0 627.5 1966.0 2453.9 395.7 162.0 Currentportion of L-T debt 81.0 97.2 59.0 43.0 70.2 q2.0 Accountspayable 187.0 28.4 1317.0 56.0 19.9 0 Otherliabilites 4/ 2312.0 501.9 590.0 2354.9 305.6 .

Otherliabilities 0.0 8.0 125.0 0.0 8.0 125.0| NOW ANXISAT3 I/ AySbduiu hip smS taistueaadpmwojssaaIr.yemjisd.ThLSwudusbu. Vf HIONOR W IPWd delA sdP M-Pim-lhyo pri. / HURONORaveasy indu infpat in oam 4/ Ay kE awpo6Wnvewlthhad hfrmpbatereadd

5l rl hue hsthq-sedsM cLAyS.dSEOBA wmibemiiii 19. Page 1 of 5

ARGBNTIN YACYR=TA RYDROZLZCTRzC PROJECT It

The Treaty of Yacvretd

1. The Yacyreta project was launched by the Argentine-ParaguayanProtocol signed in Washington D.C. on February 1, 1926, in connection with the use of the Apipe falls. The agreement between Paraguay and Argentina setting up the "Mixed Technical Commission of Argentina and Paraguay"l!was singed on January 23, 1958. The Ccmmissionwas in charge of the hydroelectricand irrigation study for harnessingthe Parana River in the neighborhoodof the Yacyret& and Apipe islands.

2. The Treaty of Yacyret& was signed between Argentina and Paraguay on December 3, 1973. Since then, the Treaty has been expanded through amendment letters agreed to by both countries. The amendment letters were started in 1973 and, many others were added to the Treaty in the following years until now.

Purs ee of the Treatv

3. The purposes of the Treaty are: (a) to develop the hydroelectricpotential of the Parana River; (b) to improve navigation in the Yacyret& area of the Paran River; (c) to mitigate the effects of severe river floods; and (d) to promote development of irrigation.

Construction and Operation of the Hvdrodlectric CQolex

4. For the constructionand operationof the hydroelectriccomplex, the Treaty provided for the creation of EBYa, a binational entity formed by AyBY of Argentina and AMDER of Paraguay, having equal rights and duties, as well as full legal, financial, administrativeand technical capacity. The Treaty established EBY's capital, administrative bodies and other provisions necessary to carry on EBY'sactivities. The capital was originally fixed at US$100 million, to be supplied in equal parts by both AyB and ANDB and subject to adjustment according to pre-established indexes. The main activities relating to EBY's upper management are concentrated in the Buenos Aires and Asunci6n ofiices, while activities at large are centered on Yacyreta island. There are also offices at Ituzaing6 and Ayolas.

J/ Comid6nMita Tnica Arnina Paguy aJ EBY: EntidadDiad doYacy t

1I AyE: Aguey Enufa mdetica(Waw NW EltWy Conpny,Argetn)

I/ ANDE:Adm_intnc Nmion d gla (Naioa EVy Admizitain Paaguy) uties

s. Hydroelectric complex installations and ancillary works are jointly owned by both countries in equal parts. It has been agreed that such an arrangement will not change country borders or confer upon either country any ownership right or jurisdiction in the construction area. The Parties undertake to guarantee, at EBY's request, any credit transaction required. It has been further agreed that the equipment, manpower, materials or other goods and services will be acquired, wherever possible in equal portions, from available resources in both countries.

6. The following are exempted form all taxes, rates or levies: (a) EBY and any electricity services provided thereby; (b) any materials and equipment acquired in Argentina or Paraguay or from any third country, for use in Yacyret&'s works and installations; (c) transactions relating to such materials and equipment; (d) EBY installations or payments and remittances made by the Entity or any other persons, provided that EBY is legally responsible therefore. No restriction or taxation will be imposed on EBY's movements of funds nor will there be any restrictions on the traffic or storage of materials and equipment intended for the construction and operation of the hydroelectric complex.

7. The power produced will belong to both countries in equal parts and each country will have the preferential right to acquire the portion left unused by the other country, and the Parties undertake to fully acquire the installed power. The power assigned by one country to the other will be subject to a valuable consideration payable by the recipient.

S. The signatory countries undertake to declare the areas necessary for the installation of the hydroelectric complex, ancillary works and operation to be of national interest. EBY is responsible for delimiting such areas with signatory country approval, in addition to paying for the expropriations of such areas.

9. Whenever amendment letters are insufficient, the Treaty is regulated by agreements or Protocols, especially for the purposes of diplomatic, administrative, consular, economic, financial and technical matters. For example, protocols have been established for tax, customs, urban and housing issues and other matters including labor and social welfare, traffic across the international border, law enforcement authorities and security. The Treaty establishes that sluices will be common to the navigation of vessels from both countries and that these will be responsible for sluice management and operation through a special Protocol. Such Protocol has not been considered as yet because it is covered by the joint international ownership of the whole complex. maYIs Management

10. The business and affairs of EBY will be managed by a Management Council consisting of four members, appointed by each country for a period of four years. The duties of the Management Council are: (a) to perform, and enforce perfonmance of, the Treaty; (b) to adopt key management directives; KEY's Management

10. The business and affairs of EBY will be managed by a Management Council consistingof four members, appointed by each country for a period of four years. The duties of the Management Council are: (a) to perform, and enforce performanceof, the Treaty; (b) to adopt key management directives; (c) to adopt the by-laws of the institution; (d) to decide on obligations and loans at the proposal of the Executive Committee; (e) to approve the annual budget and subsequentreuisions; (f) to authorizeall acts involving changes in EBY's equity, with the prior opinion of AyS and ANDB; (g) to determine the conditionsof all services to be rendered by the works and installations.

11. The Executive C- mittee will consist of an Executive Director and a Director, one for each country, who will hold office for a term of five years. These will be in charge of managing the execution of the project. The joint signature of both directors is required in order to assume obligations and appoint representatives. The Executive Director will execute the decisions of both the Management Council and the Executive Committee, and will be responsible for EBY's activities.

Influence on Power Generat40n

12. The Treaty describes the installationsrequired to produce electric power and enhance navigation conditions, as well as the supplementary works associated with the development of the Paran6 River.

13. The Treaty establishes EBY's financial and service bases,,and defines the following concepts:

(a) Supply conditions: this refers to the division of the power generated in equal parts, according to the installed capacity at the power plant. Each company (AyB and ANDE and the companies indicated by them) will enter into eight year contracts with EBY for shares of the xnstalled capacity, according to a given utilization schedule. Each schedule will be provided two years before the date scheduled for start-up of the first generator unit and two years before the end of the first and subsequent eight year contracts. The companies may utilize the power produced by the installed capacity up to the limit established by EBY. Failure to utilize the portion of the power or capacity contracted for within the fixed limit will make entities authorize KBY to assign their portion to other entities;

(b) The cost structure for the annual electricity service, based on the following components:

(i) 12k return on EBY's revalued capital; (ii) annual debt aad interest services on loans received; (iii) compensation to AyE and ANDE, in equal parts, for expenses associated with EBY, assessed as of the date of the Treaty are 166 US$/GWh, as generated and measured at the power plant; P&ge 4 of 5

(iv) compensatory payment to both couniries for flooded territory, to be estimated according to an equation which includes the power generated throughout the year and the unit cost of the "theoreticaleconomic" service. The latter is defined as the direct operating expenses plus a fixed allowance amortizing the total plant investment in the complex, including interest, divided by the power likely to be generated in the mean hydrology year. Such compensation is distributed on a 7OV-30O basis for Paraguay and Argentina,respectively, depending on the area of the flooded territories; (v) compensation for power assignment, established to be at 2998 US$/GWh as of the date of the Treaty. The resulting sum may not be lower than US$9 million; (vi) operating expenses; (vii) balance (positiveor negative) of the operating account for the previous period;

(c) Revaluation of original monetary values. The Treaty establishes a revaluation forimla to be applied to the revenues, compensationsand also, in accordancewith amendment letter of January 9, 1992, to the tariff level;

(d) These provisions will be revised after 40 years from March 23, 1974.

Amendment Letters

14. Many agreements, channelledthrough amendment letters, have been signed by the countries since 1973. Among the more relevant are the following:

(a) The letter relating to the supplementary rules for paying up EBY's capital (April 22, 1977). The rules govern AyE's and ANDE's capital contributions and the capital revaluationsto be made by applying the Treaty's adjustment coefficient. In addition, EBY recognizes, in favor of AyB and ANDE, compensationfor the cash advances made during the constructionperiod. From the month following each cash advance until the start of operations the annual interest rate v,ill be 6* on the adjusted value of the cash advances. If, at the time operations begin, the integral contributions do not cover the required capital the compensation earned will be considered as additional capital contributions. If the cash contributions have exceeded the amounts required the excess will be returned by EBY 25 years following the start of operations payable in 25 annual quotas plus 6% annual interest on the balance;

(b) Accounting currency (September 15, 1983). The US dollar is established as the accounting currency to replace the Special Drawing Rights (SDR). This leaves without effect the letter of July 27, 1976 establishing the SDR as the accounting currency. Page 5 of 5

15. The last three amendment letters were signed on January 9, 1992. These refer to the following subjects:

(a) The tariff to be paid to EBY for the power was fixed at 0.03 US$/kWh (at prices of December 1991, to be readjusted by the Treaty index). Besides, Paraguay will receive as a partial payment 0.00175 USS/kWh with respect to the annual compensation established in the Treaty. This partial payment will take effect from the beginning of the power generationand will be in force for a 10 year period. The unpaid part of compensationwill be accumulatedand after a period of grace of 15 years will be repaid by EBY to Paraguay in eight annual quotas without any interest. On the other hand, Argentina gives up the right to earn future interest on the debt incurred by EBY with the Argentine Treasury effective the date of the amendment letter;

(b) Most of EBY's activities will be concentrated in the site, and a management control sector will be included in the EBY's organizational structure. By February 29, 1992, EBY's employment will be reduced to a maximum of 360 persons.

(c) The period to start power generation is establishedas between March and September 1994. Power generationwill be carried out at a reduced scale, namely from a dam level of 76 m in the first year, 78 m during the three following years and thereafterat 84 m, which is the full- scale operating level of the project.

Influence on the Leaal Pramework

16. Of the Protocols signed between the parties for the operation of the Treaty, the most important are:

(a) The Labor and Social Welfare Protocol establishes a single legal system applicable to the labor relations and social welfare of employees,including work and service contractorsand subcontractors.

(b) Accorting to the Additional Tax and Customs Protocol, the Parties regulase the tax exemptionsaffecting the operations, labor, services or elements involved. Such tax exemptions exclude taxes, rates and contributionslevied on the capital of contractork-,subcontractors and suppliers even though they might have a certain bearing on the works.

(c) According to the Surveillance and Security Protocol, the Parties establish a law enforcement and security system which includes the protection and safeguard of persons, and EBY's assets and interests, contractors and subcontractors for works and services,a nd the Parties. Surveillance and security activities will be exercised within the areas defined by Protocol and will comprise construction stages and simultaneousoperation of the undertaking. Page 1 of 5 ARGBNTINA

YACYRETAHYDROELECTRIC PROJECT II

The Yacvrete Hydroelectric Scheme

Background

1. The Yacyret& hydroelectricproject has its origin in studies carried out since the beginning of this century, initially with the main objective of improving navigation on the Paran& River, at the rapids of Apip6. In 1958, the Governments of Argentina and Paraguay formed the "Comisi6nMixta Tecnica Paraguayo-Argentina"(CMT) with the purpose of studying the river's hydroelectricpotential at these rapids and improvementsin navigation. A pre-feasibilitystudy was completed in 1964, and in 1971, an international consortium of consultants,formed by Harza Engineering Co. (USA), Lahmeyer InternationalGNMH (Germany),A.D.B., S.A. (Argentina),Yacyret& S.A. (Paraguay)and Cuyum, S.A. (Argentina)was hired to prepare a feasibility study for the hydroelectric/navigationproject. This study was completed in December 1973, and its conclusions provided the basis for the preparation of the Treaty of Yacyret& (Annex 2.1) which was ratified in that same month by both Governments.

2. The Treaty contains agreements related to:

(a) the creation of "Entidad Binacional Yacyreta" (EBY) to study, design, build and operate the Yacyreta hydroelectricproject and related works;

(b) the co-ownershipof the works to be constructed;

(c) the ratificationof the principle of free river navigation and the constructiorof the necessary facilities to this effect; and

(d) the rules on the use of energy produced by the project.

3. A further step in the preparation of the project was taken in 1974, when Yacyret& hired the consortiumformed by Harza, Lahmeyer and their Argentine and Paraguayan associates to prepare the final design for the project which was completed during the period 1974-1978. On the basis of these studies, the Bank appraised (July 1978) and approved (October 1979) a US$210 million loan to the Government of Argentina for the constructionof the project. Further financial support in the amount of US$250.0 million was provided by the EBectric Power Sector Project, approved in November 1988 (Loan 2998-AR). Project Description

4. The project is located on the Parana River, the international boundary between Argentina and Paraguay, about 80 km downstream from the cities of Posadas (Argentina) and Encarnaci6n (Paraguay). The main objective of the project is to provide base-load hydroelectric energy for Argentina's power sector. Other objectives are to improve navigation on the Parana river by eliminating the rapid. of the Apip6 and to provide irrigation for both Argentina and Paraguay in the provinces of Misiones and Corrientes, and the Department of Itaipu, respectively.

5. In its final stage, the project comprises:

(a) an earth dam, approximately 65 km long (including power house, spillways and navigation lock), with a uniform elevation above sea- level of 86 m, and a maximum height of 42 m, creating a reservoir with an area of about 1,065 knm and a total storage capacity of 21,000 million cubic meters;

(b) two spillways with a total discharge capacity of 95,000 m3 /sec;

(c) a conventional covered power house with 20 Kaplan turbinels' of 155 MW, operating at 71.4 rpm; 20 generators of 172.5 MVA, with a power factor of 0.9, operating at 50 HZ, 13.2 kv, which will produce an average of 19,206 GWh/year under normal hydrological conditions and tranoformers, control equipment, etc.;

(d) fish passage facilities to preserve the fishery resources of the Paran6 river;

(e) a navigation lock which would allow the passage of ships with a maximum draft of 12 ft.;

(f) irrigation intakes, one in each country with a maximum intake capacity of less than l* of the average river flow, to permit the development of agriculture in the lands bordering the reservoir;

(g) the "Arroyos" works: (i) the Aguapey dike, with the same elevation as the main dam, to avoid flooding of lands in Paraguay, including discharge channels to transfer the water to downstreams of the reservoir; and (ii) the Tacuary coastal dike to avoid flooding of urban areas of the Camen del Parant city in Paraguay;

(h) permanent villages to house supervisory personnel during construction and, afterwards, the personnel in charge of the project operation;

J./The power house permits to install intake structures for 10 additional units to be installed in the future, if extra peaking capacity is justified. Page 3 of S

Mi) about 90 km of access roads which will be incorporated to the road systems of both countries;

(j) a bridge, 1,500 m long, over the Afta-Cu& branch of the river needed for access to the project site;

(k) the relocation of infrastructure works such as railways, ports, highways, sanitation works and electric and telephone installations;

(1) the resettlement of about 50,000 persons on both riverbanks as the result of the creation of the main reserv-oir;

(m) an environmental management program, including the establishment of areas for preservation of flora and fauna; and

(n) a S00 kV transmission system to transmit the energy produced at the plant to the consumption centers.

ProleCt NxeCution

6. Enaineerin. A two-stage implementation of the project has been devised as a way to overcome its financial difficulties. In the first stage, the project would be completed at a reduced elevation, thus permitting the postponement of construction works such as the "Arroyos" and most of the relocation &ad resettlement works. The second stage consists in the completion of the postponed works so as to finish the project in its original conception. The selection of the reduced elevation for the first stage was made on the basis of an economic optimization performed by the Consultants, in which the benefits were considered to be the economic value of postponing investments while the cost was the foregone value of the decremental energy generation. This study showed that the optimum elevation for the first stage is 76m -- as compared with 83m, the definite elevation.

7. For the technical supervision of the execution of the project, EBY retained the services of the Harza gng. Co. (USA) together with Lahmeyer International (Germany) and their Argentine and Paraguayan associates, which formod a consortium called Consultores Internacionales de Yacyreti (CIDY). EBY controls the activity of its consultant at the project site through a superintendent of works with a small group of qualified professionals. Given the exceptional size of the project, EBY has also retained a panel of well- known international experts in different disciplines (geology, dam design, hydraulics, etc), to conduct periodic reviews of the dam and structures during construction. After an interruption of about two years, the panel met in December of 1991. EBY has also agreed to submit to the dank for review no later than one year before the expected completion of the dam, a report showing appropriate arrangements tc inspect periodically the dam and related structures during the operation of the project. Page 4 of

8. ConstructionWorks. The main civil works are being executed by an internationalconsortium (SRIDAY)composed of Impregilo S.P.A. (Italy?,Dumez S.A., (France)and several contractors from Germany, Italy, Argentina and Paraguay, under a contract signed in October 1983. The bidding process for executing the civil works began in 1979 through a pre-qualificationof contractors. The proposals presented by the contractors were opened in June, 1980, but the contract was signed only in October, 1983, due to a protracted procurement disagreement between EBY and the Bank. mae works began in 1984 at a low pace because of the economic problems faced by the country, the low rate of collection of the electrical funds and the difficulties encountered by the Gover.nmentin securing external financing. By mid-1986, EBY, under new management, reviewed the design and implementationschedule of the project, and negotiated with the contractor a reschedulingof works which resulted in a two-year delay in relation to the original schedule. Execution of the work has been, since then, technically satisfactory. However, further financial difficultiesimpeded a normal project implementation. As the funds for financing the civil works dried up, the contractor has undertaken responsibilitiesfor seeking commercial financing and has threatened several times with suspension of the works. By the end of the first quarter of 1992, the global progress of the execution of the main civil works contract was estimated at 80%. The status of the uifferent elements of the plant is as follows: (i) the navigation lock structure and the navigation channel is complete; (ii) progress of the dam reaches 90%, (iii) the spillways are complete and; (iv) construction of the power house has reached 901.

9. gauipment. (Attachment 1) The electromechanical equipment was procured through several tenders (turbines,generators, cranes, fish passage facilities, gates, transformers,bus bars, SF6 substation equipment, control equipment, and navigation lock equipment). The manufacturing of this equipment is now proceeding satisfactorily, after the current EBY's management succeeded in clearing arrears and ascertaining that supplies are consistent with the new plant commissioning schedule. The key to this normalization was the renegotiationof the Argentine Government with its international creditors, thus allowing the U.S. Eximbank to resume disbursementof its US$400 million line of credit for the financing of the turbines being manufactured by VOITH. Three contracts for the electrical equipment have not been awarded yet, including the one for transformerswhich is now in the critical path of the project implementationSchedule. It is expected that the transformer contract be awarded by the end of August. The SF6 substation equipment which is also in the critical path, had its contract awarded at the end of July 1992.

10. Current ImolementationSchedule. Together with the two stage construction approach, a revised implementat'on schedule has been prepared. (Attachment 2). Milestones are: (i) completion of dams; reservoir filling at elevation 76 m and starting of first generation unit, September 1994; (ii) operation of the reservoir at elevation 78 m, September 1995; (iii) operation of the reservoir at elevation 83 m, June 1998; and (iv) installationof unit number 20, June 1998. Page 5 of 5

11. Prolegt Cost. The original project cost, as reflected ir the 1979 SAR (Report No. 2342-AR) including physical and price contingencies, was US$ 3,706.3 million, of which US$ 2,187.1 million were local costs and US$ 1,519.2 million were foreign cost. Total current cost estimate is US$5,133 million, of which US$3,744 million is local and US$1,389 million is foreign. (Attachments 3 and 4) Despite the substantial delays experienced by the project, cost overruns have been moderate, as shown in Attachmer_ !', which compares the 1979, 1988, and the current estimates. This attachment dhows that current cost would be 24% over the 1979 estimate in constant terms.

12. Resettlement Asoects. Some 50,000 people will have been affected by the reservoir created by the main dam. Of these, some 8,500 have already been resettled. Implementation of the Resettlement and Rehabilitation program has been slow compared to progress in the civil works. A revised program is presented in Annex 2.7, Attachment 1, which corrects some design flaws of the previous program.

13. Environmental Aspects. The environmental impact that the project will cause is related to the transformation of the river's natural flow conditions and the land flooding of some 57,400 ha in Argentina and Paraguay. Research on the ecological aspects of the project began in 1972, and has continued to date. In 1978, EBY approved a long-range progra&. for the environment coordinated with project implementation that included studies on water quality, fisher resources, river-bank forestry species, development of natural reserves, animal rescue, reservoir cleaning and public health. The implementation of this program has been very slow. An environmental assessment (EA) of the project, in accordance with Bank guidelines, was completed during the April 1992 appraisal of the proposed project. Attachment 2 of Annex 2.7 describes a revised Environmental Management program, based on the RA report submitted by EBY. Page 1 of 4

AROBTMIN

YACYR$TA HYDROELECTRICPROJECT IX

CONTRACTS FOR SUPPLYING OP ELRCTRO=ECHANICALsQUIPxENT

Statusof B&Legution

Contract Y-B1 (T). Annex II. 13 Turbines

QMtraCtor: VOITH-DEW-COMETARSA Rstimated Amount: USS 210 million Financinal': Eximbank (USA), 9 turbines EDC (Canada), 4 turbines Status: Under manufacturing, rate of progress 44%. EBY has paid -he 10% down payment plus 40W of the works. Comments: The EXINMANK and EDC credits are operative again. No manufacturer supplies complete turbines. EBY, which has not yet reached a full agreement with COM3TARSA, has recently agreed with VOITH on the possibility of delivering complete turbinei for units 1-5 and in accordance with the revised plant commissioning schedule.

Contract Y-31 (T). Annex III. 7 Turbinea

Contractor: METANAC Estimated Amount: US$ 117 million FinancAn: Eximbank (USA) Sd-tatug: Under manufacturing, rate of progress 8%. EBY has paid the 18% down payment plus 6O of the works. Comments: The EXIMBANK credit is operative. The reaching of an agreement between HBY and the manufacturers is required to: (i) settle pending claims, (ii) reschedule the delivery of turbines in accordance with the overall project schedule.

Coftrkagt Y-1 (0). 10 Generators. First Grour

Contraetor: Japan Consortium Estimated Amount: US$ 100 million FinanciBg: Exim1ak (Japan) Status: ander manufacturing, rate of progress 6O. EBY has paid the 12% down payment plus 3% of the works. Ccnments: No pending problems with the execution of this contract.

FFinancing to be complemented by EBY. This is footnote valid for all contracts. Contract Y-31 (0). 10 Generators. Second Group

Contracto: Siemuens-GI1 Estimated Amount: US$ 100 million Financina: Not secured yet. S$;atus: Manufacturing has not started yet. Cerments: Though not in the critical path, securing financing for this contract will become imperative by year end.

Contract Y-S2 (PO). Crane.s First Part Contractor: COMTARSA-P&H Estimated Amount: US$ 6.3 million Financing: Eximbank (USA) Status: Under manufacturing, rate of progress 69%. EBY has paid the 4% down payment, plus 68% of the works. Comments: No pending problems with the execution of this contract, EBY is expecting a rescheduling of delivery from the Contractor.

Contract Y-32 (OP). Cranes. Second Part

Contractor: IMPSA-KONe Bstimated Amount: USS 7 million Financin: None Status: Under manufacturing, rate of progress 37%. EBY has paid the 9% down payment plus 28% of the works. Coments: No pending problems with the execution of this contract, EBY is expecting a rescheduling of delivery from the Contractor.

Contract Y-B4. Fish NiaratLon Zacilities

Contractor: RIVA-Calzoni Estimated Amount: US$ 3.1 million Financina: AImTO Status: Under manufacturing, rate of progress 91%. EBY has paid the 6* down payment plus 58% of the works. Comments: Negotiations under way to: (i) settle pending claims, and (ii) rescheduling of delivery from the Contractor. Contract Y-35. Oaten and Stocloas

CEntractor METANAC-SIN EEtimatea Amoun: US$ 124 million Financing: INI Status: Under manufacturing, rate of progress 751. EBY has paid the 4* down payment, plus 701 of the works. Comments: Negotiationsunder way to: (i) settle pending claims, (ii) establish payment calendar, and (iii) reschedule delivery proposed by the Contractor.

Contraet Y-S15. Navication Loak XlactromachanicalHauloment

Cntractor: CAMT Estimated Amount: US$ 30.1 million Financina: IMI Statue: Under manufacturing,rate of progress 921. E3" has p ,' the 2% down payment plus 83% of the works. Cmments: Negotiationswell advanced to: (i) settle pending claims, ae.d (ii) reschedule delivery proposed by the Contractor.

Contraet Y-R9. Transformers

3:n~zBnso: To be awarded Estimated Amount US$ 50 million Financin: Not secured yet. Bidders were requested to provide financing. tatus: Evaluation completed. Award expected by the end of August. Cgc nts: This contract is in the critical path.

Contract Y-1. SL Substation

Cotactor: JAPAN Consortium t4mAtedlAmount: US$ 17h.7 million Financina: Eximbank Japan (851) and suppliers (15). Status Contract to be signed shortly. Coments: This contract is in the critical path. Page 4 of 4

Contract Y-SIO/912. Insulated Busses and Auxiliary Services

Contragtor: Busses: EMA (Argentina) Auxiliary Services: (Siemens (Argentina) Estimated Amount: US$ 28.6 million Financina: EXIMBANK (US$5million) and supplier credits (US$19.0million). Status: Contracts to be signed by August 31, 1992. Cimments: This contract is close to the critical path; only a one month margin remains.

Contract Y-E13, Control and Protection Services

Contractor:To be awarded Estimated Amount: US$20 mill.ion Finaning: Not yet secured. Bidders were requested to provide financing. Status: Fresh prices requested from bidders. Award expected by the end of August. Comments: This contract is not in the critical path.

Contract Y-X14. Coamuter Rauioment

Contract2r:To be awarded Estimated Amount: US$20 million Financinaj:Not secured yet. Bidders were requested to provide financing. Status: Bids under analysis. Award exp' ;ed by mid-September. -zments: This contract is not in the critical path. ARGENTINA- YACYRETA PROJECT EXECUTIONSCHEDULE

Year 1990 1991 1992 1993 1994 1995 Trimester 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 CMLWORKS Dams lrrigon Intakes = = = NavigationLack-

Powerhw _-___t _____ ReservoirFUn __

ELECTROMECHANICALEQUIPMENT - _ FishMigron Faciities Cranes ------GenrationUrnt CommissioEnIng -Unkt1 -Unit5------Utnit10 ------2nd.Quarterl996 -Unit15 - - - - - _=.- Quaer 19i -Uni 20 - - =_.- - - Quaer IM Transformers

-BIddgProccess =- _ _ _ = = _ - M~amdfactuig - - _- _ _ _ _- -Instalatlon/Tests SubStatns InSF6 -BiddingProccess _ - _ -Manwufatun ------lnstalatonjests - AwdladrySetvmes ------… - Protecton and Cont"lEqulpment - - _ _ _ = = = _ =- _ _ _ _ _ Compsfler Systerms ARGENTIMNA YACYRETA HYDROELECTRICPROJECT II

EsUmated Cost of th Hydro Project Component .____ i(1tnuadd1 l 992) 1992 1993 1994 1995 PERIOD 1992-1995 LC FC TOTAL LC FC TOTAL LC FC TOTAL LC FC TOTAL LC FC TOTAL Dirct ProjectCost 103019 212721 315740 101737 220889 322626 88967 Maor 213752 302719 43401 110000 1534C1 337124 757362 1094486 CAviworks 54661 60928 115589 52735 59954 112689 41569 53156 94725 15887 16904 32791 184852 190942 355794 Conructlonequiment 520 4318 4838 460 4480 4940 ArroyosPot.ctonWorkm 552 5373 5925 0 0 0 1532 14171 15703 0 0 0 0 0 0 786 1230 2016 Generatingequipment 3669 5739 9408 4455 6969 11424 -Turbines 21231 52353 73584 15930 41391 57321 -Generalrs 10531 27223 37754 3979 8532 12511 51671 129499 181170 1784 46538 48322 2320 45476 47796 Electromechanlal 2687 31355 34042 1429 24641 26070 8220 148010 1i6230 equipment 21994 45758 67750 13227 52523 65750 9679 Lan 72252 81931 4716 40463 45179 49616 210994 260610 adquieltlonand Indemrdlcatlon 1303 1303 2606 8756 8756 17512 EnvIonment 13102 13102 26204 7692 7692 15384 30853 30853 61706 427 427 854 2145 2145 4290 ReseUlmwsnt 2919 2919 5838 1633 1633 3266 7124 7124 14248 821 820 1641 5170 5170 10340 Infrasstructure 5920 5920 11840 3804 3804 7608 15715 15714 31429 Works 278 278 55S 994 994 1988 1222 1222 2444 592 592 1184 3086 3086 6172 Enginwerng and Administrdon 23564 20964 44528 17218 14970 32188 14340 Engining 11754 26094 9793 7946 17739 64915 55634 120549 9310 6660 15970 6409 3961 10370 5752 Adminibtration 3166 8918 4294 2447 6741 25765 18234 41999 14229 14229 28458 10709 10709 21418 Prlwtatlon 8588 8588 17176 5499 5499 10998 39025 39025 78050 Study 25 75 100 100 300 400. 0 0 0 0 0 0 125 375 500 TOTAL DIRECT COST . it: 122656 23685 8602691168956:285850 54814 108307 225506 328813 :S319041179Ui 171140 402039 81299 1215035 Physlcallonrdngenls 21 5318 5888 11206 6851 7507 14356 6683 7803 14486 364 PrIc. Contngendes v 4047 7691 22496 25245 47741 I 1833 4983 6816 6019 17471 23490 9757 30053 39810 7426 21562 28988 25035 74069 99104 ITaTALHYDRO COMPONET COS 1SS734244.378290 111625 260837 392662 119747 263362:383109 64264 143555 207819 449570 912310 1381880 U hnv, 1992prtebwL 2V USaN bhgId l klb and lZ%tf*rbld=qbd* d 0d..lkno ad m*mm.t 31 b&UM=f b9umbWd6Muu3mts.*EUwUz4.7% P4 f.quiadnb, 193Z* 2.8%:193F * 3.ff: 29W. * .9%;antdl9ff a. - 38%

(z '9 ARGENTnNA YACYIETA HYDROELECTRICPROJECT II

Estmated Cost and Flnancing Pn for te Pedod 1992-1995 of the Hydro Proact Componen t - WsA

1992 1993 1994 .995 TOTAL PERIOD 1992-199 14-At-U LC FC TOTAL LC FC TOTAL LC FC TOTAL LC FC TOTAL LC FC TOTAL

VOTALMHDRa COMPONENT COST- 1337S4 244557- .378291F131825. 260836392861 119747 263363-3831107 644:.143554:207818 44950W9121 W1361660

Direct Project Cost 109843 223124 332967 113783 244636 358619 104185 250204 354339 5319i 134217 187408 380952 852381 1233333 Major CMI works 60467 68577 129044 60290 71429 131719 49378 66547 115925 19598 22418 42016 189733 228971 418704 Contucton Eqipent 527 4378 4905 482 4694 5176 601 5850 6451 0 0 0 1610 14922 16532 Anoyos Prtectin Works 0 0 0 0 984 1616 2600 4770 7936 12706 5754 9552 15308

-Tubinne 21528 59081 74607 16692 43372 60064 11465 29638 41103 4499 9647 14146 54182 135736 189920 -Genefatos 1809 47392 49201 2431 48858 51289 2925 34976 37901 1616 27998 29614 8781 159224 168005 E MwI erWpmn 22300 46483 68783 13860 56457 70317 10538 83333 93871 5332 48843 54175 52030 235116 287146 LandacquIsonandlndmnirlklcon 1480 1480 2960 10276 10275 20551 15976 15976 31952 9740 9740 19480 37472 37471 74943 EnvIronm 485 485 970 2518 2517 5035 3559 3559 7118 2068 2068 4136 8630 8629 17259 P _eetlme 933 932 1865 6068 6068 12136 7219 7219 14438 4818 4817 9635 19038 19036 38074 Irftaesntuche Words S18 316 632 1166 1168 2332 1490 1490 2980 750 750 1500 3722 3722 7444

Enginewing and Admlnaton 23691 21433 45324 18042 16000 34042 15612 13159 28771 11073 9337 20410 68618 59929 128547 Engineng 9439 6901 16340 6716 4394 11110 6262 3741 10003 4855 3062 7917 27272 180 45370 AdminisUbn 14427 14456 28683 11221 11292 22513 9350 9418 18768 6218 6275 12493 41216 41441 82657 PrwtIon8tudy 25 76 101 105 314 419 0 0 0 0 0 0 130 390 520

FINANCING .. 13..3734244557 373291 1S1825-260836 392661 119747 263363 9a81-tC 64264 143554 207818 449570 912310.1361880

Internal fund geneation 8100 0 8100 47048 35752 82800 55148 35752 90900

LocdalBoowings 56312 21549 77861 7724 61549 138823 66928 75861 142789 2672 15617 18289 203186 174576 377762 GownmetLoan wn 53977 21549 75528 77274 61549 138823 66928 75861 142789 2672 15617 18289 200851 174576 375427 CsWd Btank(OPRAC) 2335 0 2335 0 0 0 0 0 0 0 0 0 2335 0 2335

Foeign Borrowings 75422 221008 296430 54551 199287 253838 44719 187502 232221 14544 92185 106729 189236 699982 889218 - Propos iS loan V 67521 76577 144098 39913 47287 87200 25000 33694 58694 3502 4006 7508 135988 161564 297500 rt - PrposI d BIDan Y 0 0 0 5128 5128 10256 6527 6528 13053 4094 4093 6187 15749 15747 31496 - ExportAgenwes 2910 104897 10787 9510 145866 155376 13192 145629 15821 6948 80716 87666 32560 477110 509670 fl - suppfw' Cedt 4991 39S4 44525 0 1006 1006 0 1653 1653 0 3368 3366 4991 45561 50552

OIhrsources 2000 2000 4000 0 0 0 0 0 0 0 0 0 2000 2000 4000 1,/inueutlwseddks _m1dbyWSuUmdwslMu3mnl_ff,fbmhm285-AR(SBG BOAV)Ir ispmoctba d TAN002A4 4 1W lgpa*mddlab(USLl5Um)IdI _ _te _ I eatat bWe NM dwrlq1Uum"dt7. IY l1b vm ndpmadhhlat (IW8S )bvupmd tlob dIII dub c pcdi 299-lL ARGENTINA

YACYRETA HYDROELECTRIC PROJECT II

COST VARIATIONS OF THE YACYRETA HYDROPLANT SINCE THE PROJECrs INCEPTION (UNsmimo) 1979 EsImate I/ 19"6 EtImate 21 Current EsImate Local Foreign Total Local Forsbin Total Local Foreign Total 05-h--92 Direct Construction Cost 1206.1 931.8 2137.9 1289.0 2231.0 3520.0 1663.0 2799.2 4462.2

PreliminaryWorks 103.8 103.8 163.0 178.0 336.0 160.4 177.0 337.4 Operators Village 133.0 123.0 256.0 133.8 122.7 256.5 Main Civil Works 516.8 557.7 1074.5 521.0 924.0 1445.0 676.3 941.2 1619.5 Arroyos Protection Works 43.8 74.4 118.2 Construction Equipment 62.0 188.0 248.0 14.9 249.0 263.9 Generation Equipment 12.8 232.4 245.2 -Turbines 49.0 262.0 331.0 88.8 261.1 349.9 -Generators 7.0 172.0 179.0 11.5 222.2 233.7 Eletro-Mechanical Equipment 66.0 90.3 156.3 94.0 166.0 280.0 123.6 382.7 506.3 Navigation Lock 78.8 51.4 130.2 Land Acquisition and Indemnilicafton 66.4 66.4 84.0 54.0 138.0 149.9 121.6 271.5 Relocation/Resetloement 362.0 362.0 178.0 151.0 327.0 258.0 247.3 505.3

Enginoerlngand AdminltatIon 169.5 53.0 222.5 537.0 536.0 1073.0 545.9 547.4 1093.3

-Engineering and Supervbion 79.5 53.0 132.5 245.0 303.0 548.0 239.2 286.3 525.5 - -Studies 29.0 41.0 70.0 30.1 48.8 78.9 -- Design 12.0 9.0 21.0 102.3 122.5 224.8 -- Supervision 198.0 240.0 438.0 106.8 115.0 221.8 - - Environment 6.0 13.0 19.0

-Othe, Costs 292.0 233.0 525.0 306.7 261.1 567.8 -- Administration and General Expense 90.0 90.0 267.0 219.0 486.0 283.7 247.0 530.7 - -Materials 25.0 14.0 39.0 23.0 14.1 37.1

TOTAL ui 1375.6 984.8 2360.4 1826.0 2767.0 4598.0 2206.9 3346.6 5555.5

Adjustment to convwt to consAnt values for the year of the timat: - Physical Contingoncy 166.4 128.5 296.9 - Price Contingency -29.4 -56.4 -87.6 -81.2 -168 -249.2

TOTAL ADJUS 111.3 3154.02857.S 17".6 2706.6 4505..2 212L77 3176.6 50.

ESTIMATE' ECOST INCREASES

Index of Unit Value of ManufacturedExports 65.5 9.1 105.0 Deflator Index (1979-1.0) 1.000 0.609 0.624 Adiusted Cost1fr 1979Ivalues. 27 S102.9 3310.1 cost increaseinarlntbon to 197_ , 24.6%8 AWCZ13 U DY^i_a1.197~~~~~~~~~~~~~~~~N227 v D r _ @ 2/ ORDPoalmaft , & (E-iXX^|t_> Page 1 of 6 A-RGZNTZXA

YACYRETAHYDRO^SbIZTRIC PROJECT It

REDUCED ELEVATXONOPERATION STUDY

Purnose

1. The Reduced Elevation Option (REO) for Yacyreta corresponds to a phased implementation of the undertaking under the current severe financial restrictions. It was devised as an option to the completion of the project under no financial restrictions --basic option-- and allows the partial completic,n and start up of the project while postponing part of the investmeants required under the Resettlement and Environmental Mb'agement programs (R&MNP)1/. The RBO would permit the project to genevate energy at the earliest date, thus helping EBY earn the funds required to finance the R&EMP and complete the project. The REO is based on recommendations of an optimization study prepared by EBY with the assistance of its consultant (CIDY) which had been agreed upon between the governments of Argentina and Paraguay. This Attachment presents the results of the REO technical studies2/ which have been reviewed by the Bank and found satisfactory.

Oriain of the Pronosal

2. The R&EMP includes works required either to replace existing infrastructure or create new urban areas to resettle population that currently occupy land to be flooded by the reservoir filling. The total R&EMP plus the Arroyos protection works amount to about US$720 million3/, which is a substantial part of tne total investment needed to complete the undertaking. However the accumulated required investments varies with reservoir levels; i.e. they amount to US$43 million for level 76m, US$132 million for level 78m and US$478 million for level 80m (See Fig. 1)4/.

3. While gradual elevation of the reservoir allows for delaying part of the R&EUP investments, it is necessary to define the initial level, and how and when the reservoir would be raised to its final level, so as to maximize benefits. Studies performed by EBY with help from its consultants aimed at obtaining these definitions.

11 Ilor the purposes of this attachment,the R&EMP coss includeirastructure works, and land acquisitionand indemnification. a' f(i)Estudio Coperacifna Cots Reducida,CIDY, July 1991, (ii)Relocalizaciones vs. Operaci6nRestAngida de Yacyret, CIDY, Jun. 30, 1990,(iii) Programaci6nde Yacyrti, CIDY,January 1990, (iv) Plany Justificaci6npara Is Terminacidndel Proyecto Yacyrea con Minimm nversi6ny Cp,eraci6na Cote Reducida,CIDY, May 1991.

The REO studieswere preparedby EBY by mid 1991with pricelevel dataof Januay 1991. Cost sdmttes have been updated for this SAR andmay slightlydiffer from figures indicatedin this Attachment. Thes diferences would not changethe conclusionsof the REO studies. i/ MThbove elevationsrefer to mtne above sa level in the Posadas/Encamaci6n(PE) area, which is the most populatedaffeted area. They are relocationlevels, which are derivedby adding a safetymaugin to the normd taservoirelevation in the Posadsllncarnaci6n ar to provide for wind wave effects. Thee margins aFeas followsfor the reulting relocationlevels: 0.3m for 76m; 0.5m for 77m; 0.7m for 78m, and 1 .0mfor 79mup to the designlevel of 84m. - 2 - Annex 2.2 Attachment 6j Page 2 of 6

Studre

4. The economics of the RBO is based on maximizing the present value of the net benefits stream of the options that would permit the partial postponement of the R&MV investments. Benefits were estimated as the postponement of the correspondinginvestments. Costs were evaluated as the foregone benefits from electricity sales due to the postponementof the plant generationwith regard to the benefits that would have been obtained in the basic option. Net benefits of the reduced elevation options were estimated for different levels (startingat level 76m) and durations,ofreservoir operation at those levels.

5. As there are many options for the prograssive raising of the reservoir, the selected option was based on a sensitivity analysis considering the following parameters: (i) the different time schedules for raising the reservoir level between the minimum technicallypossible level of 76m and the desijn level of 84utl/,(ii) the value assigned to the foregone energy, and (iii) the Opportunity Cost of Capital (OCC). A complete presentationof the large number of options studied is beyond the scope of this attachment, but a sunmary of the approach and the most relevant conclusions a-e shown below.

6. The main assumptions of the study are:

(a) The minimum reservoir level would be 76m. This was defined because of the technical characteristics of the turbines which could not operate at lower heads without unduly risking their physical integrity,

(b) Camnissioning of the first turbine: September 1994; additional turbines to be commissioned within time intervals of 72 days,

(c) Water levels in the Posadas/Encarnaci6n ares for a certain river flow should not be higher than the current levels (i.e. without the dam),

(d) OCC values between 12* and 25 p.a.,

(e) Energy value at generation level: US$30 to 45/MWh.

Net Benefits of the RIo

7. An illustrationof the RBO net benefits is given by Tables 1 and 2. They summarize the results for the different options for two of the several sensitivity cases reviewed (Table 1: 121 p.a. OCC and US$30/MWh energy cost; Table 2: 17* p.a. OCC and US$30/Mwh energy cost). These options are characterizedby the number of months the reservoir would be kept at levels 76m and 78m. The table also identifies, for each duration of reservoir

ulRobcaionlevelof U4m ooreqxodato a au sivoir levelof 83m Inthe Posadaullarndnaa and of 82min thedarn. In rderwto *a revoir levl of 3m Ind a amar de dammuy hAve to be opmatdbow 82nfor aieafi-ow above 35,000 taIS. *3 - Annex 2.2 At.tachment 6 Page 3 of 6

operation at level 76m, what the optimum duratvon at level 78m would be, as well as its break-even duration (after which benefits would become negative). Results

S. The decision on the REO, as presented in this SAR was the result of a careful evaluation of the whole set of options that resulted from the studies summarized in this Attachment, jointly with the schedules for timely completion of R&IMP works that would make the corresponding options feasible. Results of the sensitivity analysis showed the convenience to start the reservoir operation at level 76m, keep it at that level for one or two years, then raise it to 78m and keep it there for about two years, and finally proceed to a gradual raising to the final level 84m. There was a clear economic advantage in ultimately going to the original design level, as opposed to stopping the reservoir filling at any lower level. The pass from level 78m to level 79m was clearly defined in all options as an important landmark; this is because, as can be noted in Fig. 1, investments increase roughly by US$290 million (or 40* of the total) with the raising from level 78m to level 79m, while other incrementalinvestments are more gradual.

9. On the basis of the above results, the Governments of Argentina and Paraguay agreed on a Treaty amendment letter for the implementationof the project under the REO, as follows:

(al September 1994: installationof the first generating unit and impoundment of the reservoir to level 76m;

(b) September 1995: elevation of the reservoir to level 78m, (number of turbines operating at this time would be 6); and

(c) September 1997-June 1998: gradual raising of the reservoir from level 78m to level 83m (turbinenumber twenty, the last one, to be commissionedby June 1998). ANNEX2.2 Attachment 6 Page 4 of 6

Figure 1

YACYRETA11 PROJECT R&EMPPlus Arroyos Prot Works

800- 700- 600i-0

~500 - - -

76 77 78 79 80 81 82 83 84 RelocationLevel (m)

Total Incremental hi,crem.to level 76 ARGENTINA- YACYRETA HYDROELECTRIC PROJECT n Tabe1 ECONOMICEVALUATION OF THE REDUCED ELEVAllON OPTION CASE:12% p.a. OCC; US$ 30/MWh Enery Cost l1*Ia Level:76m; Rasn to Level7m as ndicated

NetPrsent Valued Benefts(JS$ mion)

Numberd Monthsat Level76m Numberof Months 0 3 6 9 12 15 18 21 24 d BothL%wes 3 10.4 11.0 (76 mid 78m 6 17.8 18.4117.7 9 22.5 23.1 2.4 20.6 lMaimum Bwenefits I 12_ 15 23.5 24.1 23.5 21.7 187 . 18 20.3 20.9 20.2 184 15.4 11.3 21 14.7 15.3 14.7 129 9.9 '.8 0.7 ~o8avBenefits 24 7.0 7.6 6.9 5.1 22 Do Ea 30 33 36 39 42 Linelevel 45 Indicates78nL~~~~~~LevlWhen to Move to 78 48 NOTES:

-. 1neIndicates When to Moveto leve 78m.L -LowerShaded Area Indicates taht Beneft areNegate. ResultsIndie that theMaimum Benefts(US$ 25.0 muMon) are Atained wih 3 Monthsat Level76m and 9 MonthsLevel 78m.

file:RRBEN12.wql AAGENflNA-YACYREA IWDOELECTrIC PROJECT U Table2 ECONOMICEVALUATION OF THE EDIUCEDELEVATON OPTON CASE:17% p.. 0CC;US$ 30/MWh EneW Cod Inl Laewl:76nm; Rbsn to Lvl 7&n fhdcade

Nut Posent Valu of Bnfa(UJS$nmMo

Number of Mandhsat Lev 76n NunberwofbMnch 0 3 6 9 12 15 18 21 24 iBOSaL eS 3 142 15.4 27 30 33 36 39 (7amd78nl 6 25.5 2. 289 9 34.3 35.5 12 40.5 41 41.9 41 15 442 45.4 45.5 44.6 42.8 39.9 Ma nea B1eft 18 21 45.3 36.6 46.7 45. 43.9 411.0 37.4 24 43.0 442 44.3 43.4 41.5 38.6 35.0 30.6 27 39.0 402 40.3 39.4 37.5 34.6 31.0 26.8 2Z0 30 33.7 34.9 35.0 34.1 32.2 29.3 25.7 21.5 16.7 11.7 33 27.5 28.7 28.8 27.9 28.0 23.1 19.5 36 20.4 15.3 10.5 5.5 0.3 21.6 21.7 20.8 18.9 16.0 12.4 82 3.4 39 12.8 14.0 14.1 132 11.3 'Pos"tv enefits 8.4 4.8 0.8_ 42 4.8 6.0 6.1 52 3.3 0.5 Elevatio-n3*o1 45 JLevel7am 48

NOTES:

-Un Ind cte Whento Mov to Eleaton 78m. 4LwerShaded han incihda Benefitw Negati. 4Remitl Ideht te Mdmu Benfit (US47.1 tIrn r Atined wh 6 Maat Leel 7m and 12Mont at For 12 MonthOpeation t levd 76m, Leb 78m. do Mabnm Benitb AmnoLmtbUS$ 44.3 mUonwh 6 Montsoat 4Ioer, 12 MonthOpation Levl 78m. at Level76m pks 12 MonthCpealon at Lev 78mYIed B i OMSS41.5 milon) WhichAre NotSubtnt Dflun Fromto Oplhmn

Ue:RROEN17.wql

so rt~ fD 0 t 0: 0Q.0 rnt

Oh Page 1 of 4

ARGENTINA YACYRETA It PROJECT

The Yacvreti Transmission System

Background

1. The construction, operation and ownership of the transmission system associated with the Yacyreta project was assigned by the Government to AyE in the late 71's, when major decisions for financing and ensuring start of construction of the plant's major civil works were being taken. AyE would be the national utility in charge of all extra high-voltage network expansion, except for those directly associated with the plants to be developed by HIDRONOR. Initial studies carried out by the Secretariat of Energy, with financing from Bank Loan 1130-AR to SEGRA, concluded that the expansion of the national transmission system at the 500 kV level would be the least cost solution.!' In 1987, a working group created by the Secretariat of Energy, led by AyE and integrated by HIDRONOR, ESEBA tthen DEBA), EBY, CTMSG and SEGBA, with technical assistance from the Italian national utility, ENEL, completed a detailed study for the definition of the transmission system associated with Yacyreta. This study also took into consideration that Garabi, a joint Argentine-Brazilian hydroproject could be built a few years after Yacyreta's completion with some 1,800 KW installed capacity. The study not only confirmed that the basic development of the national grid should be done in the 500 kV a.c., but also that the Western-Eastern interconnection should also be done in this voltage, rather than in ± 400 kV d.c., as initially planned. The basic system configuration was: (a) two lines running westward from Yacyreta to Resistencia and then one to El Bracho; and (b) two lines running southward from Yacyreta to Salto Grandx~e,via Garabi, and then one line farther south to the Buenos Aires area (Gal. Rodriguez substation). This would correspond to about 2,700 km of 500 kV lines and require the creation of 3 new substations and expnsion of 7 existing substations.

2. These studies were done with the state-of-the-art methodology. A set of design criteria for both static and transient behavior was established to entail performance standards in accordance with the power industry practice with assistance of a linear-programming model. Basic alternatives were developed, considering a few generation expansion programs. Detailed power flow studies were done for both peak and light load conditions to help assess configuration evolution, reactive compensation needs, critical operating conditions and losses. Stability checks were carried out to confirm acceptable transient response to credible disturbances. -Reliability evaluation was the next phase where the most promising alternatives were submitted to a Monte-Carlo simulation in order to define the expected level of energy not delivered by the system. Finally, taking the investments, the

1/ There would also be an interconnection in the north between the Eastern and Western parts of the system, though a ± 400 kV d.c. link (Resistencia-El Bracho). Page 2 of 4

losses and the curtailed energy into account, an economic evaluation defined the economic cost of each alternative for a series of discount factors.

The Currently Planned Svstem

3. On the basis of the configurationdefined in 1987, AyB has conducted further studies to appraise whether changing assumptions as to the generation expansion, load growth and geographicaldistribution, and cost of equipment and materials, would bring about modifications to the planned system. In addition, and more recently, given the financial constraintsof the power sector, some relaxation in the previously high standard criteria was also sought. As a result of these considerations,the connection Resistencia- E1 Bracho is no longer justified and only one more line, instead of two, would suffice along the route Yacyreta-Resistencia. Additionally, the connection Salto Grande-ColoniaElia can be postponed, since under less strict operating conditions it is not a necessary system reinforcementfor transmissionof Yacyreta's full capacity. This represents a reduction of about 1,050 km of 500 kV lines with respect to previous planning.

4. The current program for Yacyreta's transmissionsystem can be summarized as follows:

ED UnE. .. 1 r I

C t Ito 6 07/94 Yayreyt-Rincon,I to m 12 Rincon 4LUIR Fu?t Ito 6 07/94 Rincon-Resistncj 269 Redstencia IUJIR Rincon-Qarabi 127 Rincon IL

Second 7 to 14 I1/9S GGaabi-SaltoGrade 442 Garabi2U1IR --A l . Colona Eia-Gal.Rodriguez 221 C.Elia IL Gal RodriguezIL

Rincon-Garabi 127 Rincon IL B ISm15 to 20 04/97 Garabi-SaltoGrande 442 Garabi2L Salto Grande IL

TOaWl 1,640 17 LUR

The above program does not include expansion in step down transformer capacity (e.g. 500/132 kV), which is necessary along the grid to subtransmitthe power made available by Yacyreta. The costs of the program are summarized in Attachment 1.

I L LAU Bay R- ReactrBay imlementation

5. Given the lack of managerial capacity of AyE, the Government assigned the responsibilityof execution of the first phase of the Yacyret& transmission system (which is the one considered under the proposed project) to an ad-hoc entity (UESTY)created by Decree 1174.92 of July 10, 1992, and operated under the control of the Secretariatof Electric Energy. Given the favorable reaction to the SEGBA's privatization,the Government will call for bids for concession of this 270km link, resting with the winning bidder the full responsibilityfor the investmentand financing. If the bidding process is not successful, UESTY will call new bids for the constructionof the link, the financing then being provided by the Government. These assets would be divested as soon as the market conditionsare favorable. Since the second phase is to be commissionedsome 15 months after the first phase, the Government believes that the private sector will respond with good offers for its development and operation under the regime of concession.

6. UESTY is presided by the Executive Director of EBY, in order to ensure satisfactorycoordination with the plant constructionschedule. UESTY would be in fact a Project Executing Unit (PEU), integratedby five highly qualified professionals: one general manager, assisted by two managers for engineering and firances, each of these being supported by a senior professional. This scheme is feasible because if the concessionbids are not responsive, the Government has decided that the transmissionsystem will be executed under a turn-key contract. The Bank would finance the UESTY management under the proposed loan. The detailed engineering and construction supervision would be provided by a private firm constitutedby former AyE professionals that have worked on the project; Government would fund these services as part of its strategy to develop opportunities for engineering services in the privatizationprocess of AyE.

7. The PEU would be financed under the proposed loan during a period of 30 months (from July 1992 to December 1994). Its budget would be as follows:

US thousand 750 150 staff months at US$5,000 Special Consultants (120 days * 60 US$500/day) Travel Expenses 100 Sub-Total 910 ContingenciesS 10* approx. 90 Total: 1.000 Page 4 of 4

S. The scheduling for mplementation of the first phase is as follows:

Week tn. Month No. Preparation: Draft Bidding Documents 1 Bidding Documents Approved 5 Sale of Bidding Documents 7 Bid Opening 15 Award 19 Contract Signing 21 5 Turn-key Execution: Ready for Generation Testing 24 Commissioning 26

Since draft bidding documents were available on 7 uly 1, 1992, it is expected that the works would be basically ccmpleted by July 1, 1994, thus allowing testing of the first generating unit. Commissioning of the first phase of the transmission system, together with the plant's first unit, would thus happen two months later, oa. September 1, 1994. AROENTINA TAC"tETA HV OEULeCRICPROECr a Yas Tmmbo Sst

YesWselaTmamsndsm Syatem 'I I 03 OA RO ii-s FY e Phase ...... v Uneete_ 118 6.5 17.8 30.0 33.7 04.6 22.8 31.2 44.0 65.0 61.4 126.4 DOedct otet 0.0 5.7 15.6 26.1 26.4 54.5 18.5 C worksWnd assembly 17.2 35.7 54.5 51.3 105.5 4.3 2.7 7.0 11.0 13.4 24.4 7.0 Li 10.0 23.2 qulp*m" and m bhal 24.2 47.4 4.7 3o 7.7 12.0 15.0 27.0 ao 0.1 17.7 Engpnhewlgand admbdsban 25.3 27.1 52.4 0.0 0.0 3.1 51 2.0 2.0 0.0 0.0 Physial Conlbgsndls i* 1.2 0.7 1.0 3.1 3.4 6.5 2.2 2.1 4.3 6.5 0.2 Pile Contgn_s s 12.7 0.2 0.1 0.3 1.7 1.0 3. 2.1 1.0 4.0 4.0 3.0 7.0 PFhissng 11.3 6.5 17.6 3.0 3.7 04.6122.6 21.2 44.0S 5.0 61.4 120.4 Borrowbings GoMment lans a 11.1 0.5 17.6 30.5 33.7 64.2 22.4 21.2 43.6 64.0 61.4 125.4 Proed IBRD 0.2 0.2 0.4 0.4 0.4 0.4 1.0 1.0 Tasyr.it Tmmsmldo System 1 1 1: 1 1 1035C100A Second Phase at . CTTl10 P OA . CTOA't CIT . CTT 10 P TOTU I wte - PARTA w 41.2 44.2 65.4 50.4 00.0 117.0 44.4 47.7 92.1 142.0 152.5 204.5 Dlvret p oft cost 34.7 37.3 72.0 45.0 49.2 05.0 34.7 37.3 72.0 Cbl wals and assembly 115.2 123.6 230.0 14.0 14.7 21.7 168.5 19.C 37.5 14.0 14.7 25.7 Equlpme and matbs 46.5 48.7 05.2 10.0 19.3 37.3 23.7 25.5 40.2 18.0 10.3 37.3 Egln ng 59.7 64.1 123.4 and admniIstraion 2.7 3.3 o.0 3.0 4.4 S.0 2.7 3.3 6.0 9.0 11.0 20.u Physical CeontingNIus 0z 4.2 4.5 8.7 5.5 5.9 11.4 4.2 4.5 PvleConlngmn 8.7 13.9 14.9 26.6 2.3 2.4 4.7 5.1 5.5 10.6 5.5 5.0 11.4 12.9 13.8 26.7 iNVESTMENT - PART B_ 5.0 6.4 12.3 24.7 26.5 51.2 256. 27.5 53.1 0.0 0.4 12.4 02.2 05. 129.0 DOret proZed cost 4.8 5.2 10.0 10.3 CbIworks ad 20.7 40.0 19.3 20.7 40.0 4.4 4.6 9.0 47.8 51.2 99.0 assembly 1.0 2.0 3.9 7.8 6.1 15.0 Equipmen and mdwis 7.6 6.1 15.9 1.8 1.8 3.6 10.3 20.0 30.3 2.5 2.7 4.2 10.0 10.7 Engb,ewing 20.7 10.0 10.7 20.7 2.3 2.4 4.7 24.8 20.5 51.3 .nd administration 0.4 0.5 0.9 1.5 1.9 3.4 1.5 1.9 3.4 0.3 0.4 0.7 3.7 4.7 6.4 Physical Conlngendes *2* 0.0 0.6 PdceCcnlkioendss 1.2 2.3 2.5 4.6 2.3 2.5 4.8 0.5 0.6 1.1 5.7 ______0.5 0.0 1.1 6.2 11.9 3.1 3.3 6.4 4.0 4.3 S.J 1.1 1.2 2.3 6.7 9.4 16.1

N3IVATEnhVB~1S g41.2 44.2 65.4 62.3 67.0 126.31 6A. 74.2 143A8 25.6 27.5 58.11 I/ I, Jmrms.ismsaskV. 0.. 6.0 0.4 12.41 204.2 219.3 743.... Vas , andYtd-31usd. 269km. lied.- Bubtsmb" Ssnm.i_tmDumsand macbled ui8siaUa.wm.U*sm. 21 CemusmosandOpwadaabytJime plata commkeo.m ANX23Ar YI hearn 1 bMd V. 56 km Rb1ud - Gara -S e Gead *d 2l km Cdolb Ell - Gnald Road (loo Afro) oamWm How NW..amod m.abUmus 411 ared It SILl, 569k_ Interest 10.3 138.3 148.6 6.8 153.3 160.1 5.8 170.9 176.7 4.7 168.3 173.0 27.6 630.8 658A6. FINANCING OFPDEBTSERVICE 19.82.4 258.2.17.8 14.4 . 2.7 275.5. 2933 16.7.. 285.4 302.1 66.7 1032.6 1101.3 Govemmentloans 19.8 23MA 256.2 14A 233.3 247.7 17.8 275.5 293.3 16.7 285.4 302.1 68.7 1032.6 1101.3 . AIT6L4 , 48C9NG.. . :. 705.0 6 , .50720.5 8.9 42.I . 509.8 I;8.2 2006.4 2 9.6 1/ In 1992, it includes sale of e"et. ANX24ATI V In 1992, it inludes OPRAC 11(USS23 million) 3/ Starting from 1993,it would be reduced by USS60 milion it trfer from loan 2854-AR (SEGBA V) is approved. 4/ The remaining USS1J milion would finance consultant servk*s for the Resettlement and Environment Progam ARGENTINA

YACYRETA HYDROELECTRICPROJECT II

Project Financing Plan (1992-1995 period) (la Current USSmillion)

Requirements Sources Committed Non-Committed Lel Foreign Toal GOernOL Ezpo Supplie' Proposed Propsd Export SuppIicnsGoverm. Intenal TOTAL _Loan credit credits IBRD IDB Credits Crdits Loa Funds 14-Aug-92 02:S ______I)/ 2/ 3/ ToaI.Irwestmet 514.5 978.8 1488 98.0i811.4.: ::7.5: 298.5 81.5 198.8:i 480 4108 94.84 488.8

Hydro power Plant 449.4 912.5 1361.9 93.0 311.4 7.5 297.5 31.5 190.3 43.0 284.9 94.8 1361.9 MajorcivWaos 189.7 229.0 418.7 1 ;.1 252.1 155.5 418.7 Affoywsro ectmWorb 5.7 9.6 15.3 15.3 15.3 equpmet .1 116.5 545.1 661.6 45.2 311.4 7.5 198.3 43.0 56.2 661.6 E _wmmt,Rcseflment &OtberWorbsl 68.9 68.9 137.8 8.4 7.5 31.5 63.9 28.5 137.8 EM_eringandAdministtion 68.6 59.9 128.5 30.3 37.9 9.3 51.0 128.5

Transmission 65.1 61.3 126.4 1.0 125.4 126.4

DebtService 6,8. 1 . 1101.8 1101.38 : 1101.8

Amortiztions 41.1 401.8 442.9 442.9 442.9 bIter andFnaci alar 27.6 630.8 658.4 658.4 658.4

2/ Thruinliaggu*dosft lMsan(USS4S5ndiUa)Iss-pauIto beid6bured dafta thepulad 1996-1996 ANXC24AT2 2 n l adu&_ a/ Ceinuucdoo.pdna.nd dseromsclan eqdpus 6d lhdu mladaqdddom saadefisdE.do6a.. .iaeUi.wt SI1IwdbnusbUS to.faif ots 64A UI )smr,d VYCcVmHVDROELCCTFC PROJCT= I DY's OrganisatiaChart

of DIRECTORS

Redations r

|General | § Internal

Secretariat Auditin S

] plnndnP PrS;curite Counseling ans

|Land a

andin~~~~~~~~~~~~~~~~~~~~n

~~~~~~~~~~~~~olItan4 1|dNinistrative,| R nironment&| Envirots| Department

Budget ; iVil. Human Uork _aFndnt Engineering_ROsources _ Inspection

| Intract EItriechfnicallEl Goods Stud'e < nXo § t ngneetin F | ~~~~~Services Projects. F

Aoeeounting S ppigA Resettlement |

lo roat-' Sociald Mork

!Environment Page 1 of 3

YACYRETA HYDROELECTRIC PROJEtT II

ESY: Finances

1. The finances of EBY reflect its sole activity, the construction of the YacyretA HydroelectricPlant. The financial projections shown in Attachments 1 to 7 assume that the first generating unit is comissioned in September

Past Performance

2. EBY's investment, excluding interest during construction amounted to US$3.4 billion, by December 31, 1991 (Attachment1). The financing has been based mainly on loans from the ArgentineGovernment (321),multilateral agencies - IBRD and IBD - (351),foreign and local credits (231),and equity contributions from the Argentine Government (2t); the remaining 8e is still unpaid (para.4).

3. The above use and source of funds (Attachment2) have resulted in a balance sheet (Attachment 3) with a k.:edominant proportion of fixed assets (US$6.2 billion or 99* of total assets) ana long term debt (US$5.2billion). The assets composition is typical of a hydroelectric utiliv during the constructior period of its sole plant. The heavy debt (Attachment4) is not particularly worrisome, since the Argentine Government is the main creditor (651); the remaining portion of the debt owed to foreign and local financial banks and agencies (351) is reasonable for a hydroelectric utility. The Argentine Government is in charge of servicing the latter; for this purpose, a provision has been included in the 1992 national budget, and it is assumed that the same would be done during the period 1993-1995.

4. As of December 31, 1991, arrears to contractors,consultants and suppliers amounted to US$283.8 million, of which US$193.4 million is owed to BRIDAY (the main civil works contractor), US$10.4 million to CIDY (the engineering consultant),and US$80.0 million to suppliers and others. As of July 31, 1992, EBY has paid about US$228 million to contractors,consultants and suppl4 ers. The remaining arrears will be cleared in accordance with a financial plan agreed with the Bank.

Future Financial Performance

5. Durini5 the period 1992-2000, EBY's requirement to service the financial debt and pay claims and arrears will be twice as much the investment required for the construction of the hydro power project, as shown in the following table: Page 2 of 3

EBY:Funding Roa irementa(IM2.1998 (In Millonof curent US$)

19921995 1996-1998 1992-1998 Totd Requiremen 2743.0 1939.3 4682.3 InvesmAent 1361.9 785.2 2147.1 Lmina"e 658.4 52C.1 1186.5 Amortization 442.9 S54.8 997.7 VlorkingCapital (includes accouns 279.8 71.2 351.0 payableand claims) __. I

6. To lower the heavy debt service burden (Attachments 5 and 6), the Government and EBY have taken already some measures, such as: (a) the establishmentof a flexible arrangementon repaymentsof the Argentine Government loans; and (b) the inclusion of part of the EBY's financial debt in the rescheduling of Government debt. In accordance with the Amendment Letter #9, EBY's existing financial debt with the Argentine Government is not subjected to interestpayment, and amortizationshould be made only when EBY has the resources available for this purpose, after commissioningof the plant. Similarly, the Argentine Governmentwill continue servicingthe foreign and local debt until EBY has the resourcesavailable for this pt'rpose(after conmissioning of the plant).

EBY:Finsainu Pln (1992-1998) ______a(n millionof curret US$) Period1/ Period Totd Period _1992-1995 199f-1998 1992-1998 To-alFunding 2743.0 1939.3 4682.3 internalFund henedraion 108.4 1282.4 1390.8 EquityContrbution 40.0 40.0 GovenunentLAns for: investment 377.7 377.7 paymnt ofarreas 196.3 196.3 debt oevioe 11013 420.0 15213 ProposedNMRD lo0n 297.5 1.5 299.0 Propoed DBloan 31.5 48.5 80.0 Export agencies' and supplier' oredits committed 389.0 57.1 446.1 unconmitted 241.3 89.8 331.1

1/ It correponds to Projectimplemitaon period, exceptfor technical assisae forthe Reuutlementand Environmentprogram to be completedby December31, 1997. Page 3 of 3

7. These measures have entailed significantrelief to EBY'a finances and have allowed it to concentrate on the financing of the physical constructionof the project. To tinance its investmentduring the period 1992.1995,EBY would rely on multilateralagencies' loans (IBRD and IBD, about US$329.2 miliion), export agencies loans and suppliers' credits (US$629.0million), and Government loans (US$373.8million); the financing of the electrical equipment amounting to US$241.3 million is not yet secured (Attachment7). To ensure the soundnessof the financialplan until the commissioningof the first six units, the Governmen. and EBY should agree to:

(a) present, by October 31, 1992, and each quarter thereafter up to December 31, 1995, sound financial projections for the Project; and

(b) maintain a project account in a local bank to receive Govcrnment funds as3igned in the national budget for EBY, and have it repler4..jhed by the Treasury until the commissioningof the sixth unit (ectimatedby September 31, 1995).

8. During the period 1996-2000,EBY's internal cash generation from energy sales revenues has a preponderance in the funding composition (81), entailing the relation reduction of the Argentine Government loans from 56% in 1992 to 0O in 1999.

9. As shown in the following figure, EBY is financial sustainable EBY: Financial Sustainability in the long term. During the period c 1998-2011, the net internal cash '( generation, after covering the s decreasing service of the foreign debt, would leave increasing margins s for servicing the accumulated debt to Argentina (loans)and Paraguay (Treaty 40 compensations) (see Annex 2.1). It is estimated that starting in 2011, EBY would transfer operating surpluses to its owners. U SE 1 2 3 4 5 o 7 3I 10 11 12 13 15 16 17 1H 19

G 1wku lI 1. &. CaDiI ARGENTINA

YACYRETAHYDROELECTRIC PROJECT II

EBY: Estmated Cost and Flnh clng of the Hydro Powr Plant Component (is Cuaa U&$NtMi)

I nOPOSiD?KOZRCT aTOTALHYDIRO POWER UinihadatbeiD.&31.1i91 ratodW9-99iS I r19ss: PLANTCOST ______~~LC F T Le Po.. TOTA Lb Fe TMTA LC- FOd. TOTL

INVESTMENT8.. 1448.0.1965.4 S408.4 449.012.8 1361.9 S16.4 469.0 785.4 2209.0 3340.7 S55.-7 DirectCost 984.6 1493.8 2478.4 381.0 852.9 1238.3 297.5 453.1 750.6 1663.1 2799.2 4462.3 PreUmaay Woth 160.4 177.0 337.4 160.4 177.0 337.4 Camp 133.8 1227 256.5 133.8 122.7 256.5 MajorCivlworks a/ 473.0 688.5 1161.5 189.8 229.0 418.8 15.6 23.7 39.3 678.4 941.2 1819.6 Coatmalonequipment 13.3 234.1 247.4 1.6 14.9 16.5 14.9 240.0 263.9 Arfoyce Protediao Works 5.8 9.6 15.4 38.0 64.8 102. 43.8 74.4 118.2 aOOaftt4Bqu"lpu6t -TllfbitlU 30.4 117.0 147.4 54.2 135.7 189.9 4.2 8.4 12.6 68.8 261.1 349.9 -eGneratOr 14.1 14.1 8.8 159.2 168.0 2.7 48.9 51.6 11.5 222.2 233.7 BabCrom.caUaml.quipm.ut 61.4 67.1 128.5 52.0 435.1 287.1 10.3 80.7 91.0 123.7 382.9 506.6 LAA aacquislaaand Iad4.hlm¶io, 43.2 14.9 58.1 37.5 37.5 75.0 69.2 69.2 138.4 149.9 121.6 271.5 Bnvireouaat 0.6 7.8 8.2 86. 8.6 17.2 51.9 51.9 103.6 61.1 68.1 129.2 Resettiment 5.4 27.4 32.8 19.0 19.0 38.0 37.6 37.5 75.1 62.0 63.9 145.9 lnutrnctuire Works 63.1 23.4 86.5 3.7 3.7 7.4 68.0 68.0 13W.0 134.8 95.1 229.9

Enginerlng 204.0 263.6 467.6 27.3 18.1 45.4 7.9 4.6 12.5 239.2 286.3 525.5 Studbs 30.1 48.8 78.9 30.1 48.8 78.9 Deslip 102.3 122.5 224.8 102.3 122.5 224.8 Supervuhlon 71.6 92.3 163.9 27.3 18.1 45.4 7.9 4.8 12.5 106.8 115.0 221.6

Adminisration Expenses 254.4 208.0 462.4 41.3 41.9 83.2 11.0 11.3 22.3 306.7 261.2 567.9 Oenersll"Ap S 231.4 193.9 425.3 41.2 41.5 a2.7 11.0 11.3 223 283.6 246.7 530.3 Matralsid' herteowt 23.0 14.1 37.1 23.0 14.1 37.1 Pdivwtlaaon Smudy 0.1 0.4 0.5 0.1 0.4 0.5

FINANCING l 1449.0 165.4 3408.4 ,449.6 tT s 13 9 316.4 .9l7ss. 2209.0. 334.6 5555.6

Net Internal generaton 55.1 35.8 90.9 278.7 269.8 548.5 a33.8 305.6 639.4

Equity Contributon 56.7 56.7 40.0 40.0 56.7 40.0 96.7 Local Borrowings Oowtmmeosloa a 855.5 243.5 1099.0 201.7 173.7 375.4 1057.2 417.2 1474.4 OPRAC Cmntal Bank 75.4 4.1 79.5 23 2.3 77.7 4.1 81.8

ForeignLoaom - ID8S46/OC-RG 210.0 210.0 210.0 210.0 - IDB 3SS/OC-RO 64.3 185.7 2S0.0 64.3 185.7 250.0 - IDBRS/OC-R& 131.3 118.3 249.6 131.3 1183 249.6 - IBRD 1761-Al 72.5 138.0 208.5 72.5 138.0 208.5 -IBRD299$-AR 57.6 192.4 250.0 57.6 192.4 250.0

- Propoud hERD 15.1 162.4 297.5 0.6 0.9 1.5 1S5.7 163.3 299.0 - Propoud IDB 15.8 15.7 31.5 24.2 24.3 48.5 40.0 40.0 80.0 Baport Apades 179.6 179.6 32.6 477.1 509.7 12.7 129.9 142e 45.3 786.6 631.9 Suppilets CredIw 12.9 82.7 95.6 5.0 45.6 50.6 0.2 4.0 4.2 18.1 132.3 150.4 Commerdl banks 446.0 446.0 446.0 446.0

Othersouren I 118.8 167.1 283.9 2.0 2.0 4.01 118.8 169.1 287.9 U Cme41mwd| 56UUl51380 inUIst_ 6AN=ATI V/ Itmeeldb.asbt_UU4O mselmg132lWSaai UI4O_dmtse I 1-1101 itnuiba -bbt los 104A appress 2/ podin autdDerSI. £11leoesma.. 6.154. am t-an hdiumIai 0(5 (5540ualae _ ARGENTiNA YACYRETA HYDROELECTRICPROJECT II

EBY: Actual and Forecazt Income Statements (Millions of USS)

1992 1993 1994 1995 1996 1997 1998 1999 2000

Energy Sales(GWh) 305 2934 8481 11471 16021 19206 19206

Average ElectricityRate (UScentkWIt V 3.3 3.4 3.5 3.7 3.8 3.9 4.1

Gross Revenues 10.0 99.5 298.6 419.2 607.8 756.3 785.0

Operating Expenses 3.3 33.4 107.1 169.3 215.0 229.3 229.3 Operation and Maintenance 0.5 2.7 3.6 4.6 10.5 16.0 16.0 Generalexpense 1.1 2.1 2.1 Deprelation 2.8 30.7 103.5 164.5 203.4 211.2 211.2

OperaffonIncome 6.7 66.1 191.5 249.9 392.8 527.0 555.7

InterestCt"rges 4.1 44.5 138.9 194.0 316.3 478.4 450.0

Treaty Compensationand ofthe charges 0.2 1.7 5.2 7.3 10.6 13.2 13.7

Net Income 2.4 19.9 47.4 46.6 65.9 35.3 92.0 I/ Basedma cl*cuidity pce of 3UScaivkWhin 199L

Source and Uses of Funds In Current US$ million.)

______1992 1993 1994 1995 1996 1997 1998 1999 2000 14-Aug-92 SOURCES 864.4 665.2 691.2 522.2 611.5 867.0 660.7 724.9 753.2

Internal fund generation 4.0 9.3 95.1 289.8 407.1 585.6 724.9 753.2 OperationIncome 6.7 66.1 191.5 249.9 392.8 527.0 555.7 Depreciation 2.8 30.7 103.5 184.5 203.4 211.2 211.2 Compensationand otherscharges 0.2 1.7 5.2 7.3 10.6 13.2 13.7 Other Sources 4.0

Equity contributions 40.0

Govemment loans: '.91.6 411.3 449.7 320.4 180.0 185.0 55.0 - for Investments 75.5 138.8 142.8 18.3 - for payment of arrows 157.9 24.8 13.6 - for debt service 258.2 247.7 293.3 302.1 180.0 185.0 55.0

Other Borrowings: 388.8 253.9 232.3 106.8 101.7 74.9 20.2 ProposedIBRD 144.1 87.2 58.7 7.5 1.0 0.5 Proposed IDB 10.3 13.1 8.2 30.0 16.5 Export Agencies 177.8 155.4 158.8 87.7 68.3 54A 19.8 Suppliers Credits 44.5 1.0 1.7 3.4 2.4 1.5 0.3 OPRACII 2.3

USES 864.4 665.1 691.2 522.2 611.5 667.0 660.7 724.9 753.2

Investment 378.3 392.6 383.1 207.9 268.8 327.6 188.8 Local Component 133.7 131.8 119.7 64.3 98.7 133.4 84.3 ForeignComponent 244.6 260.6 263.4 143.6 170.1 194.2 104.5

Debt Service 258.2 247.7 293.3 302.1 319.6 331.A 431.6 693.1 752.3 Interestand other charges 148.6 160.1 176.7 173.0 169.0 163.1 196.0 290.7 267.8 - local loans and credits 10.3 6.8 5.8 4.7 3.5 2.8 45.1 155.9 147.8 - freign loars and credits 138.3 153.3 170.9 168.3 165.5 160.3 150.9 134.8 120.0 Amortzation 109.6 87.6 116.6 129.1 150.6 166.3 235.8 402.4 484.5 - local loans and crdIts 9.5 7.6 12.0 12.0 10.0 9.8 23.0 161.0 2568.4 - foreignloansandrcrdIts 100.1 79.9 104.6 117.1 140.6 15685 212.8 241.4 2281.1

Workina Capitl 1v 227.9 24.8 14.8 12.2 23.1 8.0 401 31.8 0.9 I Duri"g1992-1995.incudepsymWaIt nemira. ARGENTINA YACYRETA HYDROELECTRIC PROJECT II EBY: Actual and Forecast Balance sheots (Mi wlomof USS)

14-Aug-92 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Fixed Assets 6101.3 6631.6 7228.5 7859.7 8279.0 8616.5 8908.8 8957.0 8749.0 8541.0 Plants In Operation 0.0 0.0 0.0 124.9 1375.6 4632.6 7363.9 9107.6 9454.3 9454.3 Less: Accumulated Depreciation 0.0 0.0 0.0 2.7 33.0 134.9 296.9 497.3 705.3 913.3 Net Fantin operation 0.0 0.0 0.0 122.2 1342.6 4497.7 7067.0 8610.3 8749.0 8541.0 Work in Progress 6101.3 6631.6 7228.5 7737.5 6936.4 4118.8 1841.8 346.7 0.0 0.0

CurrentAssets 10.6 10.6 10.6 11.8 24.1 52.3 65.3 94.0 110.4 111.2 Cash and Banks 2.4 2.4 2.4 2.4 3.6 7.3 5.4 10.9 8.9 6.2 Temporary Investment 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 Accountb Receivable 0.0 0.0 0.0 1.2 12.3 36.8 51.7 74.9 93.2 96.8 Inventorles and Other 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1

TOTAL ASSETS [6111.9 6642.2 7239.1 7871.5 8303.1 8668.8 8974.1 9051.0 8859.4 8652.2

Equity 56.7 56.7 56.7 59.2 80.4 173.4 230.5 315.1 375.3 494.2 Capital contribution 56.7 56.7 56.7 56.7 56.7 96.7 96.7 96.7 96.7 96.7 Retainedearnings 0.0 0.0 0.0 2.5 23.7 76.7 133.8 218.4 278.6 397.5

Net Long-term debt 5125.4 5905.5 6498.1 7128.9 7517.6 7767.4 7944.7 7781.8 7463.1 6985.8

Long-term debt 5235.0 5993.1 6614.7 7258.0 7668.2 7935.7 8180.8 8184.1 7947.6 7625.1

Local Loans and credits 3488.9 3980.7 4428.3 4944.0 5364.6 5670.9 5999.3 6195.5 6200.3 6105.9 Government Loans 3397.1 3896.0 4351.5 4879.3 5312.0 5628.5 5965.1 6169.4 6182.7 6093.0 Local Bianks 91.9 84.7 76.8 64.7 52.6 42.4 34.2 26.1 17.6 12.9

Foreign Loans 1746.0 2012.4 2186.4 2314.0 2303.7 2264.8 2181.3 1988.6 1747.3 1519.2 IBRO 407.3 505.1 546.0 559.6 528.6 491.1 438.9 385.1 330.2 274.0 IDB 714.7 692.3 680.2 652.4 611.2 583.1 543.4 479.6 415.9 374.5 Eximbank - US 82.9 168.1 202.1 227.1 233.8 235.9 237.9 222.7 207.1 191.6 Other Existing Foreign Loans 132.2 192.8 247.5 283.1 308.8 314.3 312.7 283.7 243.7 203.6 Export Agencies (future) 0.0 2.2 58.5 147.8 198.3 239.8 272.6 270.8 237.0 203.1 Supplier Credits(future) 0.0 43.0 43.0 43.0 34.4 26.5 17.9 9.2 0.5 0.4 Refinanced debt In 1987 409.0 409.0 409.0 400.9 388.6 374.3 357.9 337.5 312.9 272.0

Less: current portion of L-T Debt 109.6 87.6 116.6 129.1 150.6 168.3 235.9 402.3 484.5 639.3

Current Liabilities 570.2 320.3 324.5 323.4 344.9 367.6 440.2 595.3 662.1 816.9 Current portion of Long Term Debt 109.6 87.6 116.6 129.1 150.6 168.3 235.9 402.3 484.5 639.3 Government Loans 9.6 7.6 12.0 12.0 10.0 9.8 8.0 145.8 237.3 415.9 Foreign Loans 100.1 79.9 104.6 117.1 140.6 156.8 222.5 249.9 235.3 223.4 Accounts payable 283.8 55.9 31.1 17.5 17.5 22.5 27.5 16.2 0.8 0.8 Interest payable and others 174.0 174.0 174.0 174.0 174.0 174.0 174.0 174.0 174.0 174.0 Other Comercial debts 2.8 2.8 2.8 2.8 2.8 2.8 2.3 2.8 2.8 2.8

Other liabilities 359.6 359.7 359.6 360.0 360.1 360.4 358.7 358.8 358.9 355.3 Exhange Rate Compensation 199.6 199.6 199.6 199.6 199.6 199.6 199.6 199.6 199.6 199.6 Compensation reserve 157.0 157.0 157.2 157.4 157.5 157.6 155.9 156.0 156.1 152.6 Accounts payable 3.0 3.1 3.0 3.0 3.0 3.2 3.2 3.2 3.2 3.1

[TOTAL LIABILITIES AND EQUITY r6111.96642.2 7239.1 7871.5 8303.1 8668.8 8974.1 9051.0 8859.4 8652.21 ANX2MAT3 Attachment 4

ARGENTINA YACYRErAHYDROELECTRIC PROJECT 11 EBY: LONG-TERM DEBTSCHEDULE

AM. Mss oA-O ovwihg dew Lendwr Puose _ _ _ a=

LOANS ALREADYDISBURSED

Loan 1761-AR CIBWmAShmibg uS 20.25 18 Js.6 790 0.75 1.6 463 Loan 298-AR COiwobMaIa.zwk US 250.00 14 Msp9S Vadb 0.75 269.6

Loan 348/OC-RO adblW.b Wta US 210.00 28 Ma$8 7J0 1M 1791 22. Loan85OC-RG a Owl mbmg us 250 30 o p4 Vuahb .5 2763 Loan588/C-RA OdWWb&VWWbq 13t 2.0 30 CaWS Vubb 07S 2591 EBdmbnk- USA O.mtamafsqvk=ol U#S 2 (1) 20 UaiBS 910 050 US9 Looa Commeral bank OPRAC(Argena) ObsaB_sdqms us3 42.o 20 1W&4 s5c 42. OPRAC (ArgenIa Umtmmb, elpen Us1 3330 20 I1t01 1240 30.2 3.8 Chas Manhattan 02W,q0 _W"a. WI I2.1(2) U 31 9.00 0.50 19.6 3.8 FwalgnCommwrcal Banks Creit Ly bo O_ssbinlh.3qas u 5.00 11 FhS7 L1R+134 0.50 73 7.3 CACEX(Grail) Eq*a WI 2580 3tou Dwc9 8 33 1.4 liduto MobWllareIRhano (IMQ Dqulmt _ U 35.00 20 Mac4 9.5 O05 342 ledlutoMoblwa Ilano (IMQ oasmA UW 33.00 17 54p9 737 289 Sankdu Com. ExLde France O"Asu xp<aaA tW 28.0 20 Np 92 9.63 0 28.5 IA MorganGuaranty Trust Co. 1'.h WI 4080 4 Dec49 13s+N 113 113 Banco Nazonaledel Lavoro camuMhaqum tW 6. 1 oas*7 Pdm41 4.7 4. Mitshul Y_ 1.39 60 050 81 23 ReinancedDebt Ano tM87 25 U04 Lbw+ 409.0 IMI _asR_s a fl WI 840 (3) S.0 mi2 8.55 .40 GovernmIntLoan S8aWr de Hacnda WI 129 (4) 30 D.r007 on 1252.9 Sea8ba do Engia usW 235 (4) 12 D5 600 2144.2 LOANSUNDER DISBURSEMENT

EDO TufdbT cd WA (5) 20 1.1 7.75 O 5 WI oas&aIN WI 5 17 K U 7 7.97 6 mbank - Japan Toin. YM 9541 18 De5 731 Bdmbank - USA TuSl. *3-Meq4 WI 317.1 (1) 20 DMb 3I_ 0. 82 Semns I G a(LMGS W U"Sq 15 6 Wmbd4 800 emens 11 a S S USk 9.7 19 sow 73 CACEX Gm . t 32 6 S3 650 Boo L de Sao Pomaloae o I= L22 s mam Uhe4. AJUTO QammaS WO I 137 20 S1 U5 OPRAC _b_atI p. uW 23 is 1 1o FUTURELOANS AND CREDIT

Epo Agenlp (6) 17 SSW 750 05 8UMeler Credits _ 1 I71 10 Muaas 750 - am ANTA4 (1)IMdbWSUsbm.m1.m,Iss.mtb~sI* M ll_Wdn*4WW

(4) b1mmNe~nWWWW0W^ iidiS mm Mad iImw ) srp) h_muundauad_ b __ S _ Z Attachment 5 ARGENTINA YACYRETAHYDROELECTRIC PROJECT II EBY: FORECASTOF DEBTSERVICE - AMORnZATION

Desctpton 1992 1998 1994 1995 1996 1997 1998 1999 2000

.LoMne'*lr Wydisbuseidi" '',109589 87586 116458. 119842 127122 127175 181265 394547 884858

The InteramericanBank 22400 22400 40832 49468 58105 58105 58105 57993 35705 IDB 346/OC-RG 22400 22400 22400 22400 22400 22400 22400 22288 IDB 555/0C-RG 18432 142 18432 18432 18432 18432 18432 IDB 583/OC-RG 8636 17273 17273 17273 17273 17273

The World Bank 46300 46300 45045 386528 38528 38528 38528 38528 38528 IBRD1761-AR 46300 46300 45045 I1RD 2998-AR 38528 38528 38528 38528 38528 38528

Local Planks 9518 7648 11855 11855 9885 7911 7911 8168 4506 OPRAC(Central Bnk) 4207 4207 4207 4207 4207 4207 4207 OPRAC(Central Bank) 3761 3704 3704 3704 3704 3704 3704 3981 299 ChaseManhatn 5757 3944 3944 3944 1974

ForeignBanks 31371 11238 10545 7720 6287 6269 6269 6269 6269 Credit Lyonnais(US$) (Supplier) 7346 Cacsx (Brasil) 1408 938 938 Istltuo MobillareItdumo (IMI-1) 3421 3421 3421 3421 3421 3421 3421 3421 BanqueFranculse do Com. Ext 1424 2848 2848 2848 2848 2848 2848 2848 2848 US - Supplir 2826 1717 1024 294 18 Morgan Guamrty Trust 11326 Banca Nazionaledel Lavoro 4727 Mitsubishl 2314 2314 2314 1157

RefinancedDebt - 1987 8181 12271 14317 16362 20452 24543 40904

Secretariatof Energy& Treaury 1 259046 259046

Loans under disburemoent 259 259 752 14963 16738 43432 49609 49609

EXIMBANK- USA 15534 15534 15534 EDC 4983 4983 4983 EXIMBANK- JAPAN 9325 9325 9325 9325 9325 AIUTO 2848 5696 5696 IMI 2267 2267 2267 2267 SIEMENS 492 492 508 1016 1016 CACEX 5264 10529 10529 BCO.E. DE SAOPAULO 4886 4886 2443 OPRAC 259 259 259 259 259 259 259 259

Future bane and credits -10. 8810 22758. -.25003' 273995 266657

ProposedIBRD 14148 15244 16420 17691 ProposedIDS 5721 5721 5721

EXPORTAGENCIES 16692 33821 33821 Y-E3 438 438 Y-E9 2927 5854 5854 Y-E1l 10253 20507 20507 Y-E10/12 1194 2388 2388 Y-E13 1159 2317 2317 Y-E14 1159 2317 2317

SUPPUERCREDITS 8610 8610 8610 8610 8736 127 Y-E3 127 127 Y-E9 1528 1526 1528 1528 1528 Y-Eli 5229 5229 5229 5229 5229 Y-E10112 650 650 650 650 650 Y-E13 601 601 601 501 601 Y-E14 601 601 601 601 601

GovemrnmentLoins 203797 209297 209297

10Total UM5 1-, 12 9 15695 16670 f2476 7t8152 70122 N -myAaz*kmpam ins edo.Im knlmb _mMbpmd ANX26ATS ANNEX 2.6 Attachment 6

AENllNA YACYRETAHYDROELECThUC PROJECT 11 FORECASTOF DEBTSERVICE - INTEREST

Dmartlon 1992 199 1994 1995 199M 19I7 199 199 2000 Loans alreadydbsbun d . gmS79000 120 .91247 12 013E9I1I 4 . . 71-101362 Th Interaeocanm srn 565k1 57229 55920 51197 46860 42048 $7499 32M99 3153? IDS34VC/0-RO 13274 11724 10210 8697 7208 5671 4158 2645 1136 IDS555/C0-RO 235S5 23491 23096 21530 20020 16396 16832 15266 13735 IDB 58/OC-RG 22062 22014 22014 20970 19444 17977 16500 15064 16S66 ThWorld ,* 31241 27476 23605 20291 17334 14277 11270 6203 5273 IBFD1701-AR 10134 6429 2754 12D2998-AR 21107 21049 21049 20201 17334 14277 11270 5263 6273 Lal BSanks 10206 6636 6631 4511 3397 2657 205 1295 626 OPRAC(Cnrl Ban*) 3415 2314 2197 1966 1739 1503 1272 1040 611 OPRAC(Central ia) 3036 2635 2265 1695 1528 1154 76 25 15 Chos Manhsan 3815 1600 1180 650 130 FordgnSark 16562 5172 ao5 4946 4032 3390 276 2160 1548 CrodtLyonraws (US$) (Suppllr) 42 Caeox(Brasi) 363 141 61 IstituoMobllnare llano (IMI-1) 5035 3264 2929 2587 2271 1923 1590 1256 921 SanqueFranremodoCom.Ext. 5796 250 2294 2016 1743 1467 1176 901 027 US- SupplIer 2307 1673 104 307 16 MorganGuaranty Trust 2544 BanerNaeonalm dal Laoro MHuubbFI. 475 326 102 30 RefinanedDabt - 1987 20936 2099 27160 20417 19015 16999 15108 17004 15576 SerarIt of Erwgyand 7muy u Laanrunder dibburmor nt . .1020.1000:-9X . 9442: 2079 MW -=2 EXIMBANK- USA 3511 10460 13620 15502 16013 10224 15950 14340 12701 EDO 1100 3104 3603 3626 3056 3661 3765 379 2993 EXJMDANK- JAPAN 645 32S8 537 6050 M43 0203 4801 3920 3239 AIUTO 83 278 481 756 1020 1209 1410 1371 1271 IMI 126 3 962 1203 1493 1490 1310 1120 946 SIEMENS 44 146 23 3090 00S 67 72 o6 021 CACEX 0 61 291 603 1110 1610 166 1540 65 BCO.E. DE SAO PAULO 176 516 653 648 679 460 147 0 0 OPRAC as 227 201 176 149 123 97 71 45 Fue Loo andCredits `152 .¶9 -- 00 12009 INV_' 1:. 2:, $IK7E ProposedIBRD 4319 13761 19629 22641 23027 22615 21724 20623 19230 ProposedIDB 0 590 1454 2315 35 S45516 6294 53 5376 EXPORTAGENCIES 61 1748 6001 1250 16030 16060 20548 1975 17138 Y-E3 0 0 0 0 24 145 270 271 236 Y-E9 0 301 1283 2316 296 3334 3564 3406 29064 Y-E1l 0 1040 4446 6067 10103 1165 12476 11920 1032 Y-E10/12 61 289 3 951 1167 1364 1456 1366 1209 Y-E13 0 69 201 as 914 1204 1366 1347 1173 Y-E14 0 59 269 o05 914 1204 1366 1347 1173 SUPPUERCREDrM 1211 3229 3220 307 2430 1823 1178 0 36 Y-E3 0 0 0 0 16 46 48 46 00 Y-ES 216 673 676 644 430 316 201 as 0 Y-El1 735 1961 161 1663 1471 1076 606 294 0 Y-E10/12 91 244 244 232 160 154 a 37 0 Y-E13 a 226 226 214 169 124 79 64 0 Y-E14 so 226 226 214 169 124 7.0 4 0 GovernnwrntLomw , 11061 36760 0420 66366 10443 110541 12043 110211 ON6

ITomW IwUWUS.: I'IAKiII n ~ ra~ihLuA4~ USI AuIa"Wn witltIm-u-pboii TM AmumimSLAiE. ppvbd .S'Md --. 1*+i- Et]-f _ri']*trIt-EE+I.ANX3O5MU ANNEX 2.6 Attachment 7

ARCENTINA YACYRETAHYDROELECTRIC PROJECT II EBY:Disburement of Loans and Credit during the Perlod 1992 - 1998 (Tholauds of USS)

1992 199 1994 1995 1996 1997 1998 Total

LOANSAND CREDITS-:::---: : 'UNDER-;DISBURSEMENT: 7b458 1010.71201 23a14. 2059 48212650# EXIMBANK-USA 85194 34011 26044 607 2096 1977 352 155841 EDC 36774 7095 4440 578 77 0 0 49825 EXIMBANK-JAPAN 30821 37017 14517 1100 474 0 0 88928 AIUTO 12642 8718 16363 14903 15087 12813 2086 82591 IMI 4293 6592 3818 3718 849 0 0 19268 SIEMENS 1477 1008 1053 3368 1777 1503 345 11130 CACEX 0 3309 3119 7598 8149 6921 2490 31586 BCO.E.DE SAOPAULO 5919 1402 2249 2645 0 0 0 12215 OPRACII 2335 0 0 0 0 0 0 2335 FUTURELOANS AND CREDIT8. 645404 566577' 624796 86506 253197 .26727 69921 2803130 IBRDproposed 108600 108600 72800 7500 1000 500 0 299000 IDBproposed 0 10300 13000 6200 30000 16500 0 80000 EXPORTAGENCIES 2163 56373 89273 50458 41563 32727 14921 287478 Y-E3 0 0 0 0 854 2886 0 3720 Y-E9 0 10710 17048 8376 8593 4811 2418 49759 Y-ElI 0 38990 59527 29457 23303 18385 664 174309 Y-E10/12 2163 4499 4726 3437 2670 1843 957 20295 Y-E13 0 2087 3980 4593 4071 3511 1450 19697 Y-E14 0 2087 3986 4593 4071 3511 1450 19697 SUPPUERCREDITS 43048 0 0 0 634 0 0 43682 Y-E3 0 0 0 0 634 0 0 634 Y-E9 7640 0 0 0 0 0 0 7840 Y-ElI 26145 0 0 0 0 0 0 28145 Y-E10/12 3250 0 0 0 0 0 0 3250 Y-E13 3007 0 0 0 0 0 0 3007 Y-E14 3007 0 0 0 0 0 0 3007

GOVERNMENTLOANS 491593 411304 449723 320350 180000 155000 55000 2092970

I JOTAL DISBUISEMENT- rf- a2_2 4T, 4691 Page 1 of 13

ARGENTINA

YACYRE'rAHYDROELECTRIC PgOJECT II

The ResettlementProgram

Overview

1. The reservoir created by the proposed project will have an elevation (EL) of 78m and will affect about 3,250 families or about 16,250 persons and their economicactivities in the agricultural,industrial and commercial sectors. It will also affect community facilities such as schools, churches and parks as well as infrastructureinstallations such as railways,ports, roads, electricity lines and governmentbuildings. At fu'l development (reservoirEL 83m) a further 5,050 families or 25,250 people will be affected (see Box 1: Affected Population).

2. It was expected that the resettlement program would have been completed under the Electric Power Sector Project (Loan 2998-AR). But unforeseer-economic and financial conditions which delayed completion of the civil works also postponed the need to move ahead with the resettlement and rehabilitation operation. Under the proposed project, implementationof the resettlementwill be completedas required by the reservoir operation at EL 78m; further resettlementwould be needed if Paraguay and Argentina decide to raise the reservoirto its ultimate design level (83m) (para.4). To avoid unnecessary disruption of the affected people's lives, completion of the resettlementwould occur in a phased manner so that people are required to move 6 months prior to the inundation of their property, which, in turn, requires installation of necessary infrastructure and construction of housing over the previous 12 months.

3. It is expected that infrastructure, such as drainage and sewerage system, electricitydelivery system and so forth, for the resettlement areas, as well as housing for all people affected up to EL 78 construction will be completed by January of 1994. This will permit the mobilizationand transfer of affected people to begin immediatelythereafter and prior to reservoir filling to EL 76m beginning June 1994 and reservoir filling to EL 78m beginning June 1995. A similar sequence would take place if it is decided to go beyond EL 78m.

4. The complete resettlement program, including an implementation schedule and cost estimate was appraised by the Bank in April 1992. Under the proposed project, the Bank will be supporting technical assistance and detailed design preparations for the resettlement operation, inclu tng soils studies for rural resettlement, detailed planning of industrial relocation, strengthening local government agencies responsiblefor assisting resettlement,strengthening EBY capabilities for management of the operation, and independent concurrent evaluation of programs in the implementation of the resettlement. The Bank and EBY will conduct a mid-term review of the resettlement program by June 1994, at which time EBY will have to present a revised resettlement program for allowing the raising of the reservoir to EL 83m, should the Governments of Argentina and Page 2 of 13

Paraguay make such a decision. This program would draw upon lessons learned in the proposed project. and the Bank's agreement would be contigent upon the demonstrationof the capacity to successfullyimplement the rise of the reservoir beyond EL 78m. The reservoir could be operated at EL 83m by June 1998, if the correspondingdecision is taken by June 1994.

ResettlementProaram

5. The resettlement program summarizes and updates previous plans and studies regarding Yacyret& resettlement conducted by EBY, independent consultants,local nongovernmentalorganizations and others to address changed social and economic conditions in the region. It also reviews previous experience and proposes significant changes in resettlement policies and procedures to improve future performance. The program covers all affected population and phases of the resettlement operation, beginning in 1992 and continuingthrough 1998, under the assumption outlined in para. 4 for possible operation at EL 83m. The Bank mission accepted the proposed program as satisfactoryfor this stage of project implementationand made reco-mendations for furtherstrengthening and finalizationto be completedprior to negotiations.

Affected Pogulation in Argentina

6. The population in the zone to be flooded is mainly in the city of Posadas. The majority can be classified as part of the poorest strata of the community. Most of the effected people are employed in the temporary and the personal services sector in the urban center. A few live at a subsistencelevel, depending upon the riverine area from which they derive water, firewood, fish, income from the sale of clay, brick and tile making, and minor smuggling.

7. Of the houses affected on the Argentine side, some 18* are units built from discardedmaterials pieced together into huts. By contrast, S* are made of adobe brick with slab floors and tile roofs. The majority are wood structures with straw or zinc roofs and dirt floors. Land tenure studies indicate that 13V of the affected families own their homes and houseplots, 71 rent their homes, and 80* are legally landless. Two-thirds of these own their homes but not their houseplots.

8. The rural area flooded in Argentina is in the provinces of Corrientes and Misiones and is characterizedchiefly by natural pasture, and, to a lesser extent, by agriculture. Rice fields are irrigated by water pumped from the Parana River and adjacent streams. In addition, wheat and soybeans with low yields are produced. Poor irrigationand drainage conditions as well as lack of suitable technologieshave historicallylimited crop output in the area. With regard to land holding and tenure, the predominant type of holding is the extensive cattle ranch, especially in the Province of Corrientes. Nevertheless, there are 120 farm families in the Province of Misiones that have less than 24 ha and operate on a subsistence level employing mainly family labor.

9. The inundation will affect a large number of community services, industrialand commercialestablishments. These include ten primary schools, two churches, two f i r s t - a i d Total Total Families Families clinics, police Persons Families Resettled to be offices, naval Affected Affected to 1992 Resettled headquarters, nine lumbjer Argentina industries, one cold storage Urban 26,640 5,330 1,262 4,068 operation, one Rural 955 190 16 174 shipbuilding company and 150 Total 24,59S 5,520 1,278 4,242 olerfas. The olerias deserve Paraqua special mention since they use Urban 18 850 3,770 98 3,672 the clay soil Rural 6,975 1,395 326 1,069 found at certain places on the Total 25,825 5,165 424 4,741 banks of the Parana River as Gran one of the raw Total 50,420 10,685 1,702 8,983 materials for brick and tile-_ bricnd Tile Box 1: Affected Population making. These traditional sources of raw materials will disappear when the dam is completed. The port installations and railway station at Posadas will be submerged, as will 30 km of main railroad track, 10 km of roads, the Empresa Electrica de Misiones (EMSA) thermal power plant, and portions of the electricity, telephone and water supply networks.

Affected Por,ulation in Paraauay

10. The affected urban population numbers about 18,850 persons (3,770 families) in the cities of Encarnaci6n (about one-third of the city) and Carmen del Paran&. The remaining 6,975 persons (1,395 families) affected are in the periurban (aforementioned olerfas on the outskirts of Encarnaci6n) and the rural areas. The latter are mostly small holders on the large islands of Yacyret& and Talavera, engaged principally in subsistence agriculture (with little production of high value crops for the market) and some livestock.

11. Unlike the Argentine side, the affected urban population on the Paraguayan side is largely (671) from the middle and higher income strata of the community. For example, some 411 of affected urban housing is built on lots of more than 700 m2 and 85S on lots greater than 360 i2, indicating the high social status of owners. About 701 of housing is occupied by owners who also own their houseplots. About 90* have electric lights and 64* a septic system. In contrast, the rural population on the Paraguayan side is overwhelmingly (95*) from the lower income stratum. Page 4 of 13

12. The inundation of the reservoir will have major implicationsfor the urban dynamics of Encarnaci6n, since it will affect its central area and major commercial sector. The total number of commercial establishmentsflooded will be 601, of which 500 are located in Encarnaci6n. Indust.,.1 enterprises affected number 280, most of which are involved in processing farm commodities from the region (mills,tanners, sawmills,grain silos, oil factories,etc.), with several hundred 2_1grias which, as noted on the Argentine side, will lose their traditional source of raw material.

13. In the rural areas, the affected area is composed of 12 km2 (120 ha) of cultivated land and 119 km2 (1,190ha) of natural pastures, 392 km2 (3,920 ha) of wetlands, 132 km2 (1,320ha) of woods and shrub and _92 km2 (1,920ha) of land subject to seasonal flooding. The major crops are rice and =otton. Stock raising is practiced at an extensive level so productivity is low per unit of land.

14. The infrastructure that will be flooded on the Paraguayan side includes:the major Paraguayanpublic administrationbuildings in the Department of Itapua, three schools, two churches, military installations,the launch dock and wharves in Encarnaci6n, 106 km of railroad lines, the Encarnaci6n electric power plant and 701 of the electricitydistributicn network, 801 of the telephone lines, the water supply facility and much of the water supply distribution network.

Backwater Flooding

15. The reservoir inundation area and the affected population have been defined taking into account the backwater and wind-inducedwave action effects of the reservoir. The cities of Posadas and Encarnaci6nare located at the tail end of the reservoirwhere backwater effects will be moultcritical in determining the elevation from which population must be resettled to ensure protection from flooding. Average flow of the Parana River at Posadas and Encarnaci6nis 12,000 eY' but reaches 44,000 mel for a flood with a probability of occurrence of one in fifty years. To reduce the magnitude of population displacement,the dam will be operated to ensure that the water level at Posadas and Encarnaci6n would remain relatively constant (at EL 76, 78 and uliAmately 83 respectively) by evacuation of the flood waters through the turbines and spillways in advance of major floods. This requires a Yacyreta river basin flood forecasting system composed of a network of hydrometerologicalinstruments and correspondingdesign of a basin response model. It also requires an advance warning system to report releases from the upstream Itaipd Dam which now reach the Posadas/Encarnaci6n area in about 3 days time.

Progress in the ResettlementOperation

16. h4ninternational bridge linking Posadas and Encarnaci6n,constructed as part of the overall project design, was completed in 1989. The population affected by the bridge constructionwas the first to be resettled beginning in 1984. Some 1,702 families (about 8,500 people) affected by the bridge constructionhad been resettledas of February 1992. On the Argentine side, some Page 5 of 13

976 urban families were moved from Araentina Paraouav the bridge area to a receivingarea (number of Families) named Barrio Yacyreta, within Urban Posadas, west of the downtown area, Resettled 976 60 and some 60 urban families on the Paraguay side were resettled to an Rural area named Buenavista, 1 km Resettled 15 6X northeast of Encarnaci6n. In the rural sector, 15 families on the Urban Cash Argentine side and 61 families on Comp. 286 38 the Paraguayan side were moved to new farms. The remaining Rural Cash 590 affected families elected to Caw. 1 265 receive cash compensation for affected property and resettle themselves.See Box 2 for a summary Totals 1,278 424 of progress through February 1992.

Grand 17. Affected families who Total 1,702 owned property were given a choice between cash compensation and Box 2: Families Resettled Through resettlement into one of the EBY- February 1992 constructed resettlement areas. These are new neighborhoods of Posadas and Encarnaci6n in which affected families are entitled to an adobe house with tile roof, concrete floor, tubed water supply, electricityhookuip, septic tank, drainage, and paved access and internal roads. In addition EBY provides community buildings, schools, recreation centers, and other social infrastructure. Those who do not own property or have very little may only move to one of the resettlement areas constructed by EBY. Some of the reasons the landowning families elect resettlementby EBY are to stay with family members or fears that inflation could erode the value of cash receivedbefore they could make satisfactoryresettlement arrangements of their own. On the other hand, some landowning families elect cash compensationto invest in larger houses or bigger businesses than could be accommodated in the EBY resettlementarea, to avoid mortgage debts for the new house and other new fees for services such as tubed water, sewerage and trash collection in the EBY resettlementarea, and because families that are breaking up (separationor divorce) could more readily divide cash than divide replacement housing and social infrastructure.

18. In addition to the families already moved, resettlementareas called Villa Lanus, located south of the downtown area in Posadas. Survey and clearing have begun for an additional resettlement neighborhood south of the existing Barrio Yacyreta. On the Paraguayan side, the resettlementcolony of Buenavista is being expanded and additional resettlement sites named San Pedro and Arroyo Pora, have been identified and constructionof infrastructurehas begun. There is little doubt that infrastructureand replacementhousing will be ready in time for the mobilization and transfer of affected families. Page 6 of 13 Lessons Learned From the Initial Resettlement

19. Experience with the initial resettlement plan design and implementationstrategy provides a number of lessons for improvement of later phases of the resettlementoperation. These lessonshave been studiedby EBY and the following conclusionshave been reached.

(a) Initial houses and community buildings built by EBY were excessively expensive, inefficientlyconstructed and failed to meet the needs of resettled families for affordable, low maintenance structures. For the future, EBY is constructing less expensive houses and installing less expensive community buildings but retaining its emphasis upon provision of high-qualityservices (tubedwater, electricity,drainage and waste disposal systems).

(b) Resettlerswho owned property expropriatedby EBY were required in the past to pay the difference between the value of the expropriated property and value of the replacement house and land they were allocated if the latter were more valuable than the former. Affected families who did not have ownership title to lands and/or houses expropriated by EBY were required to accept a subsidized mortgage to pay a portion (35I0 of the value of the replacement land and house. Ownership titles were not issued until this was accomplished, one result of which is that few titles have been issued to new houses and none have been issued to the poorest families (e.g. female-headed households). EBY has revised its housing financing policy, and will in the future pay the entire cost of replacement land and housing for both property owners and those without title. This policy will be retroactivelyapplied to those already resettled.

(c) For the affected families, legal fees required to secure title to new land and houses are prohibitively expensive (another reason why few were issued). In the new resettlementplan EBY will provide titles at no cost to the affected families, and special measures will ensure that female-headedhouseholds receive titles.

(d) Some families who lost their sources of employment due to the project were not considered eligible for assistance in the past. Most of these are people living beyond the affected zone, but employed in the ceramics factories on the Paraguay side which will be inundated. The new resettlementplan provides for re-establishmentof these factories by a program to rescue and stockpile raw material, relocate the factories and re-employ the affected workforce.

(e) It was discovered that special attention is required to resolve the particular problems facing female-headed households and households composed of elderly, single and disabled persons living alone. These measures are included in the present project. Page 7 of 13

(f) Management of the resettlementoperation was excessively cent..alized within EBY causing inefficiency and delay in resolving problems. Future resettlement opsrations will be decentralized from EBY to * relevant institutionsof local, provincial, and municipal government as well as to the private sector, and, within EBY, management responiibilitiesfor everything but major policy decisions will be delegated to the Department of Resettlement and Environment, which maintains working offices in Posadas and Encarnaci6n.

Soecial Problems of Indigenous Pe;2e&

20. In 1987, the Bank learned that a group of indigenous Mbya people living on the Yacyreta Island had left the island in 1974, at the time the Yacyreta Treaty was being prepared. A field investigation conducted by the §piscopal Conference (PEC) concluded that this indigenous group, composed of about 10 families (about40 people), might have left the island to avoid problems with the authoritiesand thus the constructionof the project would have been the cause of their displacement. Upon the Bank's request, and following meetings between representativesof the PEC, EBY and the Bank, EBY devised a solution which reunited the affected indigenous people by resettling them to a 370 ha property purchased by EBY. The relocation area provides adequate agricultural support capability, as well as access to forest, a major highway and nearby markets. The Mbya are satisfied with the land allocated to them, and, in particular, the fact that for the first time in memory they have legal title to land and are protected from colonists.

21. To facilitate adaptation to their new environment and enhance opportunitiesfor sustainabledevelopment of the relocation area, a development investment program has been generated under the proposed YacyretA I1 project. EBY is committed to providing social, technical,education and health assistance to this indigenous group during the proposed Yacyreti II loan period. The indigenousdevelopment plans, which were developedwith the participationof the Mbya families,concentrate upon those componentsrequested by the Mbya themselves to improve their standardof living. Electrificationof the school was requested to permit adult literacy classes in the evening hours when the adults are home from work. A tube well and electric pump were requested to serve the school to replace the present hand-dug well, because the latter is dry for part of the year. The Mbya also wish to see ongoing programs (of vaccinations and medical service as well as agricultural extension service) continue. With regard tc production systems improvement,the Mbya are interestedin fruit tree cultivation and milk cow production. These components have been agreed upon with EBY and incorporatedinto the resettlementplan.

Policy Framework for the Resettlement Proaram

22. Hou-sing. The policy on replacement of housing affected by the reservoir is that all those whose houses are affected,whether or not they owned the affected property, are entitled to a new house and houseplot serviced by tubed water, electricity, drainage and waste disposal systems. The house consists of walls of adobe, functioning bathroom and a slab or zinc laminated ANNEX 2.7 At.tachment I Page 8 of 13

roof constructed by EBY and local government institutions. Resettlement housing and houseplots will be provided at no cost to the affected families.

* 23. Replacement housing is better in quality and size than which was expropriated, and living conditions are significantly improved through the provision of infrastructure to meet higher health and living standards than are common in the region. This is especially true of the 601 of the Argentine and 301 of the Paraguayan affected populations whose living conditions today are very poor. Legal freehold titles to serviced houseplots and houses will be provided by EBY at the time of resettlement at no cost to tne affected family.

24. Economic Develooment. Regarding re-establishment of economic development opportunities, the EBY policy is to carry out the resettlement operation in such a way as to avoid breaking ties with existing patterns of work and places of employment. In Posadas, the resettlement neighborhoods are located about 2 km from the city center, a short ride on public transportation which already passes thrdugh resettlement areas to connect existing neighborhoods still further away. In Encarnaci6n, the new neighborhoods are located less than 1 km from the city center, and, in fact, are adjacent to a new commercial district now devoloping between the international bridge entrance and the city. These locations ensure that present employment patterns will not be severely disrupted.

25. For the rural sector, where loss of land means loss not only of house but also the means to earn a living, the EBY policy stipulates that every agricultural producer working a rural field affected by the dam will be entitled to a choice between cash compensatiornand an EBY grant of another plot at least the size of an "economical farming unit". "Economical farming unit" is defined as a minimum of 7.5 ha of arable land, which when worked rationally by a family enables it to meet subsistence needs and offers of potential for development of commercial crops as well. EBY policy is that all farm families, irrespective of whether they had title to land expropriated or not, are to be provided a minimum of 7.5 ha of replacement farmland at no cost to the affected family. Farmers with title to land expropriated are entitled to a quantity of replacement land equal to the amount taken up to a maximum of 20 ha, beyond which only cash indemnification will be paid. EBY will also provide new houses, drinking water wells, fencing materials, waste disposal systems, school buildings and a community center in the rural settlements. Development assistance packages will be provided, consisting of agricultural extension, health, education and social work services. Suitable land for rural resettlement has been identified and is being purchased on the Argentine side, but in Paraguay the process of identifying land has only just begun.

26. Other relocation policies have been formulated for 2lergas whose sources of livelihood will disappear due to the inundation. Two types of ceramics factories are found in the affected zone, those which are artesanial and those which are commercial. The latter are generally landowners who are organized into a producers association which will be paid indemnification for lost assets. The producers association has proposed utilizing their indemnification to excavate and salvage sufficient clay to continue in business for 15 years, and EBY has agreed to pay the financing costs of this investment. Page 9 of 13

This will permit the present generation of adults to continue in their same occupationswhile they search for new opportunities,and the present generation of minors to prepare themselves for different occupations from those of their parents. Enterpriseswill be expected to reconstructtheir own structures using compensationfunds, and EBY will provide complete infrastructureservices. The artesanial producers basically earn only their subsistence by exploiting clay deposits below the highwatermargin along the river. These deposits are flooded practically everz- year for several months. For these families, the EBY resettlementplan provides a choice between: (a) resettlementto an economically viable farm, which is often the origin of these families; or (b) resettlementto a house/houseplotlocated close to a source of clay which will not be affected by the flooding and,to which they will have guaranteed access.

27. Social Development Assistance. Companion to the economic development assistance packages will be programs designed to improve social conditions among the affected families. These include: adult literacy courses, vaccination of all children, public health workshops and seminars, courses in maternal and child health, family planning courses, nutritional training, and seminars in household budget management. The social programs are organized by the relevant local government institutionsat the neighborhood or rural hamlet level through voluntary organizations composed of resettled family representatives (for example, mother groups, youth sport groups, etc.).

28. The local voluntaryorganizations will also be enlisted to resolve the special problems facing elderly people living alone, abandoned children and single women with young children. The organizationswill be di;rectlyassisted by EBY's technical specialists to formulate and finance programs addressed to these special needs, as well as to facilitate implementationsupport to local government institutionsfor the above programs and in some instances, actually implement them.

29. Transfer Poliv. EBY policy is to pay for all costs of transfer from the old to the new sites, including the costs of hauling and salvaging movable property and the costs of transportingpeople and their belongings. In cases where people retain their traditionalsources of employment,no maintenance allowance is required especiallyas time and distance are short. In the case of those who must find new means of earning a living, a maintenance allowance composed of food, fuel and fodder rations, not cash, will be paid for a period of one year or the beginning of an income stream from new sources of production provided by the project.

30. PeoDle's Particination. Local governmental and nongovernmental organizationshave participatedin the process of designing the new resettlement plan, taking into account their experience with prior policies and programs and their suggestions for strengthening and improvement. These organizations indirectly represent the interests of the affected people themselves, and, therefore, the proposed plan is believed to be generally acceptable to the great majority of affected people. Direct participation of the affected population is planned during the implementation stage, and will be facilitated through voluntary associationsof resettled families as well as through each individual Page 10 of 13

family's involvementin social developmentprograms. EBY, working through local government institutions, will provide social workers in each of the urban resettlementneighborhoods and social workers and agriculturalextension workers in rural resettlementhamlets. Social workers reside in the neighborhoods and hamlets and are responsiblefor facilitatingthe )rganizationof neighborhoodor hamlet voluntary associations. The voluntary organizationsare designed to be an important vehicle for direct participation of the affected families in addresar,,gand resolving neighborhood-levelissues. This decentralizationof responsibility for resettlement is a key strategy for strengthening popular participationas well as the organizationalcapacity for successfulmanagement of the entire operation, further discussed below.

31. Specific opportunities for women in the resettlement and rehabilitationprocess are important,especially on the Posadas side where about 45W of households are headed by women. Special provisions have been made to provide title to new houseplotsand houses to female heads of households,as well as to register women as joint holders of houseplots and houses in male headed households. Social development assistance programs mentioned above are to a large extent addressed to the developmentconcerns of women and their offspring.

OrganizationalCapacity for Imalementation

32. The EBY Department of Resettlementand Environment (DARE)has overall responsibilityfor the design and implementationof the resettlementoperation. Administrationof funds for the resettlementand environmental work have been decentralizedand are now controlled by the DARE. A staff developmentplan has been prepared to ensure that DARE will be adequately staffed with experienced specialists in architecture, social work, social science, law, economic development, engineering, accounting, contract management and monitoring. Further staff training, to be financed under the Project, is an integral part of the staff development plan, including off-site workshops led by senior staff, short-courses in universities and fieldwork seminars conducted by consultant experts.

33. The principle functions of the DARE regarding resettlement will be strategic and long-range planning for the overall operation; coordination of implementationby relevant institutionsof local governments; quality control through a system of inspections and monitoring of the work of contractors and consultants; technical assistance to local government institutions; voluntary organizationsof the affected population , and disbursementand accounting of the funds.

34. Local government institutionswill, in conjunctionwith DARE, prepare contractdocuments for consultants,contractors and suppliers;be responsiblefor pre-qualification and selection of suitable contractors, consultants and suppliers,as well as administrationof the execution of contracts in a timely fashion.Through its monitoring system,DARE will require twice monthly reporting on contractor performance by responsible local government institutions. These reports will reflect the quantity of work contracted and completed, as well as the flow of funds. DARE will maintain a monitoring sttff sufficient to conduct Page 11 of 13

field inspectionsfor verificationof quantity and quality of the work completed prior to authorizationof payment.

35. The Governor of the Province of Misiones has designated the Vice Governor as Chairman of a Technical Steering Committee for Yacyreta, which will manage the resettlementoperations in Posadas,with arsistancefrom a supporting Technical Steering Committee for Yacyreta, establishedby the Mayor of the city of Posadas. These committees have been formed to coordinate the municipal and provincial government institutions responsible for various aspects of the resettlement, such as the Ministry of Agriculture, Ministry of Education, Ministry of Family Welfare and WomenIs Development,and the Ministry of Ports and Water Resources Development. On the Paraguayan side, the Mayor of Encarnaci6n has also accepted responsibilityfor management of the correspondingmunicipal governmentinstitutions responsible for aspects of the resettlement,and has also formed a TechnicalSteering Committeefor Yacyretd. A staff developmentplan has been formulated to strengthen the capacity of local government institutionsto exercise these functions, including recruitment of suitably qt'alified professionals. Training programs to be financed by DARE will be provided to local government staff to enhance staff capacity for implementing the resettlementoperation, including workshops, seminars and practical exercises.

Monitorinciand Evaluation Systems

36. The Monitoring System is designed to be operated by DARE through the local governmentalinstitutions aesisting with implementationof the resettlement operation. Its purpose is to provide timely feedback to project management regarding the flow of work and adequacy of resource mobilization in relation to agreed performancegoals. Local government institutionswill report biweekly on compliance with agreed quantity and quality of work targets. Draft monthly reports will be verified and agreed upon among DARE and local governments, including joint field inspectionas necessary.Final monthly reports will be made available to Bank supervisionmissions for review and comment.

37. The Evaluation System is designed to be operated by an independent scientificresearch institution. Its purpose is to provide annual assessmentof site-specificprogress in achieving the goal or objective of the resettlement operations: to improve the living conditions of the affected population. A contract for the evaluation work will be signed with an independent scientific research institutionwhich will be responsiblefor field research,data collation and analysis, and report writing and presentation. Draft reports will be submitted by the contractor to EBY two months prior to the final report due date by the contractor in a limited number for review and comment. Final reports will reflect the comments of EBY, provided these are received by the contractor one month prior to the final report due date. Reports will be submitted annually to EBY and made available to Bank supervisionmissions for review and comment. Implementation Timetable and Yearly Cost Estimate

38. Table 1 displays the schedule of resettlement expenditures planned in Argentina and Paraguay by year (not including land acquisition and indemnification costs). Table 2 displays other investments by year required to relocate public infrastructure affected by the reservoir.

Table 1: RESZTTLEMENT IMPLEMENTATION COST BY YEAR PERIOD 1992-1998 (in January 1992 US$ millions)

Year 1992 1993 1994 1995 1996 1997 1998 Total

Urban Houning 0.77 5.84 6.71 4.30 8.26 15.48 10.12 51.48

Rural Housing 0.20 1.22 1.42 0.77 1.65 2.97 1.98 10.22

Public Bldg.. O O.55 0.95 0.49 1.10 1.98 1.32 6.3B

Business 'Reloc. 0.34- 0.74 0.64 0,15 0.22 0.41 0.-27 2.78

Tndustxy -keloc.7. 0 0.66 0.66 - 0.66 0.66- 0.66 0.;66 3.96

Social -PDevel. O.>+3 0.30 G.28 0.-20 0.41 -0.76 0.49. 2.54

Admu. 0.31 1.03 1.18 -.. 5- 1.37 2.47 1.65 8..7 7

Total. .1.6 10.34 11.84 7.60 13.68 24.74- 16.49 86.35

NOW.Pbyula CowWeaw&aNat holuded

I _ Table 2: MRASTRUCTURSUNLOCATION COST - PERIOD 1992-1998 (in January 1992 US$ millions)

lear 1992 :1993 19M4 1995 199.6 .1997 198 'Total

.aods 0 0.71 1.-2 0.85. 9.83 17.69 11.79 42.16

Railways 0o.. 0 0 0 15.00 27.00. 10.00 60.00

Ports 0, 0 0 0: 0.72- 1.30: 0.87 2.90

Airport. 0 .0_ '.8. 0O.S 0..46. ; 0 1.53

Cs.:- 0.o.:o07: -044 0.09: 0. 0.73- 1.32 08' 3.'24 .. Elos.& . :0:O - A

* tonfes0:*44: Ce-04 067 0-01 . 00 0.14 *.a 9

: Toal 0.62 2;:3. 2 14f 1.33: 27.87: 501 3.45$ 118.36 .

- Not i -S.s E: d--0E::2..- , ~~~~~0 . .2: _ 4. IS Page 1 of 19

ARGzNTIN

YACYRETAHYDROELECTRIC PROJECT II

EnvironmentalManagement Program

Overview

1. The major environmental consequences of the proposed project stem from the dam and the reservoir, which will be among the largest in Latin America. Under the proposed project, the 112,000 ha (1,120 km2) reservoir (elevation 78 m) will comprise about 64,600 ha of flooded land and 57,400 ha of existing water area of the Paran& and its tributaries. At full development (elevation 83 m) and assuming the construction of the Arroyo Aguapey barrage discussed below, the reservoir area will increase to 165,000 ha, out of which some 107,600 ha of land flooded and 57,400 ha of existing water area. Of the total land area to be eventually flooded, approximately78,200 ha are in Paraguay and 29,400 ha are in Argentina. The great majority of the area to be flooded is sparsely- populated wildlands, includinggrasslands, freshwater marshes and other wetlands and riverine and other forests. The permanent flooding of these habitats will have major impacts on flora and fauna in the affected areas. The reservoir will also transform habitats for fish and other aquatic life now present.in that section of the ParanM River to be inundated. Water quality conditions in the section of the river impounded by the reservoir will deteriorate. Floating aquatic weeds are likely to proliferate. Schistosomiasis,malaria, yellow fever,, dengue fever, and gastrointestinaldiseases are expected to be the major human health risks, each exacerbated by worsening water quality conditions and/or improved habitat for insect and snail vectors. The cultivatedarea to bkvflooded is about 1,500 ha, while the area of cities and towns to be flooded covers about 500 ha. As is discussed separately in Attachment 1 of this Annex, flooding by the Yacyret& reservoir under the proposed project (EL 78m) will necessitate the additional involuntary resettlement of about 16,000 people, moatly from the cities of Posadas and Encarnaci6n.

2. The 1992 EnvironmentalAssessment (EA) Report compiles and synthesizes the findings of various earlier environment-relatedstudies on the Yacyret& Project. A companion document prepared by the Borrower to the Bank's satisfaction is the Environmental Management Plan (BMP), which identifies necessary measures for mitigating and compensating for the Project's environmental impacts. The draft EA and IMP were submitted for review to interested NO0s; relevant municipal, departmental,and provincial governmental institutions in Posadas and Encarnaci6n, and to the responsible national environmentalinstitutions in Argentina and Paraguay. The proposed project will finance technical assistance, design studies and strengthening implementation capacity of both governmentaland nongovernmentalorganizations responsiblefor carrying out aspects of the IMP. The Bank will conduct a mid-term review in June 1994 at which time EBY will be required to present a revised EMP for allowing a satisfactory operation at the ultimate level of EL 83m, should Paraguay and Page 2 of 19

Argentina make the decision to increase the reservoir level beyond 78m. The revised IMP would draw upon lessons learned during the proposed project.

Analysis of Alternatives

3. Because of flat terrain, Yacyreta has a low ratio of hydropower generated per land flooded (30 kW/ha or in annual energy terms, 175 GWh/ha). Despite the project design and site selection decisions that were made in the past, it is important to analyze under present conditions the two main project design alternativeswhich still remain availablefor consideration:(a) permanent operation of the Yacyret& reservoir at a lower level than the design elevation (EL) of 83 meters above sea level; and (b) cmwpleting the project without the Arroyo Aguapey protection works.

4. Permanent operation of the Yacyret& reservoir at a lower level (such as EL 76 or 78) would significantlyreduce environmentalmitigation costs. These can be summarized as follows:

(a) The additionaly number of people to be involuntarilyresettled at EL 76 would be 7,000 (or 16,000 at EL 78), instead of about 41,500 at EL 83 (discussedin Attachment 1 of this Annex);

(b) At EL 76, the reservoir would not create slow-moving or stagnant waters in urban areas. As a result, the potential for severe water quality-related problems (in the absence of adequate mitigatory measures) for EL 83 would not occur at EL 76. These problems include the sewage and industrialpollution of relativelystagnant urban bays, increases in mosquito populations in urban areas, and an increase in vector-borneand gastrointestinaldiseases;

(c) The wildland area flooded at EL 76 would be only about half the amount lost at EL 83: 52,600 ha rather than 105,300 ha. wildlife losses would also be proportionatelyless;

(d) At EL 76, the Paran&-type rainforest (with its various endangered species) upriver of Posadas and Encarnacidn would be completely unaffected; at EL 83, over 3,600 ha would be flooded;

(e) At EL 76, the AffaCua Branch of the Parana River would receive a substantialamount of water all year long, since the AfMaCua spillway would operate on a (more or less) continuousbasis; and

(f) At EL 76, irrigationdevelopment associated with the Yacyret& Project would not be likely. Thus, both the economic benefits and the environmental costs of large-scale irrigation development would not be realized.

1J Some 8,500 people have already been resettled. Page 3 of 19

5. Despite its significant advantages from an environmental and resettlement standpoint, permanent operation of the reservoir at any level b9low 83 would imply significantly lower electric power generation. Under the scenario of permanent operation at EL 76, only about half as much power would be generated per year as at EL 83: 9,700 instead of 18,700 GWh/year. It is anticipated that the additional 9,000 GWh/year will be needed in Argentina in the near future. Any other source would have much higher economic costs even when the additional costs of resettlement, environmental mitigation, and infrastructure relocation are taken into account.

6. The alternative of completing the Yacyret6 Project without the planned Arroyo Aguapey protection works (barrage and associated drainage channel) would be environmentally much less desirable. Without the planned protection works (which are required under the existing binational Yacyreta treaty but is not yet under construction), the Arroyo Aguapey valley in Paraguay would be permanently flooded. This would imply the loss of an additional (very roughly) 40,000 ha of natural grasslands, wetlands, and riverine forests, raising the total land area lost to the Yacyreta Project from 1.07,600 ha to about 147,600 ha. As noted below, at least one endangered species of bird occurs in the area that would be flooded if the protection works were not built. And an additional approximately 1,000 rural people would need to be resettled without the protection works. To obtain additional data, a separate environmental impact study of the Arroyo Aguapey protection works will be carried out within the next year. This study will compare in detail the environmental implications of the Yacyret6 Project with and without these works.

7. The question of whether improved energy efficiency and demand management could forestall the need to complete the Yacyret& has been raised. If power demand projections prove to be optimistic (as has happened during the decade of the 19808), or if electricity rates to all consumers are at the long run marginal cost, growth in power dei,2d could be slowed. Nevertheless, even with slower demand growth than that pvsoently projected, the need for Yacyret& would be delayed, but not avoided.

Wildlands and Biodiversity

8. Of the approximately 107,600 ha of land which would be permanently inundated by the reservoir at EL 83, about 105,300 ha (98 percent) can be classified as "wildlands" or natural ecosystems which have been relatively unmodified by human activities. 5te principal habitat types that would be permanently inundated by the reservoir are: (a) freshwater marshes and other permanent and seasonally flooded wetlands (70,900 ha); (b) natural grasslands (extensively grazed by cattle, but with most of their native biodiversity still intact) (18,600 ha); (c) riverine forest (15,800 ha); and (d) Parand-type rainforest (upriver of Posadas and Encarnaci6n) (3,660 ha).

9. The reservoir area has a rich diversity of plant species. Of these, the Arary tree (Calmhvlluam brasilienee) is the most endangered of these species Page 4 of 19

within Argentinaand Paraguay,although it is still widespreadand not threatened in Amazonia.

10. Animal populations in the reservoir area include at least 121 species of birds, 18 species of large mammals, and 8 species of reptiles. Although some of these species are in danger of extinction and are of local conservation concern, none are expected to become globally extinct as a result of this project, nor to lose a significant (more than 5 percent) fraction of their remaining habitat.

11. Of the 121 bird species known from the reservoir area, 4 are globally threatenedwith extinction. Of these, 3 (MantledHawk, Leucooternisoolionota; Helmeted Woodpecker, Drvocovus galeatus; and Azure Jay, Canoorax caeruleus) occur in the remaining patches of rainforest (Selva Paranense) which occur along both banks of the Parand River, upriver of Posadas and Encarnaci6n. The maximum area of possible habitat for these species that would be inundated by the Yacyreti reservoir is about 3,600 ha at EL 83 (none at EL 76 or 78), mostly fragmented in small patches. The fourth species, Saffron-cowled Blackbird (Xanthoosarflayus), is presently (withinthe project area) only known from the Arroyo Aguapey valley, an area which would remain largely unaltered by the project unless the planned protectionworks are not built (in which case it would be permanently flooded). Several other bird species (suchas the Greater Rhea, Rea americana; Red-winged Tinamou, Rhvnchotus rufeacens;Bare-faced Currasow, .Cm fasciolata; and Toco Touqan, RamDhastos toco) occur on the islands to be flooded and are of local conservation concern, but not globally threatened.

12. Among large maumals in the reservoirarea, the most threatenedspecies are considered to be the Tatouay Armadillo (abossous tatogu), Maned Wolf (Crvsoogn brachvurus), Pampas Deer (ozotaceros bezoart$cu), Marsh Deer (flasocerusd$ihotomus), and South American River Otter (Lutra lonaicaudis). -hese species all have relativelywide ranges in southeasternSouth America, and are probably declining more from direct hunting and human persecution than from habitat loss. Although it supports viable populations of these species, the Yacyret& reservoir area does not represent a significantportion of their total available habitat. Less well known are the small mammals (particularly bats and rodents) of the Yacyreta project area. Data are lacking as to exactly which small mammal species occupy the project area, which may be endangered, and whether any have a significant portion of their world population in the area to be flooded by the reservoir. Among the a species of reptiles known from the reservoir area, 3 are considered threatened, but relatively widespread and not seriously endangered.

13. The most important measure available for mitigating the loss of natural ecosystems through reservoir inundation is the establishment of a network of compensatory protected areas as similar as possible to the ecosystems that will be affected by the Yacyret& project. Seven reserves, totalling about 80,000 ha, are proposed as partial compensation for the wildlands which would be lost due to the Project. Five of these reserves still need to be established; two already exist but should have their on-the-ground management strengthened. Only Page 5 of 19 one (CampoSan Juan) of the seven reserves is likely to require land purchase by EBY. For the other reserves, the land is either already Government-ownedor (in Paraguay) can be managed as a protected area in cooperationwith the landowners, who would obtain certain benefits (such as the avoidance of expropriationor land invasions) in return for avoiding ecologically damaging land use practices. No involuntary resettlementof the relatively few people living in some of these reserves is considered necessary, as these peoples' existing land use practices are highly compatible with nature conservation.

14. Of the 7 proposed compensatoryreserves, 4 would be in Argentina, as follows:

(a) The Isla Anine Grande (along with several adjacent smaller Argentine islands, including Isla Apipe Chico) is located downriver of the Yacyret& dam. These islands comprise over 25,uOO ha ecologically quite similar to the Parana River islands to be submerged. Most of the land is Government-owned;

(b) Camno San Juan comprises a continuous stand of about 3,000 ha (above the EL 83 high water line) of virgin ParanS-type rainforest. It is probably more important for biolcogical conservation than the rainforest areas to be flooded, because it is a continuous stand (ratherthan the many smaller forest fragments which occupy the area to be flooded). Campo San Juan is owned by 1 individual,who is likely to log the forest unless the land is purchased;

(c) Rinc6n Santa Maria is an area of about 2,500 ha (above EL 83), owned entirely by EBY and located just upriver of the Yacyreta dam. These natural grasslands are considered suitable as a temporary home for many of the animals to be rescued from the rising waters. It should also serve as an interesting sample of a natural grassland which is not grazed by cattle;

(d) Te w-CuareQ is an existing Provincial Reserve of 78 ha, under the jurisdictionof the Ministry of Ecology and Natural Resources of the Province of Misiones. Comprising a large, scenic rocky outcropping along the banks of the Paran& River, it is presently only a "paper park", with no physical demarcationor other on-the-groundprotection or management. The relatively small portion of Teyu-Cuare to be flooded at EL 83 would be compensatedthrough support from the Project for its demarcation,necessary infrastructureand equipment, and the development of a management plan.

15. The 3 other proposed compensatory reserves would be in Paraguay, as follows:

(a) The west end of Xsla Yacvreta (along with several adjacent smaller Paraguayan islands, including Yegros) lies immediately below the Yacyreta dam (although the rest of Isla Yacyreta will be flooded by Page 6 of 19

the reservoir). Comprisingabout 10,000 ha of mostly Government-owned land, this area has riverine forests, wetlands, and natural grasslands which are highly representativeof the areas to be flooded; it also harbors a good population of the locally endangered Arary Tree. Although some of this potential reserve has been disturbed by the digging of borrow pits for dam construction,these areas will become good wildlife habitat (especiallyfor marsh and water birds) after they are physically rehabilitatedby the civil works contractor (so as to have gently sloping sides).

(b) The Arroyo Yabebvrv Watershed, a relatively flat area encompassing more than 40,000 ha is a mixture of wetlands, riverine forests, and natural grasslands, ecologically very similar to large island areas to be flooded. Most of this land is part of large private cattle ranching estates, where traditional extensive grazing patterns are highly compatible with biodiversityconservation; and

(c) Atinguv is an existing EBY-owned faunal reserve of about 100 ha, most of which is riverine forest. This small reserve was established by EBY's environmentalstaff primarily to serve as a temporary home for animals to be rescued from the reservoir area. The reserve's small but attractive zoo has potential for local tourism and environmental education.

16. The investment needed to protect and manage adequately these 7 reserves would be financed through the Yacyreta II Project. This investment would includephysical demarcation,protection-related infrastructure, field and office equipment, and the development of long-term management plans. The recurrent costs of managing these protected areas (salaries,fuel, spare parts, and supplies) would be supported by a special allocation of the revenues earned from electricity sales.

17. In addition to the above-mentioned protected areas, the Yacyreta Project would support efforts to protect native forests growing along the edge of the future reservoir. Maintaining forest cover along as much as possible of the reservoir shoreline will reduce reservoir sedimentation and shoreline erosion, enhance the habitat for many native wildlife and increase the aesthetic and potential tourism values. In those areas where EBY would not own the reservoir-edgeland, it would solicit agreementswith the landowners to leave a buffer strip of forest or other natural vegetation at least 100 meters wide. 'VAvironmentalstaff in, or under contract to, EBY would help to enforce forest conservation in these buffer stirps; the recurrent costs would be financed out -ofa special allocation from electricitysale revenues. Those areas at the edge of the future reservoir which are unforested will, in all likelihood,naturally develop a cover of riverice forest or other dense natural vegetation. For this reason, muanualtreepRlanting along the reservoir edge will probably not be justified. Page 7 of 19

18. To reduce the mortality of animals trapped by the rising waters of the reservoir (particularlyon the riverine islands to be flooded), an animal rescue component is planned. This component would focus primarily on those species e (listed in the EA) which: (a) lack sufficientmobility to escape on their own; and (b) are considered rare or threatened. Most of the animals captured are likely to be relocated to one of the compensatoryreserves mentioned above; some would be sent to zoos. The compensatoryreserves are generally considered to have populations of most large mammal species that are well below their natural carrying capacity. The relocated animals of these species will therefore have a good chance of surviving and reproducing successfully, assuming that the protected areas component of the project is effective in controlling illegal hunting.

Fish and Other Aauatic Life

19. Of the great diversity of fish species in the Paran River, the ones utilized most for subsistence, commercial, and sport purposes are Surub5 (Pseudonlatystomacoruscang and E. fasciatm), Dorado (Salminusmaxillosus), and S6balo (Prochilodus glatensis).Fish migration studies that entailed marking and recapturing of fish have established that movement upriver occurs mostly in Autumn (March-April) and movement downriver occurs mostly in Spring (August- October). Other aquatic life forms have not been systematically studied to the same degree as those fish species considered to be important by the human populations along the river.

20. The Yacyretd Project will transformexisting river and stream habitats into a reservoir lake habitat. Some of the native fish species present in the river today are expected to adapt to and thrive in the waters of the future reservoir (except for those areas which become anaerobic due to biomass decomposition, discussed below). However, many other fish species are not expected to adapt to the altered aqu:-tic environment; these species would disappear from the inundated sections of the river and streams. However, these species would still be present in suitable habitats of the ParanM River and its tributaries above and below the future reservoir.

21. The Yacyreta Dam is expected to pose a significant barrier to fish migrations. To facilitate passage of migratory fish upriver, the dam design includes 2 fish transfer stations, each with 2 elevators, intended to lift migratory species (including those which lack the jumping ability to utilize a fish ladder) past the dam into the reservoir. One of the elevators is already in operation, having successfully transported nearly 1 million fish of many different species during the past half year. Fish mortality within the elevator has been well under 5 percent, except in rare instances when commercial fishermen illegally gained access to the elevator and harvested large volumes of fish. However, there appears to be considerably higher mortality just after the fish are released,as large predatory Dorado fish have learned to wait by the release area for an easy meal. A major unanswered question is how the migratory fish, which instinctively swim up currents, wi,llreact to the relatively still waters of the future reservoir. Page 8 of 19

22. The fish elevators are intended to provide for fish passage upriver, but not downriver. To go downriver, migratory fish species will have to use either the spillways (when they are operating), turbines, or navigation locks. Since the drop from the reservoir level at EL 83 to the river below the dam will be about 20 m, considerablefish mortalitymay result from the impact. Migration through the turbines will be even more hazardous--particularlyfor the larger fish, which are likely to be cut by the turbine blcdes.

23. At EL 83, a sizable section of the AMa Cua Branch of the Parand River will be subject to annually recurring desiccationand would probably functionas a recurring deathtrap for fish unable to escape from its drying pools. Therefore, the reservoir operating regime will ensure enough water is released from the AMa Cu6 spillway during the dry season (at some cost in decreased power production) to keep this section of the river wet all year long.

24. Aside from the careful management of water releases and operation of fish elevators, mitigation of the project's effects on fish will initially involve two main components: (a) Systematicmonitoring of fish populationsand movements; and (b) control of fishing below the dam.

25. Because the fish transfer stations (and even the dam itself) are essentially a large scientific experiment involving migratory fish, careful monitoring is necessary. The proposed Yacyreta II Project would support a program of systematicmonitoring of the populationsand movements of economically important fish species, both above and below the dam. The monitoring program will be assisted by a fish research laboratorywhich currently exists (but will be upgraded under the project) in Ayolas, Paraguay,as well as a second facility planned for construction in Nisiones, Argentina, near the tail end of the reservoir. Such fish monitoring data will help to determine the optimum operation of the dam's spillways and fish elevators.

26. Although subsistence, commercial, and sport fishing are an important way of life in the Project area, the unnatural concentrationsof migratory fish below the dam (and especially in the fish elevators) make fishing in these areas exceptionally easy, leading to potentially disastrous ovorfishing. For this reason, EBY has agreed to demarcate the area of river 1,000 meters below the dam where (under existing Paraguayan law) all fishing is prohibited.

27. Although fish hatcheries were initially planned for the YacyretI project, they do not appear to be needed at this time. This is because adequate populationsof economicallydesirable fish speciesare likely to become naturally estvblished within the Yacyret6 reservoir. Ever.if this is not the case, hatcheries would be needed to establish and maintain such fish populations only if conditionsin the reservoirwere conducive to their survival but not to their breeding. The Project's systematic fish monitoring program will help to determine whether fish hatcheries would indeed be a justified investment; however, this it not likely to be known until at least two years after final reservoir filling. To avoid major ecologicalrisks, no non-native fish species Page 9 of 19

would be introduced into the reservoirnor other sections of the ParanA River or its tributarips.

28. Floating Aquatic Weeds. Aside from fish, the principal aquatic organisms of concern are floating, broad-leaved aquatic plants, such as Richhornia gragaineg. These plants, which presently occur in the Parana River and its tributaries in relatively low numbers, could become very abundant in parts of the Yacyreta reservoir, particularlyin areas of slow-moving,shallow water with high levels of nitrogen and other nutrients. Extensive mats of floating water weeds are a potentially serious problem, particularlynear urban areas, because they provide ideal habitats for various species of mosquitoes,as well as the aquatic snails which are potential vectors of schistosomiasis. They can also impede small boat navigation, block irrigation intakes, and make parts of the reservoir less suitable for many species of fish.

29. The Yacyreta Project would control water weed proliferation, particularlynear sensitiveurban areas through (a) biomass clearing of part of the reservoirarea, (b) developmentof effectivesewage collection and treatment systems in Posadas and Encarnaci6n,and (c) the program of water releases from the dam (discussedbelow). Since these measures may not always be sufficient, the Yacyreta II Project will finance the development of a contingencyplan for water weed control. The plan would be implementedwhenever water weed mats in urban or other sensitive areas threaten to become too extensive. Aside from partial reservoir drawdown through the management of water releases from the Yacyret6 dam, the main method available for water weed control is manual removal, using boats and laborers. The recurrent costs of periodic manual water weed removal would be covered under the special environmental allocation from the Yacyreta Project's power sale revenues.

Water Ouality

30. The Parana River presently receives large quantities of pollutants, both from untreated urban sewage and industrial affluents. However, the river's capacity to absorb and dissipate such pollution is relatively high, due to its large volume and rapid flow of water. This naturally high assimilativecapacity has kept water pollution in the Paran River from becoming very serious to date. With the backing up of water by the Yacyreta dam, the river's assimilative capacity will substantially diminish, particularly in the shallow bays where water flow velocity would be low much of the year. Given the hydrology of the future reservoir, the prirncipal factors which are expected to produce reservoir water quality problems are: (a) domestic sewage pollution; (b) industrial water pollutior.;(c) biomass decay; and (d) urban refuse dumps.

31. DomeasticSewaae Pollution. At EL 83, if untreated urban sewage were to continue pouring into the urban bays of Posadas and Sncarnaci6n, very serious environmental and public health problem's would result. These bays will have many low-income residential neighborhoods virtually on their banks. Contact with slow-moving water heavily polluted by raw sewage (as well as industrial effluents) would greatly increase public health risks from cholera, hepatitis, Page 10 of 19

and various gastrointestinaldiseases. Moreover, nutrients provided by this pollution would greatly improve the conditionsfor aquatic weeds, the preferred habitat for certain species of mosquitoes (some of which are disease vectors, others merely a nuisance) and snails (which can transmit schistosomiasis).

32. To prevent this scenario, EBY would support the development of complete sewerage systems for Posadas and Encarnaci6n. The system in each city would include some type of sewage treatmentplant (such as settlingponds) and/or a long discharge pipe into the relatively fast-flowing waters in the middle portion of the reservoir. These systems would only be needed when the reservoir is raised to its ultimate level of EL 83. The Yacyreta II loan would finance detailed studies to evaluate alternatives and develop a final design for the sewerage systems of Posadas and Encarnaci6n. It is planned that these systems would then be constructed (beginning1995), financed in part by the revenuesfrom electricity sales during operation at reservoir EL 76 and El 78.

33. IndustrialWater Pollution. Downriver of the existing Itaipi dam (and particularly in the vicinity of Posadas and Encarnaci6n), a wide variety of industrial effluents are currently discharged into the Paran& River without treatment. These industries include paper and pulp mills, citrus juice factories,manioc starch factories,turpentine and resin factories,cotton gins, vegetable oil factories,meat-packing plants, and slaughterhouses. At present, the fast-flowingParana River is able to assimilate fairly quickly most of the organic industrial pollution which it receives. However, at reservoir El 83, urban bays at the edge of Posadas and Encarnacion would have very limited assimilativecapacity (due to very low water velocity) for such pollution. To mitigate this impact, the Yacyreta II Project would include a component of technical assistance to the responsibleArgentine and Paraguayan agencies for improved regulationof industrialwater pollution.

34. Biomass Decay. Vegetation which is not cleared from the reservoir area will decompose over a period of years following reservoir filling. This decay process will consume dissolved oxygen, possibly resulting in a layer of anaerobic water in the lower depths of the reservoir. Should the thermal column invert at some time in the future, the result would be a massive fish kill and temporarilyvery poor water quality at the surface and downriver.

35. To improve reservoir water quality, EBY will selectively deforest certain areas to remove the woody biomass before flooding. Clearing of the biomass will concentrateupon removal and salvage of tree trunks and cutting and burning of the rest of the vegetationin sit. Biomass clearing would be limited to the areas below the level at which the futulrereservoir will be operated. The filling of the reservoir in three stages (El 76, EL 78 and EL 83) will permit substantial biomass removal in the critical areas where risks of thermal stratificationand eutrophicationare greatest.

36. Urban Refuse Dumps.. At EL 83, several existing urban refuse dumps would be flooded. This could seriously impair water quality in several urban bays. The proposed Yacyreta II loan would finance a study to identify the best Page 11 of 19

alternatives and plan in detail the clean-up and stabilizatior. of these dumps, before reservoir flooding to EL 83. The actual clean-up and stabilization of thesu dumps would begin after the beginning of reservoir operation at EL 76 to help generate the funds needed for this work.

37. Drinking Water Oualitv. While some residents of Posadas and Encarnaci6n already have potable water piped to their homes, a majority still rely on wells for their drinking water. Although there are no good baseline data on the quality of drinking water from wellP in Posadas and Bncarnaci6n, it is presumed to be generally poor because of the high recorded incidence of diarrheal diseases in both cities. It is likely that the Yacyret4 reservoir would cause the quality of drinking water from wells to deteriorate further, by raising the groundwater table--thereby facilitating the further mixing of groundwater with human sewage from existing cesspools, septic tanks, and runoff.

38. To ensure that the quality of drinking water does not deteriorate-- and, in fact, to improve it to acceptable conditions from a public health standpoint--the Yacyrett SI Project would support the installation of a piped potable water delivery ytstem for the still-unserved portions of Posadas and Encarnaci6n. As in the case of the sewerage systems, the Yacyret& II loan would finance detailed studies to evaluate alternatives and prepare final designs, while the actual construction vwuld begin (utilizing other funds) after the start of reservoir operation at XL 76. The proposed Yacyrett II loan (and recurrent cost funding from a special allocation of power sale revenues) would also finance a permanent program to monitor the quality of urban drinking water.

DowMriver Imnaats

39. The most significant downriver environmental impacts of the Yacyreta Project would involve the M^a Cud Branch of the Parana River, which is about 25 km long and 4 km wide between the dam and its confluence with the river's Main Branch. If the Afa Cud Branch were allowed to dry out every year and then refill during the wet season, it could function as a deathtrap for fish unable to escape its drying pools and would also pose water supply problems for the nearby town of Ayolas, Paraguay.

40. Since dry-season releases from the Aia Cu& spillway would imply a reduction in potential power generation, such releases should, for economic reasons, be kept to a necessary minimum. To reduce the required amount of water releases from the AfMa Cud spillway, EBY is considering the possibility of constructing 3 mini-dams on the A'la Cu6 Branch that would help to ensure that no section of the AflaCu& Branch below the damn would ever be without some minimally acceptable depth of water. The mini-dams would have movable gates which would allow fish movements; however, most fish Wdgration is expected to take place in the Parand River's Main Branch, on which the fish elevators are situated.

41. Aside from the serious issue of the AMa Cu& Branch, the Yacyret4 project is expected to have relatively minor environmental impacts downriver of the dam. The management of water releases from the dam will be more or less Page 12 of 19

"run-of-river"because the project will be operated for baseload, not peaking, power generation. Thus, water flows below the dam during both the dry and wet seasons will follow fairly closely the existing patterns.

42. Presently, the Parani River in the Yacyreta project area carries much less sediment than it did before the constructionof the upstream ItaiptiDam, which now serves as a major "silt trap" for the 'river. Because the river's already low sediment load, the additional reduction in sediment after the Yacyret& dam is closed is not expected to be significant,in terms of potentially increasing riverbed and bank erosion rates downriver of the dam.

43. Concerns have been expressed that operation of the Yacyreta Dam would cause significant ecological changes in major downriver wetland areas, particularly the Pantanal de Neembucu in Paraguay and the Esteros de Ibera in Argentina. However, this threat does not appear very likely, for two reasons. First, these wetlands are now believed to derive most of their water from sources other than the annual flooding of the Parana River. Second, operation of the Yacyret& Dam would not significantly alter the natural flooding regime of the river, in terms of average maximum annual flow. Only extraordinary flooding, such as greater than 10-year floods, would be controlled by the dam. A more serious threat to these wetlands may be their drainage for irrigation development programs in the future (discussed below).

Public Health

44. The major water-related infectious diseaees endemic in the future reservoir area are typhoid fever, hepatitis, and various gastrointestinal infectionsand parasites. Contaminatedwater, due to deficientwaste disposal and sanitation systems, constitutes a significant public health risk today, especially in the urban areas. Various kinds of gastrointestinalinfecticns and intestinalparasites, usually diagnosed simply as "diarrhea",are common on both sides of the river. They are by far the most significantpublic health problem today, reported by clinics to number several thousands each year.

45. Water-borne disease vectors present in the region include several varieties of mosqucito which transmit malaria (Ang2helesalbitarsis, &L darlingi, etc.), yellow fever (Culex auinauefasciatu, Aedes aeaoti, Sabethsa albiforivus,etc.) and dengue fever (Aedes aeaovti). These vectors, in addition to many other types of mosquitos which are mainly a nuisance, are distributed throughoutthe project's area of influenceand especially in the riverine cities, where malaria and dengue fever are considered endemic. Malaria cases number between several hundred and several thousand each yeii. bangue fever cases are probably much more ccmmon than the several thousand recorded each year because of confusion of the symptoms with those of common colds and flus. Yellow fever is rare.

46. Schistosomiasis is not endemic in the area of project influence,but snails of the genera BioUmhalaria, which are suitable vectors for schistosomiasis, do occur in the ParanM River and its tributaries. Page 13 of 19

Schistosomiauisis present in Brazil and migration between Brazil, Paraguay,and Argentina is increasing over time. The risk of the spread of schistosomiasisto the future Yacyreta reservoir is high, especially at EL 83, due to the combinationof improved habitat for the Biomnhalariasnails and the proximity of a dense urban human population.

47. The future reservoir will provide good habitat for aquatic weeds and water-borne disease vectors. The risks of human exposure to malaria, dengue fever, and schistosomiasisare expected to be considerably increased by the future reservoir. In addition, sewage now discharged untreated into the Paran& River by cities upstream and the cities of Posadas and Encarnaci6nat the edge of the future reservoirwill increasepublic health risks of infectiousdiseases.

48. Low-incomepeople displaced from the banks of the Paran& River and its tributariesare leaving low-lyingareas along the edge of waterways where public health conditionsare poor. Resettlementof these people will result in a marked improvement in public health conditions for two main reasons. First, all resettled people are to be provided free complete vaccinations. Second, resettlement areas are to be provided with potable water systems, drainage systems, and sewerage systems which affected people lack. Also, special precautions are being taken in the construction of resettlement dwellings to avoid creating habitat for the reduviid bug, the vector of Chagas' disease.

49. Protecting public health for the rest of the population will require the construction ef (a) sewage collection and treatment systems and (b) potable water systems for both the cities of Posadas and Encarnaci6n (as discussed above). In addition, public health monitoring of water-bornedisease vectors and of clinical cases of vector-borne and infectious diseases will be carried out under the Yacyreta II project.

50. Finally, the proposed project will finance the development of a contingency plan for urban rodent control. This is warranted because mice, rats, and similar urban pests may concentratein houses just above the high water line as a result of reservoir filling.

Cultural Procertv

51. Present knowledge of archeological and historical sites that will be affected by the project is incomplete. Systematic field surveys and investigationshave been completed to date on the Argentine side of the Parana River. Informationfrom the Paraguay side is only indicativebecause systematic field surveyshave not been completed. In Argentina, some 14 archeologicalsites representingthe UMb1 preceramic lithic tradition of hunters and gatherers have been identified. One of these was a village, which was excavated by the UniversidadNacional de Misiones. Another 13 sites were identified representing the Tupiguarani ceramic tradition of tropical forest agriculturalists. A particularly rich site of long occupation by people of this tradition has been excavated on Caflate Island. Preliminary data from Paraguay indicates the presence of similar archeological remains. Page 14 of 19

52. The hinterland regions of Posadas and Encarnaci6n contain numerous Spanish colonial ruins of historical importance. Remains of missions founded by the Jesuits during the period 1600-1767, are densely distributed on both sides of the river. Some of the major mission sites (such as Trinidad in Paraguay and San Ignacio in Argentina) are major tourist attractionsand are above the future reservoir level. Historical buildings dating from the beginning of this century in Encarnaci6n, such as the Customs House, the Post Office, and the old commercial district, are located in the zone to be flooded by the future reservoir. On the Argentine side, the old Railroad Station and Workyard dating from the end of the last century will be inundated by the future reservoir.

53. Archeologicalremains excavated from the future reservoir area on the Argentine side have been catalogued, recorded and are now curated at the Direcci6n de Cultura of the Municipalidadde Posadas. Scientific study of these is ongoing. Under the Yacyreta II Project, the remaining archeologicalsurvey, excavation, cataloging, recording, analysis, and conservation work will be completed. This work will be contracted by EBY with an international team acceptable to the Bank.

Indirect EnvironmentalImoacts

54. By far the most important indirect environmental impacts of Yacyreta would be related to possible irrigation development. The Yacyreta scheme includes the constructionof two irrigationwater intakes (one each for Paraguay and Argentina), which would make it possible in the future to use water from the Yacyret& reservoir for some type of irrigation development project. The irrigation intakes are planned for constructionafter initial reservoir filling to EL 76 and before its final filling to EL 83.

55. Any large-scale irrigationdevelopment would obviouslyhave important environmental impacts. Of particular concern is a proposal (prepared by the Japanese International Cooperation Agency, JICA) for an irrigation project encompassing about 200,000 ha in Paraguay, which would depend on water made available by the Yacyreta reservoir at EL 83. It would involve drainage, land clearing, irrigation,and much new human settlement in what are presentlymostly sparsely-settled wildlands in the area broadly known as the Panatanal de Neembucu, the envisaged compensatory protected area in the Arroyo Yabebyry watershed under the proposed Yacyreta II project.

56. However, constructing the irrigation intakes as planned would not necessarily imply that the above-mentionedproject would indeed be developed. A variety of alternative,less environmentallysensitive, sites in Paraguay could be used for new irrigation development that would utilize Yacyreti reservoir water. Nevertheless,it is importantto follow closely the plans of JICA or any other possible source of financing for such irrigation development, to ensure that environmental concerns (including the need to protect the Arroyo Yabebyry watershed in a natural state) are adequately reflected.

Imolementation of the Environmental Manaaement Plan (IMP) Page 15 of 19

s7. Institutional Framework. In Argentina, the Secretariat of Natural Resources and Human Environment (SRNAH) created in 1991, consolidatesnumerous sectoral environmental agencies under the Office of the President. The new Secretariathas conducted a technical review of the EA and EMP and participated in public hearings at which they were discussed.

58. In Paraguay, the Subsecretary for Natural Resources and the Environment (RNMA) is situated within the Ministry of Agriculture. Within this Subsecretaryis housed the Environment Impact Evaluation Unit, which is charged with evaluatingdevelopment projects and has conducted a technicalreview of the Yacyreta EA and KMP and participated in pubic hearings at which they were discussed.

59. EBY's Resettlementand Environment Division (DARE) has a weak track record to date for carrying out environmentalmitigation activities. To improve EBY's ability to implement and/or coordinate all necessary environmentalwork, the technical staff of DARE will be strengthened by the hiring of several additionalnecessary specialists (listedin the appraisal mission'sAide Memoire and in the draft Loan Agreement). The proposed Yacyret& II loan will also finance a number of long-term consultants for up to 3 years to reinforce DARE during Project construction and reservoir filling, in the fields of biomass removal, reservoir water quality, terrestrial ecology, ichthyologyand aquatic ecology, and archaeology. The Yacyret6 II Project will also finance a 3-year environmentaltraining program for EBY staff and (where relevant) officials of other agencies involved with environmentalmitigation for Yacyreta.

60. Over the long term, successful implementationof the agreed EMP will require decentralizationof responsibilityto local government institutions-- municipal, departmental, and provincial. EBY will retain principal responsibility for financing, technical assistance, quality control, and accounting functions. Local governmentalinstitutions and NGOs are expected to take responsibilityfor detailed design and implementationof many aspects of the mmP, as described below.

61. Manaaement of Water Releases. One of the most importantenvironmental mitigation tools available at Yacyret& is proper management of water releases from the dam (includingthe spillways). The timing of water releases from the Yacyret& dam will influence a wide variety of environmental conditions, both within the reservoir area and downriver of the dam. Even though the principal objective of the Yacyret& Project is electric power generation, careful management of water releases from the dam will be used to achieve the following types of environmentalmitigation: (a) protection of water quality, (b) control of aquatic weeds, (c) avoidance of fish kills, (d) prevention of urban flooding and (e) facilitatingdownstream fish passage.

62. This sophisticated,multi-purpose management of water releases will require a good technical data base, trained environmental staff in EBY to advise on water releases, and judgments concerning tradeoffs between one or more environmental objectives and electric power generation. The proposed Yacyreta Page 16 of 19

II project will finance a detailed study, to be completed well before reservoir filling, to establish quantitative guidelines and paramters for managing water releases to achieve desired levels of environmental and power generation objectives.

63. Management of water releases from the Yacyret& dam to satisfy a variety of environmental objectives (as well a& the principal objective of electric power generation) would be the responsibility of BBY. The head of DARE, or another designated EBY environmental specialist, will be guaranteed to have a major voice in all EBY decisions concerning the managoment of water releases.

64. Wildlands and Biodiversity. EBY has requested the establishment of the proposed Isla Apipe Grande, Campo San Juan, Isla Yacyreot, and Arroyo Yabebyry compensatory reserves through appropriate Governmental channels. The Teyu-Cuare and Atinguy reserves already exist; the Rinc6n Santa Maria reserve will be declared unilaterally by DBY, since EBY owns all of the land. It is tentatively expected that the Government agencies with principal responsibility for managing each reseZve will be as follows: Isla Yacyreta and Arroyo Yabebyry- -Paraguay Natichal Parks and Wildlife Directorate (in the Ministry of Agriculture and Livestock); Isla Apipe Grande--Subsecretariat of Natural Resources, Province of Corrientes (Argentina); Teyu-Cuare- -Ministry of Ecology and Renewable Natural Resources, Misiones (Argentina); Campo San Juan, Rinco= Santa Maria, and Atinguy--EBY. The proposed project will finance the preparation of management plans for these protected areas To varying degrees (most pi onounced in the case of EBY), these agencies are likely to contract out the long-term management functions for these reserves to qualified NGOs (such as the Fundaci6n Vida Silvestre in Argentina and the Fundacidn Koises Bertoni in Paraguay). As noted above, DBY will finance the recurrent costs of managing these protected areas, as well as the protection of other reservoir-edge forests, through the allocation of a small portion of electricity sale revenues. The animal rescue component will be planned and executed by an experienced international contractor, assisted by EBY's environmental staff and by local volunteers.

65. Fish and Other Aouatlc Life. Monitoring of fish populations and movements will be carried out by EBY's environmental staff, assisted by consultants during the 3 years of execution of the proposed project. The fish elevators will be operated by BBY workers, under the supervision and guidance of sBy, s environmental staff and consultants. Since most of the Paraen River immediately below the Yacyreta dm is legally a part of Paraguay, the Paraguayan Navy has the police power to enforce the prohibition an fishing 1,000 meters below the dam. Under conios (legal agreements) with the Paraguayan Navy, both the Argentine Navy and BBY would assist by reporting fishing violations to the Paraguayan Navy.

66. Water Oualitv Biomass clearing will be conducted by DBY through convmnios with agencies such as the Ministry of Public Works of the Province of Misiones and the Department of Public Works of the nlicipality of Encarnacian. The proposed project will also finance an expert consultant, to be assigned to DARE in DBY for 2 years, to oversee biomass removal operations needed for Page 17 of 19 reservoir filling to EL 78. Regulation of industrial water pollution is the responsibility of (a) the Ministry of Ecology in Misiones, Argentina and (b) the National Environmental Sanitation Service (SENASA) in Paraguay.

67. Public Health. Detailed design work for the sewerage and potable water systems for Posadas will be carried out by EBY throiSh convenios with the Ministry of Public Health and the Sanitation Works Agency (APOS) of the Province of Misiones. On the Paraguay side, the same work will be carried out by EBY through a convenio with National Corporation for Sanitary Works (CORPOSANA). The Department of Public Health of the Municipality of Encarnaci6n and the Ministry of Public Health of the Province of Misiones will carry out epidemiological monitoring and coordinate follow-up disease treatment programs on their respective sides of the Parand River.

68. Cultural Propertv. Prehistoric and historic archeology work supported by the proposed project will be carried by an international team headed by a professional archeologist in collaboration with the Catholic University of Encarnaci6n and the Nationa. University of Misiones. Arrangements for the curation of the artifacts will be made with the Direcc6n de Cultura in Posadas and the Catholic University of Encarnaci6n.

Monitorina and Evaluation

69. To help ensure proper implementation of the RMP by BEBYand cooperating institutions, the proposed project will finance an annual project evaluation. This evaluation will done by an independent non-governmental environmental research institution contracted by EBY and acceptable to the Bank. Terms of reference will be agreed upon between the Bank and BEBY,during loan negotiations. Annual evaluation reports will be reviewed by EBY and the Bank jointly and recommendations formulated to address the outcomes reported.

70. Monitoring of important environmental parameters in the YacyretA's area of influence will be carried out by EBY and other relevant Government institutions. The recurrent costs of such monitoring will be supported by a special allocation of power sale revenues from the Yacyretd Project. Table 1 displays the planned division of institutional responsibilities for each major type of environmental monitoring.

Prolect Budaet

71. Table 2 indicates the budget for all environmental mitigation activities to be undertaken during the implementation period (1993-98) of the proposed loan. The budget would total about US$89.2 million (January 1992 price level), during this period, of which US$5.2 million would be covered by the proposed Bank loan and the balance by Argentine Government counterpart funds. Resettlement and related social expenditures comprise a separate component of the Yacyreta II budget (see Attachment 1 of this Annex). Most of the expenditures for the years 1996 to 1998 w)uld only be necessary if the decision to operate the reservoir above level 78m is made. Table 1: INSTITOITIONALRESPONSIBILITIES FOR ENVIRONMNTALMONITORING

: aervir - Intidad Sinacional. . ntidad& 3ins ional EWater :Quality -. Yart , . Y.- -

Disea.se Vectors min of PublicH-ealth pt. of PPublia. Hesalth- Province of- Visonss Hun. of en 6n

Clinical Disease in. of Public :fellth Dept. of Public Health. Provine *f EMisiones Nun.-. -of £ncarnaon

urban x-i*ngDRSCOW8N

Fi:sh Populations -ntidad B1 .ina6ional fUnt inadd ion-. and:.Mgaia. Yamyrett

72 The recurrent costs of sustaining the Yacyreta II Project's environmentalinvestments are tentativelyestimated at US$980,000 per year. It is anticipatedthat these recurrent costs (for water-relateddisease monitoring and treatment, management of compensatory protected areas, protection of reservoir-edgeforests, water qualitymonitoring, fishery monitoring, water weed control, operationof the Arroyo Aguapey protection works, and incrementalcosts of necessary industrial water pollution control) will be financed by a special allocation of electricitysale revenues from HBY, once operationat IL 76 begins (seepara. 2.16, main text). The initial baseline and/or preparatory studiesfor environmental monitoring activities (including water-related diseases, water quality, fish populations and migrations, and industrial water pollution) would be financed by the proposed loan.

73 In the case of the compensatory protected areas, the need for recurrentexpenditures (parkstaff, fuel, and supplies) is relatively immediate, to ensure that on-the-ground management of these areas is well underway before the reservoir filling and wildlife relocation begin. HBY would initially support these expenditures through the government budget contributions. Upon plant commissioning, these costs would be paid in perpetuity out of the special allocation of power sale revenues. The proposed loan would finance specialized assistance for park staff. .| 1993| 199 199S 1996 1997 1998 |TOTAL SEWER4GE AND WATER SUPPLY WORKS 270 305 270 5,268 9,319 6,241 21,673 URBAN COASTAL TREATMENT 197 365 243 8,636 16,491 11,202 37,134 WATER QUAlLUY 1,130 1,945 876 1,600 3,324 1,506 10,381 WiLDLA4NDS AND BIODIERS177 1,100 1,465 530 1,750 2,720 1,750 9,315 FISH AND OTHER AQUA77C LIFE 219 221 400 600 600 579 2,619 PUBLICHEALTH 400 600 300 482 880 480 3,142 CULTURALPROPERTY 300 200 115 350 450 714 2,!29 SPECIAL SVUDIES 300 438 329 0 0 0 1,067 ENVIRONMENTAL TRAINING 200 108 100 100 100 100 708 MANAGEMENTAND OVERHEAD EXPENSES 173 191 103 173 241 178 1,059 (Long-termconsultants and aniualevaluation) _ 7TOTALENVIRONMENT 4,289 5,838 3,266 18,959 34,125 22,750 89,227 Page 1 of 6

ARGINTIN

YACYTA HYDRORLECTRIC PROJECT II

EXECUTION TIMBTABLE FOR THE RESETLMENT AND ENIRONMENTAL MANAGEMENTPROGRAMS (up to reservoir elevation 78m)

TimeFrame Activity Oraanization/Institution Initiated Comleted ResettteMentand Rehabiliation

1. InstitutionalStrenathenina (a) Agreementssigned with local EBY/MinistryAgriculture 10/92 govermentalagencies for (Provaof Misiones)Ministry developmentof actionsand of Health& Welfare(Mund. of programsof social communication Encarnacion),etc. I/ and socio-economicdevelopment (health,education, community development,occupation retraining) (b) Trainingof localgovernmental EBY 02/93 09/94 personnelto meetthe specific requirementsof the programs referredto In (a)above. Cc) Agreementssigned with consultants EncarnacionMunicipal 12/92 for local govermnentalagencies Subcommitteeon Yacyretd, for initialthree year period. (Prov.Misiones) Pin. of Agriculture, etc.!/ (d) Presentationof first quarterly EBY 12/92 reporton qualitycontrol. (e) Agreementsigned with non- EBY 12/92 governmentalorganization for independentevaluation.

2. InfrastructureWorks (a) Completionof housingin progress. EBY about 299 completeunits. 12/92 about 312 units lacking only 05/93 infrastructure. (b) Completionof detaileddesign EBY studiesand projects: 01193 for infrastructure 06/93 Cc) Acquisition of rural lands for EBY 11/92 01/95 resettlementarea; identifice- tion,valuation, expropriation forelevation 78. (d) Landacquisition for industries EBY 12/92 03/93

/I Thecoopaig localgovernme_ inaioa includeon theAgenta aide the Pomade Municipal Commnitue on Yacyreta,Office of the Govemorof the Provis.,Provind Hosing Authodty, Provincia Minir of Agiculture,Socil Welfue, Public Heath, Mine.md Geology,Education, ad theProvincil SubcomisononPluanig; on the Parguay sidethe agenciesindcude theEncaacion Municipl Subcommite on Yarcyre,Minteia of Agculte andLvestock, Health and Welfe, Eduation, Cooeraivsand Houaing. S te agrewt willbe apnedby eachagncy and EBY which will fpeciyreapobiitie for aupcsof theiniple_meaon of reslenentopeationa. Page 2 of 6 relocatfon, including studfoe to identify claydeposits, reset- ttementalternatives, occupational retrainingalternatives and evaluation of clayrecovery alternatives. (e) Contract and construct urban housing HousingAuthority (Prov. of 04/93 06/95 and infrastructure for elevation 78. Misiones). HousingAdmin. (Municip. of Encarnacion) (f) Contract and Construct Rural HousingAuthority (Prov. of 5/93 06/95 Housingand Infrastructure Misiones)Housing Admin. forelevation 78. (Nun.of Encarnacidn) (C) Contract and Construct Encarnacidn EBY/NunicipalSubcommission 01/93 08/93 commercialzone (complete infre- on Yacyreta (Encarnacion) structure in the commerciflresettle- ment zone). health posts,etc.) (h) Reconstructionof shopsby ouners. EBY 06/93 06/95

3. Poculation Transfer (a) Relocation of urban populatIon EBY and issuing of property deeds: for elevation 76. 11/92 06/94 forelevation 78. 06/95 cb) Relocationof RuralPopulation EBY andissuing of propertydeeds: forelevation 76. 01/94 06/94 forelevation 78 06/95 (c) Relocationof industrialpopulation EBY 6/93 6/94 (periurban): forelevation 76. 10/93 06/94 forelevation 78 06/95 :d) Relocationof thecomuercial zone EBY 10/93 06/95 populationand issuing of property deedsto servicedlots. 4. Economicand Social Develocment 0-nramr (a) PublicHealth Min.Public Health (Prov. 10/92 09/98 of Nisiones),Dept. Public Health(Encarnaci6n) (b) CommunityDevelopment. Min.Social Welfare tProv. 12/92 09/98 ofMisiones), Nn. Health andWelfare (Encarnacidn) (e) LiteracyCanpaign Min. Education (Prov. of 03/93 09/98 Misiones) Dept. of Education CEncarnacidn)

(d) Agriculture Extension Min. Agriculture (Prov. of 06/93 09/98 (Misiones), Min. Agriculture and Livestock (Encarnacidn)

Envirorwnental Manaamont

5. WIater ustity (a) Sewagecollection and treatment APOS/CORPOSANA In Posadasand Encarnacidn. Studies to devolop final 10/92 10/93 designs for s jrpge net- work and sewagetreat'nt plants for both cities.

Construction of (1) primary 12/93 06/98 seweragecollectors and interceptors, Ci) secondary and tertiary sewerage net- works (including residential hookups), and CiII) sewage treatment plants and/or long discharge pipes. (b) Urban water supply system. APOS/CORPOSANA Studies to develop final design 10/92 10/93 of a potalbe water system for Posadas, Garupa, Candelaria, and Encarnacidn. Construction of the potable water 12/93 06/98 system (including residential hook-ups) in these cities.

(c) Selective biomass removal. Study to Mln. Public Works (Prov. prioritize and plan biomass removal of Misione),Dept. of will be done. Pubtic Works (Mnficip. of for elevation 76. Encarncidn), EBY. 01/91 06/94 for elev tion 78. 01/95 08/95 (d) Treatment of urban refuse EBY duLspsto be flooded.

Study to evaluate aLternatives 02/93 12/93 (refuse removal. dumpstabiliza- tion, etc.) should the reservoir level be raised to elevation 83 and initiate monitoring progren.

loplementation of dumptreatment 03/94 07/95 measures (as needed).

(e) Formulation and ifpleientatlon Min. of Ecology (Prov. of 10/93 9/95 of regulations to control industrial (Miuiones), SENASA(Paraguay) waterpollution, agreed with provin- cial and departmental government having police power to enforce agremnt in and upriver of Posdas and Encarnaecidn. Cf) Reservoirwater quality monitoring, EBY 01/93 recurrent beginningwith baseLinestudy to be completedbefore fitLing to elevation76.

(g) Monitoringurban well-water quality, APOS/CORPOSANA 01/93 recurrent beginMingwith baseline study to be conpletedbefore filling to etevation 76.

6. Wildlandsand Biodiversitv

(a) Establishmentof compensatory Min of Ecology(Prov. of protectedareas in IslasApipe, Misiones),Paraguay National CampoSan Juan,Rincdn Santa Parksand WildlifeDirectorate, Maria,north Ibera,and Teyu- Subsecretaryof NaturatResources Cuare in Argentina;Cuenca (Prov.of Corrientes),EBY ArroyoYabebyry and west Isla Yacyretgin Paraguay.

Studiesto developmanagement 01/93 08/93 plans,physical boundary dear- cation,necessary infrastructure and equipmentfor specific reserves,and (for CampoSan Juan) landacquisition.

(b) Wildliferescue. Study to design EBY 09/93 12/95 rescueplan, folLowed by implementa- tion (synchronizedwith the 3 planned stagesof miomassclearing and reservoirfilling). Cc) Reservoir-edgevegation managuemnt. EBY

Studyto (i) identifycritical 01/93 07/93 trosion-pronereservoir-edge areas, and (ii) recoumendappropriate site-specific erosion control measures.

Preliminaryih %lementationof 12/93 09/95 erosioncontrol measures, in- cluding(i) iega.agreements with landowners t' maintain protectivebuffer strips of naturalvegetatior along reservoirshoreline, and (ii) (if needed) manual reforesta- tion or other erosion control activities. Monitoringand controlof 10/98 recu.rent natural reservoir-edge forest vegetation.

7. Fish and Other Aauatic Life

(a) Research and monitoring of EBY 10/92 recurrent fish populationsand migration upriver and downriver of the Yacyretd dam. (b) Control of fishing on the Pararn Paraguay Navy 10/92 recurrent River (for 3 km above and below the YacyretUdam); agreements with relevantagencies of the Borrowerand of Fdraguaywith policepower to controlillegal fishing.

tc) Controlof ftloatingaquatic weeds. EBY 09/95 recurrent S. PubilcHealth (a) Monitoringand controlof Min. PubilcHealth (Prov. 12/92 recurrent vector-and water-borne Misiones),Dept. Public diseases,including (i) vector HeaLth(Hun. Encarnac'dn) (especiallymosquito and snail)monitoring and control and (ii)clinical disease monitoringand treatment. 9. CulturalPropertv (a) Archeological,survey and CatholicUniversity of 12/92 07/95 salvage Encarnacidn,National Universityof Misiones

(b) Historicalbuilding review CatholicUniversity of 01/96 12/98 salvage. Encarnacidn,National Universityof Nisiones

10. SoecialStudies and MitiastionWorks (a) Study to developenviroimental para- EBY 02/93 C9/95 metersfor operatingguidelines for water releasesfrom the Yacyroetdam.

(b) Water managementin theAna Cua EBY branch of the Paranr River. Studyto evaluatealternatives 02/93 08/93 for water managementin the Ans Cue branch. Construction of mitigation 10/93 06/95 works according to results of study. (c) Environmentalimpact study of the EBY 01/93 12/93 ArroyoAguapey protection works (i.e. of the Yacyreut power plant with and withoutthese works). (d) Constructionof ArIoyo EBY 09/94 09/95 Aguepeyprotection works according to the results of the study referred to in Cc) above. A;W 2-? Attachment 3 Page 6 of 6

Ce) Planning and construction of urban EBY coastal treatment works, including tI)shoreline edge configuration for Posadas,Encarnacidn, Garupa andCarmen del Paranr ; (ii) shore- line protection against flooding and riverwave action; (iii) treat- ment of urbanstreams; and tiv)recomposition of urban and rural routes. Detailedplanning studies. 04/93 10/95 Legaland technicaldetails 09/95 neededfor civilworks contracting ready. Cf) Envirormentalimpact study of new EBY 12/92 04/93 powertransmission lines for the Yacyretfpower plant. 11. EnvironmentalTraining (a) Envirormentalpanel of EBY 11/92 09/98 experts. Cb) Environmentaltraining EBY 02/93 09/95 of localagency staff, including EBY andcollaborating governmental agencies and non-goverrwentalorganizations (shortcourses and fieldworkshops). 12. Evaluationof Resettlementand Environmental Manraement Plan Immlementation (a) Consultantscontracted. EBY 12/92 Cb) DraftFirst Report EB 03/93 (c) FinalFirst Report EBY 06/93 (d) DraftSecond Report EBY 03/94 (e) FinalSecond Report EBY 06/94 Cf) DraftThird Report EBY 03/95 Cs) FinalThird Report EBY 06/95 th) DraftFourth Report EBY 03/96 (i) FinalFourth Report EBY 06/96 CJ) DraftFifth Report EBY 03/97 Ck) FinalFifth Report EBY 06/97 tl) DraftSixth Report EBY 03/98 Cm) FinalSixth Report EBY 06/98

13. Hfd-TermRevie IBRD/EBY 6/94 ARGFNrlNA

YACYRETAHLDROELECTRIC PROJICT II

HestimatedDisburseMent Schedule (USS million)

Fiscal Year - Disbursement - and Semester Semester t Accumulated e FY93 First 152.0 50.7 152.0 50.7 Second 44.0 14.7 196.0 65.4

FY94 First 39.0 13.0 235.0 78.4 Second 29.0 9.7 264.0 88.1 FY95 First 27.0 9.0 291.0 97.1 Second 4.0 1.3 295.0 98.4 FY96 First 3.0 1.0 298.0 99.4 Second 1.0 0.3 299.0 99.7

First 0.5 0.2 299.5 99.9 Second 0.5 0.1 300.0 100.0

Note: Disbursement for first semester FY93 includes US$60 million retroactive financing and US$20 million for the Special Account. Page 1 of 5

YACYRSTI HThRo3L3CTRaICROJZCT!!

Economic Justification

Bac,karound

1. The economic evaluation of the Yacyret6 hydroproject, carried out in 1979 for the appraisal of loan 1761-AR, was based on the Bank's traditional approach: (a) the project was shown to be part of the least-cost solution for expanding the capacity of the NIS; (b) the project was shown to have been submitted to internal optimization; and (c) the Economic Rate of Return (ERR) was estimated as the discount rate which equates the present worth of the power benefits and costs of the project, using the consumers, financial charges as a proxy for full economic charges. On these bases, the ERR was estimated to be 141. Sensitivity analyses shoved that: (a) Yacyreta was part of the least cost expansion program for Opportunity Cost of Capital (OCC), up to 201 for the basic demand growth rate of 9.61 p.a.; (b) a lower demand scenario would delay the commissioning date by one or two years without substantially affecting the ERR, and (c) an increase of 101 in the project costs or a decrease of 101 in the project benefits would reduce the ERR by 1.

2. Some components of the project's relocation/resettlement program (RR) were not required by the power generation project; instead, they corresponded to improvements desired, and agreed upon, by the governments of Argentina and Paraguay in the infrastructure works and in the living conditions of the people affected by the project. Thus, when performing the economic evaluation, the Bank deducted the corresponding amounts (US$189.3 million at the December, 1977 price level) from the project investment. These costs were considered an additional financial charge of the project, to be borne by Yacyrett, which would pass them to the power sector of Argentina through electricity tariffs. Though the SAR mentions the possibility that eventually agreements would be reached with Argentine institutions benefitting from this additional investment to restore the corresponding funds to the power sector, no attempt was made later to materialize this optimistic assumption. The US$189.3 million of RR, which was not part of the project economic evaluation, represented 531 of the RR component, which, in turn was 15.31 of the project basic direct cost, estimated at appraisal to be US$2360.4 million (December, 1977 price level). 541 of the non-project RR was estimated to benefit only Paraguay; the remaining 46* would benefit only Argentina.

3. The project economic evaluation was revised by the Bank in June 1988, in connection with loan 2998-AR, because most of the assumptions made at the time of the appraisal of loan 1761-AR were no longer valid. A with/without project approach was used to assess whether the project was still part of the least cost solution. The cost of the project included only those components required to complete and operate the project. Investments made prior to appraisal were considered sunk costs. The alternative option Page 2 of 5

considered for the without project case consisted of a set of gas fueled Combined Cycle (CC) and gas turbine plants, which would provide equivalent power supply, because gas had become available at relatively low cost. Results showed that completion of Yacyret& would have an ERR of over 18W. Sensitivity analysis showed that a 20* cost overrun would reduce the ERR to 151. Delaying the project commissioningbecause of a lower demand growth would not substantially reduce its ERR.

4. A complete review of the economic merits of the proposed project was performed at the April 1992 appraisal. First, the project position in the NIS' least cost generation expansion plan was reviewed; second, the project was evaluated against the second best alternative;and thir , the project ERR was estimated for a base case and a number of sensitivity cases for possible variations in the main planning parameters: demand growth, OCC, and the various options for completing the project with regard to reservoir elevation and co--issioningdates. The most relevant results are presented below.

Least Cost Solution

5. Though sector planning procedures are likely to evolve with the gradual transition towards a mostly privatized sector, until now, generation and transmissionexpansion planning has been the responsibilityof the SE, which updates the planning study every year. The methodologies used by the SE are sound. Generation exiansion is based on the interactive use of three mathematical models: (a) an investment selection model, based on linear programming, that defines the optimum configurationof the system over three year periods within the planning horizon (20 years); (b) a detailed monthly simulation model that more precisely defines when additional ge,serationis required and estimates the system generation costs; and (c) a reliability evaluation model that verifies whether the configurationobtained through the operation of the two previous models meet agreed reliability standards. TransMissign expansion is defined on the basis of state-of-the-artstudies; for the Yacyreti transmissionsystem, these were done witi assistance from foreign consultants (Annex 2.3). Economic parameters used in the studies, such as discount rate and fuel costs, have been selected in agreement with the Bank.

6. The full completion of the 3,100 KW Yacyreta scheme--considering investments made until 1991 as sunk costs--has been found to be part of the least cost solution for expanding the NIS generating capacity, after completion of Piedra del Aguila (1993). Moreover, the estimated economic generation cost of the scheme is US$17.6/MWh (Attachment1, Table A)1/,

1J This and other estimates in this annex are based on a 30 year useful life for the plant, a conservative assumption. Civil works of a hydro plant are assumed to last 50 years, but electromechanical equipment and transmissionfacilities need to be replaced at 30 years. Considering a 50 year useful life for the civil work would result in a slightly higher ERR. Page 3 of 5

which is below the fuel cost of the thermal generation of existing plants, estimated at US$20/Mwh2/.

7. The other components of the 1992-1997 expansion plan for the NIS are: (a) the 1,400 MW piedra del Aguila hydro plant, which is being commissioned; (b) Pichi-Picun-Leufu,a small hydro plant (250 MW) being implemented with earmarked Brazilian financing, scheduled for commissioning in 1996; and (c) the 745 MW Atucha II nuclear plant, scheduled for commissioning in 1997 and whose completion has a reasonable ERR of 12.3* (Attachment 1, Table B).

Com=arison with the Second Best

S. The least cost expansion plan prepared by the SE has shown that the future exoansion of the system will be based on gas fueled CC plants. A rough evaluationof the full completion of the 3,100 MWYacyreta scheme as compared with the CC option (Attachment2, Table A) shows that the net present value of the Yacyreta solution at 121 p.a. OCC is 401 lower than the CC option.

Internal Rate of Return of the ProDosed Pro-ect

9. Because the high proportion of investments already made in Yacyret& are considered sunk costs in its economic evaluation, the ERRs under a wide set of assumptions are sufficientlyhigh to ensure that Yacyreta is economicallyfeasible, even under very unfavorable circumstances. The severe assumption reflected by the project definition is that Yacyret& would be limited to only six units operating at the maximum reservoir level of 78 m. The rate of return of the proposed project was estimated as the discount rate which equalizes the present value of economic net cost and benefit streams associatedwith the project. Two different approaches were used to estimate costs and benefits, as follows:

(a) Su=olv at the Grid Level. The project contribution to the NIS at the high voltage transmission level was considered. The economic net cost includes: (i) the capital investment in generation associatedwith the completion of the project; (ii) a proportion of the investmentsof the transmissionsystem which is directly associated to the project; and (iii) operation and maintenance costs during the project's useful life. Investments since the start of the Yacyreta plant constructionuntil 1991 were treated as sunk costs. Costs for resettlementand infrastructure relocation as well as for environmentalmitigation measures are internalizedin the project investments. The benefits are estimated as the energy generationprovided to the grid at the estimated LRMC of US$45/MWh, being approximatelyUS$40/MWh for

2V Natural gas cost: US$ 2.00/millionBTU; Specific Consumption Rate of existing thermal facilities (mainly old steam plants): 10,000 BTU/Kwh (efficiency:341). Page 4 of 5

generation (Attachment2, Table B) and US$5/MWh for transmission. The resulting ERR for this base case (Attachment3, Table A) is 13.31.

(b) Final Ueer. The project contributionto the NIS at the distribution level was evaluated. The economic net cost includes the constructionand operation costs of the plant, plus a proportion of the constructionand operation costs of transmission and distributionfacilities, which would make possible the sales of the pioject energy, estimated as a proportional part of the total NIS investments that are attributableto the incremental capacity supplied by the project to the grid. Benefits for thio case were assumed to be the revenues from energy sales expected from the project at the estimated average rate to the final consumer of US$85/MWh. These revenues can be considered a lower bound for the consumer's willingness to pay. The resulting ERR for this base case, as seen in Attachment 3, Table B, is 17.41.

10. The project energy is totally absorbed by both High and Low Demand scenarios (Annex 1.4) as they are made available to the grid. Therefore there will be no changes in the ERRs indicated above in the case of the Low Demand scenario.

11. Estimates of the generation,high voltage transmissionand distributionLong Run Marginal Costs (LRM2C)are generally consistent with results of a study prepared recently by the SE with assistance from _lectricit6 de France (EdF) and financed by the Bank under loan 2751-AR.3/

The Ultimate YacvretS Confiouration

12. Bass Case. For the purpose of economic analysis, the proposed project should also be examined under the broader approach of full completion of the Yacyret& scheme as thic is the most likely case. This means installation of units 14 to 20 and operation of the reservoir at elevation 83 m (para. 2.11). As shown in Attachment 4 the ERRs would be the following: (a) supply at the grid level: 24.1V (Table A); and (b) final user: 27.61 (Table B).

13. Sensitivity Analyses. As noted above, the economic generation cost associated with the ultimate configurationof Yacyret& is US$16/NWh, less than half the NIS long term marginal cost at the generation level of US$40/MWh. This ensures Yacyrete's robustness in relation to: (i) a delay in the case of the Low Demand scenario, which would be theoreticallypossible from the point of view of energy supply, but uneconomic; (ii) possible cost overruns; and (iii) the possibility of operation at reduced elevation for a period longer than recommended. l/ Use of a CC plant for defining LRPC at generation level was preferred because investments in ongoing projects (includingthe nuclear facility) could distort results. Page 5 of 5

13.1 A planned lower demand scenario would not warrant modification of the planned execution schedule, because the potential benefits of deferred investmentsare lower than the variable cost of a thermal plant (fuel cost). During the period 1996-1998, the economic benefits would be lower than in the base case, as they would correspond to the economic cost of replacing thermal generation in existing plants. The ERR on these bases is estimated at 20.2t p.a. (Attachment5, Table A).

13.2 A major cost overrun is not likely to occur, because of the high proportion of investments already made in the civil works, the component most likely to be affected by cost overruns. Notwithstandingthis, a high cost overrun of 20* yields an ERR of 21.0* p.a. (Attachment5, Table B).

13.3 The initial operation of the reservoir is at reduced elevation in order to postpone a substantialpart of the RR program. However, there is some risk that, because of difficultiesin implementing the RR program, the reservoir would be kept at reduced elevation for a period longer than currently proposed. Although rather unlikely, this severe case assumes that the reservoir would be permanently operated at 78 m, instead of reaching its maximum elevation of 83 m by 1998. Investments in this case would be lower than those of the base case, because most of the RR program would not be implemented. Investments in the power house include the installationof the twenty generating units which would permit the utilization of about 50* of the plant's designed average energy. The ERR for this case is estimated at 16.2* (Attachment5, Table C). ARGE~NTA YACYRETAHYDROEECTRIC PRDJECT 11

I TAELEA I TABLE ESTIMATEOF ECONOMIC B GBERArgCN COST ECONOMICEVALUATION OF THEATUCHA II NUCLEARPLANT FORYACYlETA'S ULTIMATE CONFIGJRATION .On _Wo U_t

I CastsOJS$ m- I G oIm.1 O TR 8n Yew Cs II I I 0 I MIh I )( Ye OOm4) 1992 571.5 371.5 19 127 12 IS aM2 -12 aM2 Iun 276 278 -m 9" 83 10.0 3.3 0 1994 4 428 -423 1995 176.8 16. 194. 2964 19 137 137 -137 1999 2285 1.O 2895 6481 1996 170 170 -170 1997 2643 16.0 2803 11471 1997 70 20 90 400 180 90 1996 147. 160 1ea81.3 10 t90 40 40 5221 295 195 lose a10 16.0 19m 9 40 40 52 2 200 195 160 16.0 1s06 2m0m 40 40 am 2s5 IN 201 'J 16.0 1926 am 40 40 2002 O1 235 195 10 1106 2002 40 40 52 236 195 no 16.0 1601a as m11 40 40 mt u 2m04 195 1e0 16" 19266 2004 40 40 m221 235 195 20 16.0 160 1926 2005 40 40 5221 235 200 195 16.0 16.0 10s2 40 40 5221 235 260W 195 1O 16.0 19266 207 40 40 5221 235 195 206 16.O 1lLO 19266 2006 40 40 5221 2a 235 195 1O 16. 19 26 40 40 21 285 2010 195 16.0 16O 196 21O 40 40 52 235 201 195 16.0 160 1926 201 40 40 5221 285 2012 195 16l0 16.0 192 2012 40 40 21 236 2013 195 16i0 16.0 1926 2013 40 40 52 285 195 2014 16.0 16.0 1926 2014 40 40 5221 235 195 205 16.0 16.0 19208 2015 40 40 2016 5221 235 195 16. '16.0 19206 2016 40 40 5221 235 2017 195 6.0 16.0 1920 2017 40 40 5221 235 2018 195 16.0 16.0 19206 2018 40 40 5221 235 2019 195 16.0 16.0 19208 2019 40 40 5221 235 2020 195 18.0 16.0 19206 2020 40 40 5221 235 2021 195 16. 16.0 19266 2021 40 40 5221 235 2022 195 16.0 16.0 19208 20 40 40 5221 295 2028 195 16.0 16.0 19206 2023 40 40 5221 235 2024 195 16.0 16.0 19206 2024 40 40 5221 235 2025 195 16.0 16.0 19206 2025 40 40 5221 235 195 2026 40 40 5221 235 195 2027 40 40 5221 235 195

NPV 1_ 1311 99 1411 85 Ta 1205 1220 2425 160630 rEcormic erwation Cost MWh) 15.91 conomicRads of Retufn ER123 (1)l_wmeatMade pto 1991CsideredS&mkCuls ANW9n (1)OOCC 12% PA (2)AuxaU uiDnc4 ureAMimlawegmeu inTtuum (3)Am1 ope& d ManMintenoCcls. lndudePalC)de (4)Baed an 80%PlantFactor (5)Avrage EemyCost at TmnsnmsiisALevel (1): ARGET11NA YACYRA HYDROFECTWC PROJECr n

I TB A -TABLE B 1 COhPAR19NOFYAllEAWrlMSN&PIH L0O1N#;ECOND8W ECN GENR 0w |%EHfM QPT0 tnUSSd, mnt

iswuwm110stmmbaO" ITOMI I2OEt!womTOWF bdWetml (1)IOalr Cost TowI GUsralo Ye %;_= I T_ I I _souI T_u I FW() 1OAKI m f O0_d IT_LFmW mi X OM1fO0MI (WbL 4) -3S72 Is sss 151 S 1# -9 116 S 121 1sss S70 126 4ss 321 -1o 331 -2 155 1o 165 1994 343 134 10 487 269 45 4 318 -1 76 78 1995 179 100 16 295 714 129 11 853 0 39 39 1996 224 38 16 275 376 10 174 13 S7S 1 65 6 74 3400 1S97 204 8 16 280 232 20 244 29 s25 2 65 8 74 3400 1i8m 147 1613s 0 292 29 321 3 65 6 74 3400 1999 1e 1 292 29 321 4 65 8 74 3400 2000 16 16 292 29 321 5 65 a 74 3400 2001 6 16 292 293 21 6 65 8 74 340 2002 16 16 292 29 321 7 65 8 74 34W 2008 16 1e 292 29 321 8 65 8 74 3400 2004- 16 16 292 29 321 9 65 8 74 3400 2005 16 16 292 59 351 10 65 8 74 340 200 1e 1e 292 598 51 11 65 a 74 3400 2007 1s16 292 59 351 12 65 a 74 3400 200 11 6 292 S9 351 1s 65 8 74 3400 2009 16s16 292 19 351 14 65 8 74 3400 200 16e 1 292 59 351 15 65 6 74 3400 2011 1e 1 22 59 351 16 65 6 74 3400 2012 1s 16 292 59 351 17 5s 8 74 3400 2013 16 16 22 59 351 16 65 6 74 3400 2014 16 16 292 5 s351 19 es 8 74 3400 2015 16o16 292 59 351 20 as 6 74 3400 206 16e16 292 59 351 21 65 0 74 3400 2017 16 16 292 59 351 22 65 6 74 340 201 16 16 22 59 351 23 65 8 74 3400 2019 16 16 292 59 351 24 65 8 74 3400 2020 16 16 292 9 351 25 65 8 74 3400 2021 161 6 292 59 351 26 65 a 74 3400 2022. 1 61 292 59 351 27 65 8 74 3400 2023 16e i 292 so 351 26 65 6 74 3400 2024 lo 61 292 59 351 29 65 8 74 3400 2025 . 1 s16 292 59 351 30 65 8 74 3400

INPV (4. 1710 3114a V 697 174051 ( Geab COaL 40.11 :r Z (I) ASof Coghd Ceb UsiaWhWould WOvSlmdkib, Ga gCmpftya ndAnmalEmc AINM9An2 X -Yaepa btlof 430Whl 199 66MW19f.W200.MWk MW 399d 1655 9l9 (I)Badoa 554MWGaFoldCouoadCydaPlat (2) AwamlSNatuGas tUSS2.4IWMUh0rUand4SGa ileac LoctadChgto& te Bo Ae.AmdLnat. otUSS7Okw N (3) AtUStkW-yr (2)PueCotEstmadatid OptNuhyCaeofNatu N '.0 (4) OCC a I2 pa l TacsttothE os u (USba l&lU) (S).tMS tlW-par (4) AWan Pl Factor 70S. A-Ma PgeE n 45$ (3) 0CC - 12%p . ARGENTINA YACYRETAHYDROELECTR C PROJECT II

ECONOMICEVALUATION Of THIEPROPOSED PROJECT xf Unrs wffl PermnentOperadbn at Elealoio 78 mtrs) (In US$m fllbn)

TABLEA TABLEB |CASE. SUPPLYAT HIGHVOLTAGE GRID LEVEL SUPPLYTO flNAI- USER I Costs ~ I_ Benefl% Not Closft I Benefib_tN I es-O& Total m IalMI Sab Re Benwit I neI _ns- O&M ToialI Sales, Reieue Benef 1992Genera Tow;tio bdo - 38 owb)(I) (2) -389 199 GenefatboITmtmnonb Dhtrn ~(1)(2) 38 (GWh)(3) (4) -8 19N3 369 61 430 -430 1993 m6 61 430 1994 B13 40 6 38 296 -430 13 -376 1994 343 40 33 10 427 261 22 -404 1995 179 10 189 2846 128 -61 1995 179 320 1996 26 525 2508 213 -311 10 10 5080 229 219 1996 27 27 4456 1997 ~10 10 379 352 5080 229 219 1997 27 27 4456 379 11998 la la 5080 352 22 219 1998 27 27 4456 379 352 1999 10 10 5080 229 219 1999 200T0 27 27 4456 379 352 10 10 5080 229 219 2000 27 27 4456 2001 10 10 379 352 5080 229 219 2001 27 27 4456 379 2002 10 10 5080 352 229 219 2002 27 27 4456 379 352 2009 10 10 5080 229 219l 2003 2004 27 27 4456 379 352 10 10 5080 229 219l 2004 27 27 4456 2005 10 10 379 352 5080 229 219l 2005 27 27 4456 379 2008 10 10 5080 352 229 219 2006 27 27 4456 379 352 2007 10 10 5080 229 219 2007 2008 27 27 4456 379 352 10 10 5f186 229 219 2008 27 27 4456 2009 10 io 379 352 soe 22 219 2009 27 27 4456 379 352 2010 10 10 5080 229 219 2010 27 27 4456 379 352 2011 10 10 5080 229 219 2011 2012 27 27 4456 379 352 10 10 5080 229 219 2012 27 2013 27 4456 379 352 10 10 508 229 219 2013 27 27 4456 2014 10 10 379 352 5080 229 219 2014 27 27 4456 379 2015 10 10 5080 352 22 219 2015 27 27 4456 379 352 2016 IC 10 5080 229 219 2016 27 27 4456 379 352 2017 10 10 508 229 219 2017 2018 27 27 4456 379 352 10 10 5080 229 219 2018 27 27 4456 2019 10 10 379 352 5080 229 219 2019 27 27 4456 379 2020 10 10 508 352 229 219 2020 27 27 4456 379 352 2021 10 10 soso 229 219 2021 2022 27 27 4456 379 352 10 10 soso 229 219 2022 27 27 44556 2023 10 10 379 352 5080 229 219 2023 27 1.7 4456 379 2024 10 10 508 352 229 219 2024 27 27 4456 379 352 ,2025 10 10 5080 229 219 2025 27 27 4456 379 352 D I Toted -1263 119 -3-16 1697 155542 69991 I oJ 12635 119 353 846 2580 136453 1EacrFt Pbof PReSn(EPRQ 1158 I 13.3%1 EconoiricFdedRofbohfn iEPR 17.4%1 z

(I) Opem toneat78m.strt ing from Deemtmer 1995. ... (t) PathDlted Za moti^onDotTotat Secto IvetmentsI tDtatributbon (2) Averapftkte at RVtrttmnmbionvlml45 US$/MWh M wbkchwouldbeAttributableto theC kpdcty dded by Yacymtato thetNIS rl (2) oaM Costs Estimatedas 5'b of lovestmeto,oer Year Vi (3) TmtnsminionPlus Distnbution Losme Estimatedt at t7% (4) AverageRate to final user * b5 VS5/MWb ARGENTlNA YACYRETAHYDROELECTRIC PROJECT n

ECONOMICEVALUATION OF THE YACYRETAULTIMATE CONFIGURATION oInUSS millbn)

TABLEA TABLES SUPPLYAT HIGHVOLTAGE GRID LEVEL SUPPLYTO FINALUSER costs Bcnefih Net Costs BenefitN Invedtnents O&M Total Sabe Revnues Costs Invedments OaM I Total Sales Rnuas Beneis Yea, Generates ThnmlulDt (oWi - (11 Yew Geenetsts(1| ( I b1 (s)1 (41 ((WhI (S( (5) 19s2 372 is _ 389 -389 10n2 372 18 3a9 -389 1993 360 126 405 -495 1003 369 126 495 -405 1904 343 132 10 486 290 13 -472 1904 343 132 162 10 648 253 22 -626 1905 170 100 18 297 2846 128 -169 1095 170 100 249 26 554 2435 207 -347 1s06 224 36 18 277 8227 370 93 190 224 30 75 40 374 7039 S08 224 1997 264 8 18 200 11127 601 210 10o7 264 a 624 50 946 0521 809 -137 1008 147 18 165 15540 690 634 1098 147 03 212 13207 1130 918 1999 18 18 18630 838 620 1900 73 73 15041 1355 1282 2000 16 18 16630 638 820 2000 73 73 15941 1355 1 82 2001 18 18 18630 836 820 2001 73 73 15941 1355 1282 2002 18 183 16030 838 820 2002 73 73 15941 1355 12s2 2003 18 18 18630 838 820 2003 73 73 15941 1355 1282 2004 18 1a 18630 638 820 2004 73 73 15941 1355 1282 2005 18 18 16830 838 820 2005 73 73 15041 1355 2006 18 1282 18 18030 838 820 2006 73 73 15941 1355 2007 1282 18 18 18630 838 820 2007 73 73 15941 1355 2008 18 1282 18 18630 838 820 2008 73 73 15941 1355 2000 18 1282 18 18630 838 820 2009 73 73 15941 1355 1282 2010 18 18 18630 838 820 2010 73 73 15041 1355 1282 2011 18 18 18030 838 820 2011 73 73 15941 1355 1282 2012 18 18 18030 838 820 2012 73 73 15941 1355 1282 2013 18 18 18030 838 820 2013 73 73 15941 1355 1282 2014 18 18630 18 838 820 2014 73 73 15941 13MS 1282 2015 18 18 18630 838 820 2015 73 73 15941 1355 1282 2016 18 18 18030 038 820 2010 73 73 15941 1355 1282 2017 18 18630 18 838 820 2017 73 73 15941 1355 1282 2018 18 18 1ae^o 838 820 2018 73 73 15041 13s5 1282 2019 18 18 18630 838 820 2019 73 73 15941 1351 1282 2020 18 18 18630 838 820 2020 73 73 15941 1355 1282 2021 18 18 18630 838 820 2021 73 73 15941 1355 1282 2022 18 18 18630 838 820 2022 73 73 15941 1355 1282 2023 18 18 18630 838 820 2023 73 73 15941 1355 1282 2024 18 18 18630 838 820 2024 73 73 15941 1355 1282 2025 18 18 18630 838 820 2025 73 73 15941 1355 12821 Total 1898 420 588 2888 541041 24347i Totel 1898 420 2ttO 2162 5590 462952 39351 EconomlcRat ofRetum RR) 24.1%1 Eoncone RateofeRz ERR)2f 2 ANXO29AT4 (1) Avemeamte atHV Trnsmlsdolevel - 4SUSS/MWh (1) lnvestmentrequiredto operate at full cpdty (20utnittad S3melevati (2) It cespoods to Invetmeut liked to the trojed atnd 0 of Investmet becmd the Project to be made byprit,4. Investar; (3) Estimateda a Prodon of Totil Seeaorh,vesmenDsin Dtriudo whichwould be attributable to tde Capacty added by Yacyretato tie NIS (4) O&M Costs Estimatedas 5% of Investmentsper Year (8) Traemi don Plu Disribudon LosusEstxmatedat 17% ANNEX 2.9 Attachment 5

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L g fl Y S ANNEX 2.10 ARGENTINA

YACYRETA II PROJECT

Proiect File

(Documents Filed in the Latin American and Caribbean Information Center)

A. THE POWER SECTOR

1. Law # 24065 : Generation, Transmission, and Distribution Law;

2. Ordenamiento Legal, Secretaria de Energia, Noviembre de 1988;

3. Ordenamiento Tem&tico de los Cuerpos Legales Relacionados con el Funcionamiento del Sector El6ctrico, November 1988

4. Resolution #038 of the Ministry of Economy and Public Works;

5. Programa de Reconversi6n del Sector El6ctrico, October 1990;

B. THE PROJECT

1. Yacyreta Treaty

2. Amendment Letter #9, dated January 9, 1992;

3. Estudio de Operaci6n de Yacyret& a Cota Reducida, CIDY, July 1991;

4. Infonme de Evaluaci6n Ambiental Proyecto Hidroelectrico Yacyret&, Mayo de 1992, EBY;

5. Plan de Acci6n Para el Reasentamiento y Rehabilitaci6n Informe Final, EBY, Abril de 1992;

6. Management Audit Report on EBY, Diagnosis of EBY, Deloitte and Associates, February 1992;

7. EBY: Finances, Working Papers, May 1992;

8. EBY: Cost and Finance of the Hydro Plant Component, May 1992.

9. Configuraci6n del Sistema de Transmisi6n para la C.H. Yacyret&, 6 volumenes, Secretaria de Energia, March 1987;

10. Yacyreta Transmission Study Summary, AyE, October 1991;

11. Quarterly Audit Financial Statement, period ending September 1991;

12. Annual Audit Financial Statement for FY 1990 and 1991. BI ! b . lRo f lr wooeo \ \To G .I r er ol o 13R D 1 4 1 28 R 801IVIA t' jI; - 5 CoronelBogodo BRAZIl

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