RETURN IDESRESTRICTED

WITHIN Report No. TO-440a

ONE WEEK

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

COMPANIA ANONIMA DE ADMINISTRACION

Y FOMENTO ELECTRICO

(CADAFE)

POWER TRANSMISSION PROJECT

VENEZUELA

August 11, 1964

Department of Technical Operations

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CURRENCY EQUIVALENT

U.S. $1 Bs 4.50

VENEZUELA

COMPANIA ANONIMTA DE ADPINISTRACION Y FOMENTO ELECTRICO

(CADAFE)

TABLF. OF CONTEITS

Page No.

Summary

I. Introduction 1

IIo Power Industry in Venezuela 1

III. The Borrower 3

IV. Power Market 5

V. Expansion Program 7

VI. Description of the Project 9

VIIo Economic Aspects of the Project 11

VIII0 Financial Aspects 11

IXo Conclusions 16

ANNEXES

10 Actual and Estimated Energy Sales 1958-196820 Summary of Proposed Construction Program 1964-19683. Project Cost Estimates4. Actual and Estimated Income Statements 1960-19685. Actual and Estimated Balance Sheets 1960-19686. Forecast of Sources and Applications of Funds 1964-1968

DIP

SUMLNRY

i, In 1962 the Government of Venezuela applied to the Bank for aUS$14 million loan to finance the foreign exchange costs of a 230-kv trans-mission line Project now under construction by the government-owned CompaniaAnonima de Administracion y Fomento Electrico (CADAFE). The total estimatedcost of the line and related facilities is equivalent to US$19.1 million.CADAFE owns and operates generation, transmission and distribution facilitieswhich serve smaller communities throughout the country from a large numberof isolated systems, whose operations will be improved by interconnectionand integration. The 230-kv Project will interconnect two of CADAFEts prin-cipal market areas with each other, and with an existing government-ownedhydroelectric plant on the Caroni River.

ii. On September 19, 1963 the Bank made its first loan for power devel-opment in Venezuela, (353 VE, US$85 million) to CVG Electrificacion del CaroniC.A. (EDELCA) for the Guri Hydroelectric plant. CADAFE will be a majorcustomer for Guri power when the plant is completed in 1967.

iii. CADAFE is a wholly-owned subsidiary of the national developmentagency Corporacion Venezolana de Fomento (CVF), and has been in existencefor 51 years. It was formed as a result of the acquisition by CVF of a largenumber of run-down independent municipal and private systems scatteredthroughout Venezuela. At the end of 1963, generating capacity was 409 I'Win 45 plants, and net investment had reached the equivalent of about US$160million. CVF has been the principal source for financing CADAFE's expansion.

iv. Negotiations for the proposed loan were successfully concluded inthe summer of 1963, but prior to presentation of the loan documents to theBankts Executive Directors, CVF removed the management of CADAFE, and the Bankcould not proceed. The new management group, appointed in October 1963, hasformally agreed to all the conditions previously negotiated.

v. The financial results of CADAFE's operations have been poor. Thenature of its service area and the condition of the properties taken overhave contributed to this situation, as have overstaffing, political inter-ference, and lack of coordinated organization. The new management group isacting to remedy these shortcomings, and has started a program of reorgani-zation to improve operations.

vi. Programmed CVF investments, cash from operations, and the proposedBank loan will finance the 1964-1965 construction program. CADAFE would be asuitable borrower for a Bank loan of US$14 million. A term of 20 years, in-cluding a three-year grace period, would be appropriate.

VENEZUELA

COMPANIA ANONIMA DE ADIMENISTRACION Y F'OMITO ELFCTRICO

(CADAFE)

I. INTRODUCTION

1. In 1962 the Government of Venezuela requested the Bank to considera US$14 million loan to Compania Anonima de Administracion y Fomento Electrico(CADAFE) to finance the foreign exchange costs of a 230-kv transmissionProject which would integrate two of CADAFE t s major service areas, and inter-conmect them with existing and future Caroni River hydroelectric plants ofC.V.G. Electrificacion del Caroni, C.A. (EDELCA). An appraisal of the Projectwas completed in November 1962, and negotiations carried out in the summer of1963. Consideration of the loan was held up, however, because of a completechange in the management of CADAFE. This report is based upon findings of aBank mission which visited Venezuela in April/May 1964 for discussions withthe new management, and a review of developments since the initial appraisal.

2, Contracts for over 90 percent of the work for which Bank finalncinigis proposed were awarded during the summer of 1963. The total estimated costof the Project, based largely upon contract prices, is equivalent to US$19.1million. The foreign exchange component, including interest during the graceperiod on the proposed Bank loan is US$14 million. Physical work is welladvanced, and completion of all elements of the Project is expected by March1966.

II. POW.1ER INDUSTR-Y IN VENEZUELA

3. Public power supply in Venezuela is provided by a number of privatelyowned companies, municipally-orned systems, and bv two nationally-ownedagencies (CADAFE and EDELCA).1' Private systems operating in 29 comamunitiesof over 5,000 population serve about 2.5 million people. The largest are:La Electricidad de Caracas (La Electricidad) serving the capital city andits environs from 450 PM§ of gas-fired thermal plants; and Canadian-ownedEnergia Electrica C.A. (Energia), which serves Maracaibo and Barquisimetofrom gas-fired thermal plants of 185 iW and 20 SW capacity respectively.Other private systems serve San Felipe, Barcelona, Ciudad Bolivar, PuertoCabello, and part of Valencia, and a number of smaller communities. About400,000 people are served from 14 municipal systems. In cornection with itsdevelopment activities in the Guayana area, Corporacion Venezolana de Guayana(CVG) constructed the 365 NW Macagua hydroelectric plant on the Caroni Riverto provide power for its steelworks and other industrial activities. In 1963,CVG formed a wholly-owned subsidiary, EDELCA, to own and operate all itselectric facilities.!/ In addition to operating Macagua, EDELCA has under

1/ In addition, the oil and gas industry has substantial generating capacityfor supplying its own requirements.

2/ cf report TO 373b, September 4, 1963.

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construction for completion in 1967 the Guri hydroelectric plant, whoseinitial capacity will be 525 M. Both CADAFE and La Electricidad will bemajor purchasers of power from Guri, whose capacity is expected to be ex-panded to 1800 M by 1978. CADAFE is presently operating systems in 85communities of over 5,000 population, and serves over 400 additional smallto-vms and villages, whose combined population is estimated at 2 million.

4. Past development of the power industry has been characterized byadequate service in the major cities served by the larger private companies,whereas many of the smaller, scattered systems, both private and municipal,failed to provide for increasing demands or render reliable service. Thiswas in part due to inadequate management, financial weakness, and lack ofplanning and operating capabilitiese The national development agency,Corporacion Venezolana de Fomento (CVF), responsible inter alia for proJnotingpower development, began in the late 1940's to acquire and rehabilitate thepoorly-run systems. The magnitude of this activity eventually required agreater degree of coordination than CVF could exercise, and in November 1958CADAFE was formed as a wholly-owned subsidiary of CVF to own and operate theCVF electric properties. Since then, CADAFE has continued to take over andabsorb small systems.

5. A major problem in the coordinated pLanning of future power supplyin Venezuela has been the existence of diverse frequencies. The systems andmarkets of CADAFE, EDELCA, and La Electricidad are of such size and character-istics that substantial benefits will be achieved from physical inter-.connection of their facilities, and coordinated planning and operation. TheProject is a major first step towards accomplishing this between CADAFE andEDELCA. However, whereas these two systems operate at 60 cycles, La Elec-tricidad operates at 50 cycles. Following undertakings given the Bank duringnegotiations for loan 353 VE for the Guri Project, the Venezuelan Governmentestablished a Commission composed of the presidents of CVG, CADAFE, and LaElectricidad to study the desirability and feasibility of interconnecting thegovernnent systems with La Electricidad. Agreement in principle was reachedbetween the Government and La Electricidad to convert the lattier's systemto 60 cycle operation, with the national Government bearing the cost ofchanging customers' equipment. Consulting engineers were retained in 1963to assist in preparing interconnection agreements and criteria for integratedoperation. The Government allocated to CVG, as fiscal agent for the Com-mission, Bs 10 million in 1963 and Bs 40 million in 1964 towards the estimatedBs 90 million total cost of conversion, and is expected to allocate Bs 40million in 1965. CVG, acting for EDELCA, has drafted an agreement relatingto frequency conversion and bulk power sales between EDELCA and La Elec-tricidad. This agreement, reviewed by and acceptable to La Electricidad,is now under consideration by the Cabinet. It is expected that the two powercompanies will formally enter into it following Cabinet approval. TheCormmission recently ordered equipment to modify La Electricidad's powerplants for 60 cycle operation, and it is expected that the first generatingunit will be converted by early 1965.

6. CADAFE is also currently studying the possibility of entering intoan agreement with Energia to purchase power from the M4aracaibo system.

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III. THE BORROTER

Organization and Management

7. CADA?E, although wholly-owned by CVF, was formed under the generalcorporation code as a business enterprise. Policies are broadly set by CWF,which appoints the seven-man Board of Directors, including the President.Until October 1963, CADAFE had been directed by its original management group.The new President, an engineer, has made his career in electric power, andhad been associated with CVG. Four other members of the new Board are full-time employees, t1hree being engineers, and one the corporate counsel* Threeare career employees with CADAFE. The two "outisiders" are the leader of theTrade Union Federation which has organized CADAFE's clerical personnel, anda contractor, Although the new management group has assumed its dutiesaggressively, it has not in its short tenure been able to accomplish a greatdeal of improvement in CADAFE's operations. Moreover, the group has littleproven administrative experience, and it is not yet possible to evaluate itsprobable effectiveness in the long term.

8. CADAFE is now organized into 14 regional administrations, and aheadquarters in Caracas. The administrations had their origins as separatecompanies under CVF ownership, and until recently little progress had beenmade in bringing about uniformity of policies and procedures throughout thesystem. Caracas headquarters nominally was responsible for centralizedgeneral management and financial control, accounting, planning, engineering,and purchasing, but only now under a reorganization being carried out by thenew management are concrete steps being taken to implement these arrangements.W4hile CADAFE has many capable employees, their effectiveness in the past hasbeen limited by management shortcomings. Due to its widely-scattered opera-tions and need to maintain a large number of offices and inefficient smallpower plants, CADAFE's staff (nearly 4,OOO) is large in relation to sales,revenues, or plant investment. This situation, inherent in the nature ofthe business, has been aggravated in the past by a tendency to allow unionrepresentatives to exercise a disproportionate voice in management affairs.As another consequence of its make-up of many small, scattered systems,CADAFE today continues to maintain a large number of different tariff sched-ules for comnparable classes of service, which partially reflect varying fuelcosts and load densities in the several administrative regions.

9. The need for reorganization was recognized by both the former andcurrent management groups. As agreed during the 1963 negotiations, CADAFEarranged for a management survey by its general consultants, and retained anindependent firm of accountants as auditor. The President has also obtainedthe services of a well-qualified senior official of CVG to serve as his ad-visor on management and controllership problems. Based upon its consultants'recommendations, CADAFE is placing in effect new policies and procedures toimprove its operations. The new President has already reorganized a numberof departments in the Caracas office; delegated more authority to his prin-cipal assistants while instituting closer supervision over activities in theregional administrations; improved processing of operating information neededfor management control; and taken personal direction of all personnel actions.

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Among the specific measures designed to improve performance which have beenplaced in effect or are underway are:

i) reorganization of the engineering department to create a planningdivision, and an operating division;

ii) establishment of close liaison between engineering planning andfinancial planning, primarily for capital budgeting purposes;

iii) installation of a uniform accounting system throughout all ad-ministrations;

iv) regular timely reports, on a uniform basis, of all operatingresults in the regional administrations;

v) centralization of payroll accounting for all salaried employees,and payment by check;

vi) a program to centralize customer accounting;

vii) analysis of plant and income accounts for expense budgeting, andtariff structure simplification;

viii) review of storeskeeping and purchasing policies and activities.

10. The new management should be capable of achieving a gradual butcontinuing increase in operating efficiency and financial performance.During the 1963 negotiations, CADAFE and the Government agreed that untilreorganization had been completed and substantial improvement in performancehad been achiieved, no further new properties should be acquired. This under-taking has been confirmed. A reasonable period for suspending acquisitionswould be the period of construction of the Project.

Physical Properties

11. CADAFE's system is spread throughout the populated areas of Venezuela,and extends from south of the Orinoco delta, to the Colombian border in theAndes. For statistical purposes, CADAFE separates its operations into fourbroad regions:

I. the area south of Caracas, extending west to Valencia, withinwhich there is a well-developed 115-kv transmission system;

II. the area south and east of Puerto La Cruz, with isolated loadcenters;

III. the area west of Valencia, extending to Lake iMaracaibo and theAndes, in which 115-kv transmission development is underway;

IV. the south-central interior, consisting of small, isolated loadcenters.

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12. CADAFE has 45 generating plants, with total installed capacity of409 YMW (including 7 SW in mobile units installed at eight plants). Sixhydroelectric plants totalling 12 MW are operated infrequently. Thermalcapacity is divided as follows:

Steam: five plants aggregating 245 MW; the largest arePuerto Cabello (90 MW) and La Mariposa (80 SW) inRegion I;

Gas-turbine: three plants aggregating 63 MW; and

Diesel: thirty-one plants aggregating 89 YR.

CADAFEts transmission facilities now include about 600 km of 115-kv, 900 kmof 66-kv to 22-kv, and 2,000 km of 13.8-kv transmission and distribution lines.

IV. POWYER YIARKET

13. CADAFE is presently serving about 347,000 customers, of whom about300,000 are residential. As noted in paragraph 4, the Venezuelan Governmententered the power field to provide service where municipalities or privateinterests were unwilling or unable to do so on a sound financial basis.CADAFE's market areas are characterized by low population density and lowincome levels. In 1963, the average monthly residential consumption through-out the 500 communities in which CADAFE operates was about 65 kwh per meter.Thus, while residential consumers constituted over 85 percent of all customers,they accounted for only 21 percent of all sales. They nevertheless contri-buted 45 percent of all revenues, since CADAFEts average realization onresidential sales was 28 centimos (US 6.2 cents). Commercial and industrialsubscribers accounted for 28 percent of 1063 sales, and 32 percent of revenue3.Sales to municipalities (for resale, or street lighting) and government enter-prises were 22 percent of total sales) and produced 17 percent of revenues.The largest single customer is the Instituto Nacional de Obras Sanitarias(INOS), the government water supply agency which operates throughout thecountry. INOSt 1963 consumption of 325 million kwh was 29 percent of allsales, but accounted for only 7 percent of all revenues. Its largest loadis Caracas, where CADAFE supplies about 5 IVW for pumping water from the RioTuy to feed the city distribution system. Expansion of existing facilities,and installation of another pipeline, are expected to increase this loadto 60 PW and 120 S4W by 1965 and 1967.

14. Total kwh sales since 1958 have increased at an average compoundannual rate of about 18 percent, exclusive of INOS. Region I (north-central)is the largest in terms of sales, and over the same period has experienceda growth rate of 20 percent annually, exclusive of INOS.

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-Total System Sales -----------

Millions of kwh

19581/ 1959 1960 1961 1962 1963

Region I, except INOS 172 207 238 307 358 432INOS 186 282 247W/ 338 322 325Region II 52 58 81 90 104 125Region III 108 134 164 182 207 218Region IV 11 13 15 16 19 21

Total 529 694 745 933 1010 1121

Sales Forecast 196h-1968

15. CADAFE has made energy sales forecasts through 1972, whiich togetherwith estimates of demand form the basis for proposed improvement and rehabil-itation programs throughout the various service areas. These forecasts weredeveloped from studies of each class of customer, carried out jointly by thesystem planning and comumercial departments. Consumption in each comnzunity,or related groups of communities, was projected on the basis of past require-ments, estimated population growth, income levels, known and estimated in-dustrial expansion, and other factors affecting economic activity. Majorindustrial customers' requirements were estimated individually.

16. Region I will continue to be the most important, with its denserpopulation, proximity to major cities, and continued high level of industrialactivities, In keeping with general development objectives, the Governmenthas established industrial parks near Valencia and Maracay, which now includeindustries producing rubber goods, cement, foodstuffs, paints, furniture,metal products, etc. Several American and European factories assemble motorvehicles. The government-owned petrochemical complex at Moron near PuertoCabello is another major CADAFE customer in this region. Continued growthin the other three Regions, which in 1963 together accounted Por 46 percentof CADAFE's sales exclusive of INOS, will take place principally as a resultof increased residential consumption and increases in small commercialactivities.

17. CADAFE forecasts indicate that total sales, exclusive of INOS, willincrease during the next five years at an average annual compound rate of14 percent, compared to 18 percent in the preceding five years.

1/ CVF operation.2/ Part of INOS' requirement was supplied by La Electricidad in 1960.

-------- Total System Sales -------------

(millions of kwh)Estimated 5-year

1958 1963 1968 Growth RatesSales % Sales % Sales 7 58/63 63/68

Residential 110 21 23h 21 469 21 16.4% 15.C%Commercial/In-

dustrial 164 31 320 28 570 26 1-4.2% 12.2%4iunicipalities andGovt. Enterprises 69 13 242 22 489 22 28.5% 15.1%

343 65 796 71 1528 69 18.3% 14.2%INOS 186 35 325 29 682 31 11.3% 16.0%

Total 529 100 1121 100 2210 100 16.1% 14.6%

Taking into account recent developments, CADAFE's current load forecast isin substantial agreement with the detailed analysis of power reqairementscarried out by the Bank in connection with the appraisal of the Guri Project.Actual sales in 1963 were somewhat higher than the Bank estimates made in1962. The CADAFE forecast has been reviewed recently, and is reasonable.Actual and estimated sales are shown in Annex 1.

V. EXPANSION PROGRAM

18. CADAFE's 1964-1965 program is firmly planned and based upon thepurchase of hydroelectric power from EDELCA, and thermoelectric power fromLa Electricidad. The program. therefore consists principally of expansion oftransmission facilities for interconnections with these other power companies,as well as continued internal development of 115-kv and 230-kv facilities tointegrate its own operations. Expansion of service within the south-centralinterior, however, will continue as in the past on an isolated load-centerbasis, since integration is not yet economically justified.

19. With the reorganization of the engineering department, CADAFE hasbegun to prepare long-range improvement and expansion programs based uponload forecasts, system analyses, and comparisons of alternatives. Sincetransmission planning must be constantly reviewed as system conditionsdevelop, CADAFE's plans beyond 1965, and therefore its capital investmentprogram, are only tentative. Several potential sites for hydroelectric plantsin the Andes (Region III) are under consideration for possible development,which might require expenditures beginning in 1966. Preliminary studiesindicate that it may be more economic to defer the construction of new gen-erating facilities in the Andes in favor of purchasing power from Energia,the Canadian-controlled electric companyl/ operating in Maracaibo. CADAFE isnow exploring these two alternatives in detail.

1/ Currently serving a load of about 85 Nd from installed capacity of about185 MW of gas-fired thermal plant, with an uninstalled 66 MW thermal unitstill in crates.

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20. With regard to generating capacity for the eastern and north-centralareas, CADAFE intends to purchase Caroni River power from EDELCA, which willnot only eliminate the need to construct more thermal plant, but will alsopermit the retirement of older, high-cost diesel plant. Although CADAFE willbegin to utilize Caroni River power by early 1966 when the Macagua-SantaTeresa 230-ky system comes into service, studies indicate that purchasedpower available from EDELCA prior to the completion of Guri in 1967, togetherwith CADAFE's own generating resources, will not be adequate to fully meetrequirem.ents in the north-central region. CADAFE has therefore begun nego-tiations for the interim supply of power which La Electricidad will makeavailable by the conversion to 60 cycle operation of a 50 cycle 25 IKiH unitat its Arrecifes plant near La Guaira. Conversion of this unit and completionof an agreement to talke delivery of its output over existing 69-kv lines areexpected by early 1965. The agreement would be modified when arrangementshave been completed for the full conversion of La Electricidad's system(paragraph 5). The average price of energy under the agreement would be 3X0centimos (US 6.7 mills) per kwh, delivered at CADAFE's La I4ariposa plant,for 50 percent load factor, and would decline to 2.0 centimos (us 4.4 mills)at 90 percent load factor. These prices are reasonable.

21. CADAFE has tentatively scheduled the investment of the equivalentof US$132 million in new facilities during 1964-1968. (See Annex 2.) Thisfigure includes the equivalent of US$30 million for possible hydroelectricdevelopment in the Andes. Aside froin completion of the Project, and thepossible hydroelectric developments, the major works whose initiation isplanned for this period are the extension of 230-kv transmission from SantaTeresa through Cagua (1965), Valencia (1966), and Barquisimeto, Valera, toMerida (1967-1968) and the possible intercornection with Maracaibo from Valera.Continued expansion and reinforcement of the 115-kv systems throughout CADt.FE'soperating territory, additions to existing diesel capacity in five isolatedcommunities, and extensions to distribution systems and/or networks in 25communities would be carried out at the same time, An interconnection at115-kv is scheduled for completion this year between the CADAFE system atLa Fria and Cucuta in Colombia. Neither the 19614-1968 Program, nor the planfor financing it, includes the acquisition of properties not now owned byCADAFE.

22. The estimated costs of the 1964-1968 Program are:Total Equivalent

US$ Bs US$(millions) (millions) (millions)

Generation 19.9 56.3 32.4Transmission 36.9 90.4 57.0Distribution 7.9 21.8 12.71Iscellaneous 3.0 20.3 7.5Rehabilitationl/ 8.9 60.0 22.2

76.6 248.8 131.8

1/ The equivalent of Bs 20 million annually for general system-wide re-habilitation work.

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23. The major 230-kv and 115-kv transmission work, including the Prujectnow under construction, has been planned and designed by CADAFE with theassistance of consulting engineers. Costs of the Project can be consideredquite reliable, and the estimated costs of other works in the 196l4-1965 portionof the Program are based upon recent experience.

Limitations on Appraisal

24. CADAFE has made considerable progress during the past year incarrying out the system planning studies needed to define more adequatelyits construction program. However, further study is required before plansbeyond 1965 can be confirmed. It is also difficult accurately to predictthe probable effect the policies and procedures being instituted by the newmanagement will have on operations. The appraisal has been limited, there-fore, to the program of improvements which will be initiated or completedduring the next two years, 1964-1965.

VI. DESCRIPTION OF THE PROJECT

25. The work now either under construction, or about to be started forwhich Bank financing is proposed consists of:

(a) 230-kv facilities

(i) 594 kma of 230-kv double-circuit steel tower transmission line fromthe existing substation at the CVG steel works near Puerto Ordazto Santa Teresa, about 30 km south-east of Caracas;

(ii) two 230/115-kv terminal substations, one at the steel works, andone at Santa Teresa, with appropriate switching and transformercapacities of 200 MVA and 100 MVA,, respectively;

(iii) a 230/115-kv substation at Ciudad Bolivar, with appropriate switch-ing and transformer capacity of 23/30 MVA;

(iv) a 230-kv line sectionalizing substation at El Tigre;

(v) a 230/115-kv substation at Barbacoa, about 20 km south of PuertoLa Cruz, with appropriate switching and transforrmer capacity of50 MVA; and

(vi) carrier-current telemetering and load dispatching equipment.

(b) 115-kv facilities

(i) about 20 km of 115-kv double-circuit steel tower transmission linefrom the new Barbacoa 230/115-kv substation to the existing sub-station in Puerto La Cruz;

(ii) a 115/34.5-kv substation at Barbacoa, with appropriate switchingand transformer capacity of 2 x 16/20 IvVA; and

(iii) a 115/13.8-kv substation at Valencia, with appropriate switchingand transformer capacity of 30 1iVA.

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Estimated Cost

26. The estimated cost of the several elements in the Project to befinanced by the proposed loan are shown in the following table, and setforth in more detail in Annex 3.

Total EquivalentUS$ Bs US$

x x x1000 1000 1000

230-kv Facilities

Transmission lines 7,1462 13,892 10,5549Substations 3,836 4,875 44,919Load dispatching 643 346 720

115-kv Facilities

Transmission lines 341 580 470Substations 630 963

Total direct cost 12,912 21,190 17,621Engineering 150 360 230Contingencies 59 280 121Interest during Construction 879 1,260 1,159

1/Total project cost 14,000 23,090 19,131-

27. The original work schedule assumed that work on the 230-kv lineand substations would begin in mid-19 63, for completion by mid-1965. However,CVF did not make adequate funds available during 1963 to allow CADAFE toadhere to this schedule. While CADAFE was able to arrange U.S. commercialbank financing of the transmission work in July 1963, it was not untilJanuary 1964 that CVF made funds available for the substations. This workwill not be completed until March 1966, while the line will be finished inJanuary 1965. Thus, due to lack of coordination by CVF, the line will lieidle for over one year.

28. The 230-kv line work, being carried out in three sections, is nowwell advanced: all rights-of-way have been secured and most are cleared;35 percent of all towers were in place April 10, 1964; all material has beendelivered, or is in transit. The three contractors were selected on thebasis of international competitive bidding in accordance with procedureswhich were reviewed by and found acceptable to the Bank in October 1962.Field inspection by nine CADAFE inspectors/surveyors living in the field isbeing capably carried out under close central office control. CADAFE hasretained consultants to perform factory inspections.

1/ Includes expenditures during 1963.

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29. As in the case of the line, contracts for the 230-kv substationswere placed after international competition in accordance with proceduresreviewed by and acceptable to the Bank. Factory inspection and field super-vision are being carried out in a manner similar to that for the line, andare also acceptable. A contract for the load dispatching facilities has alsobeen placed after international competition, and delivery and installationare coordinated with the completion of the substation work.

30e Bidding documents for the 115-kv transmission line and the two 115-kvsubstations are scheduled to be issued in late 196h. Procurement will be onthe basis of international competition. This work, which is required to tie-in the 230-kv line with existing subtransmission systems and provide forrapidly growing industrial loads, is scheduled for completion by the end of1965.

31. Since contracts for 92 percent of the Project's foreign exchangeexpenditures have been placed for some time, and the final cost is known, thecontingency allowance applies only to the 115-kv work, and amounts to 6 per-cent of that.

Insurance

32. CADAFE carries adequate coverage on all insurable assets. Each itemis considered on its individual risk basis, and suitable insurance is arrangedthrough brokers by CADAFE's insurance department.

VII. ECONOMIC ASPECTS OF THE PROJECT

33. Economic justification of the Macagua-Santa Teresa transmissionProject was studied in detail by a Bank mission in June/July 1962 in con-nection with an evaluation of the Guri hydroelectric plant. An analysis wasmade of two alternatives to meet CADAFE's requirements over 30 years: con-tinued development on an isolated basis by expansion of thermal power stations;and integrated development with the 230-kv transmission line interconnectingthe Caroni River hydroelectric plants with CADAFE's Regions I and II Thisstudy, which compared the present value of the costs of each alternative,showed that over the assumed 30-year life of the transmission line, the costof integrated system development would be substantially lower than that ofisolated development. Reductions in out-of-pocket expenses and investmentswill more than recover the cost of the line in the first ten years of operation.

VIII. FIlNANCIAL ASPECTS

Past Operating Results and Current Position

34. CADAFE completed its fifth full year of operations December 31, 1963.The results of the last four years (records for 1959 being incomplete) aresummarized below, and presented in more detail in Annexes 4 and 5.

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1960 1961 1962 1963

Sales - millions kwh 745 932 1010 1121

Bs millions

Gross Plant 467 578 618 6h6

Operating Revenues 99.3 114.6 126,5 1h7.0

Operating ExpensesOperations 78.5 89.3 96.3 103.0Depreciation l9.4 24.3 27.6 301Taxes _09 0.7 0.6 2.9

T8B lh.5 -12 .5 1-41.0

Operating Income 0.5 (0.2) 2.0 6X0

35. { e average ratio of operating expenses, exclusive of depreciationand taxes,_ to operating revenues was over 76% for the above four-year period,declining from 79 percent in 1960 to 74 percent in 1963. Before taxes, theaverage rate of return on net fixed assets in operation over the same periodwas about 0.8 percent, the best year being 1963, with 1.9 percent. Itshould be noted that during this period CADAFEis depreciation charges againstincome were 4.5-5.o percent of gross plant in operation. If CADAFE had madedepreciation charges at a rate of 2.5 percent, comparable to similar thermalsystems, the average rate of return during the period would have been about3.4 percent, and 4.2 percent for 1963. To some extent these ratios reflectthe nature of CADAFVEs market, much of which is inherently umattractive ina commercial sense, Another major factor has been the supply of largeamounts of energy to INOS at the very low rate of 1.5 centimos (US 3.3mills)/Ikh. The INOS rate was doubled in 1963. Moreover, rehabilitationof many of the acquired properties to establish minimum standards of servicehas required large, essentially unproductive expenditures. The inajor itemof expense has been payments to personnel, which have averaged 61 percentof all cash expenses during 1960-1963, and 47 percent of all operatingrevenues.

36. Except for minor debts of Bs 9.7 million at the end of 1963(suppliers' credits incurred in conmection with the Punto Fijo Las lMorochas,and Valle La Pascua thermal plants), CADAFE's capital consists soJely ofcontributions by CVF, and retained earnings. Until 1963, the original CVFinvestment was carried as "Capital", and further investments as "Advances,"which were treated as non-interest-bearing, non-maturing debt. In con-nection with the 1963 negotiations with the Bank, CVF and CADAFE agreed to

1/ By virtue of having been incorporated under the general commercial code,although government-owned, CADAFE is required to pay taxes on income tothe national Government. It is expected that in 1964 and later yearsCADAFE's earnings will be taxed at 40 percent. CADAFE pays no ad valoremtaxes on property.

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convert then existing "Advances" to equity. "Capital" was increased toBs 800 million, of which Bs 608 million was classified as "paid in". CVFinvestments are now treated temporarily as "Advances" when riiade, and regular-ly converted to "Capital - Paid In" by action of the CVF and CADAFE Boardsin accordance with CADAFE's statutes.

37. CADAFE?s accounts receivable at the end of 1963 were equal to 95days' revenues. Agreement has been reached between CADAFE and INOS wherebyoverdue amounts are now being handled satisfactorily. However, collectionsfrom other national agencies, and municipalities, continue to be slow. Duringthe previous negotiations, representatives of the Government undertook toassist CADAFE in placing collections on a current basis. Since collectionshave always been a problem, the situation has been taken into account inprojecting future working capital requirements.

38. As noted in paragraphs 8 and 9, CADAFE has a complex tariffstructure, and in accordance with the recommendations of consultants, theaccounting department has begun a study of operating expenses and plantaccounts with a view to determining the actual costs of serving variousclasses of customers. While this is a reasonable first step towards uni-fication and simplification, the studies will probably require about a yearto complete. The adequacy of CADAFE's revenues is therefore difficult toevaluate. For example, revenues would have had to have been 25 percent higherthan the actual levels during 1960-1963 to produce an average 8 percent rateof return before taxes, if operating expenses had been the same. On theother hand a 33 percent reduction in cash operating expenses (other thandepreciation) would have produced an average before-tax rate of return of8 percent also.

39. Since there is no formal regulation of the electric power industryin Venezuela, CADAFE nominally has the authority to adjust its own tariffs.However, rmany of CADAFE's major customers are agencies of the Governrnent,and resistance to rate increases is high. The Government has financed CADAFE'sexpansion through CVF investments, from the national budget, rather than fromfunds from CADAFE's operations.

Financing Plan

40. The next five years can be conveniently examined in two stages:1964-1965, for which CADAFE is firmly committed to a definite program; and1966-1968 for which CADAFE's plans are tentative. The financing for thelater period is therefore more an indication of the order of magnitude ofrequirements than a firm plan. In making projections for these periods, thefollowing principal assumptions were made:

(i) current tariff levels will continue to obtain;

(ii) a US$14 million Bank loan at 5-21 percent will finance the foreignexchange component of the Project; a term of 20 years, with three-years' grace period, has been assumed;

(iii) CADAFE will continue to retain and reinvest its earnings;

(iv) CVF will continue to make equity investments in amounts sufficientto assure the timely availability of funds adequate to carry outthe proposed expansion program; this would require new CVF invest-ments of Bs 280 million over the five-year period;

(v) CADAFE will not acquire further properties;

(vi) CADAFE will purchase power from La Electricidad prior to completionof the Project, and later from EDELCA; and

(vii) as noted in paragraph 21, the equivalent of U8$30 million foradditional generating facilities not yet firmly scheduled is in-cluded in construction expenditures during 1966-1968.

On this basis, estimated financing of construction during 1964-1968 is shownbelow, and in more detail in Annex 6.

Financing Plan 1964-1968Bs Millions

Total2 years 3 years 5 years

1964-1965 1966-1968 1964-1968Sources of FundsNet Internal Cash Generation,

after Debt Service 94.2 207.2 301.4Proposed Bank Loan 60.0 3.0 63.0CVF Investment 90.0 190.0 280.0

244.2 400.2 644.4

Applications of FundsConstruction Program 222.5 370.8 593.3Increase in Cash 4.7 3.9 8e6Increase in Other CurrentAssets - Net 17.0 25.5 42.5

2141.2 400.2 T44

Proportion of fundsrepresented by:Net Internal CashGeneration 38.7% 51.8% 46.8%

Proposed Bank loan 24.5% 0.7% 9.7%CVF Investments 36.8% 4725% 43.5%

Proportion of Constructionfinanced by net internalcash generation: 43% 56% 51%

- 15 -

Projected Operating Results

41. Of the several parameters frequently taken as measures of the per-formance of electric power undertakings, none is particularly meaningful inthe case of CADAFE. The proportion of self-financed contributions to expan-sion is not significant due to the tentative nature of future investmentrequirements. The operating ratio reflects the characteristics of theservice area, as well as management capability. Rate of return is distortedby past unproductive expenditures, and the high levels of investment to servelow density loads. Furthermore, it is difficult to predict what effect thenew policies now being implemented will have on operating results. The useof before-taxes rate of return is probably the most suitable compromiseunder present circumstances.

42. Based upon reasonable projections of energy sales at currenttariff levels and with a conservative depreciation policy, CADAFE's averagebefore-tax rate of return on net fixed assets in operation during 1964-1968is estimated to be 6.1 percent, increasing from 5.5 percent in 1964 to 6.9percent in 1968. If CADAFE's depreciation charges were about 2.5 percent asdiscussed in paragraph 35, the average before-tax rate of return during1964-1968 would be about 7.9 percent.-V Against the background of the electricpower industry in Venezuela today, a reasonable rate of return would be 8percent before taxes. This rate was acceptable to the Bank in the case ofLoan 353 VE for the Guri hydroelectric project. To the extent forecastimprovements in operating efficiencies do not result in an 8 percent rate ofreturn, tariffs should be increased. An understanding to this effect wasobtained during negotiations, and has been confirmed.

43. The operating ratio, exclusive of depreciation and taxes on income,is forecast to improve from 68 percent in 1964, to 62 percent in 1968. CADAFEexpects to achieve this improvement by controlling personnel expenses moreclosely, and through economies resulting from curtailment of operation of anumber of small inefficient plaints whose systems will be integrated by theexpansion of 230-kv and 115-kv facilities. CADAFE expects to be able toreduce personnel expenses from 46 percent of revenues in 1963 to 36 percentin 1968.

44. Although arrangements are well underway for the supply of pcwerfrom EDELCA and La Electricidad, the possible purchase of power from Energiain Maracaibo has not been taken into account. Should satisfactory arrange-ments be concluded, expenditures for new construction would be reduced fromthose assumed in the period 1966-1963.

45. It was assumed that the proposed US$14 million Bank loan would bemade during the third quarter of 1964, and that the first repayment of prin-cipal would be due September 1967. At that time, the proposed loan wouldrepresent only about 6 percent of total capitalization. Interest and amor.-tization payments on the proposed loan during 1968 (the first full-year'sservice under the assumed terms) would be covered nearly 15 times.

1/ Because CADAFE is a wholly-owned government company, the taxes on incomepaid represent, in effect, a reduction in the new investments made by CVF.In the five-year period covered by the projections, estimated taxes wouldbe equal to 28 percent of the assumed new CVF investment.

- 16 -

46. At the end of 1963, CVF's investment in CADAFE was Bs 638 million;the financing plan outlined in paragraph lho assumes that another Bs 280million will be invested during the next five years, including Bs 30 millionand Bs 60 million during 19614 and 1965 respectively. The 1964 CVF allocationof Bs 30 million to CADAF7 ,is now available, and the financial plan for 1964is based upon this amount /. National budget appropriations are made on ayear-by-year basis, and thus while the financing plan for the period 1965-1968assumes certain CVF investiments, these will not be confirmed until eachannual budget is approved. In fact, assurance of CVF investments has in thepast been a problem (see paragraph 27). This has been due in part to in-adequate planning and budgeting, but also to the relationships between theprior managements of CADAFE and CVF. A new CVF management group was appointedin May 19614, so the possibility of improved relations between the two organi-zations exists. On the other hand, financial coordination may always be aproblem as long as CADAFE is dependent upon CVF for substantial investments.

Accounts and Control

47. CADAFE's current accounting practices, instituted under CVF manage-ment, were reviewed in 1963 by its management consultant group. The manage-ment has decided to adopt a new general accounting system devised severalyears ago by the chief of CADAFE's accounting function. It is expected tobe in effect by the end of 1964. When installed, it will place the accountson a basis similar to the U.S. Federal Powder Commission Uniform System.

48. During the 1963 negotiations in cornection with the proposed Bankloan, CADAFE agreed to have its accounts audited regularly by an independentfirm. (Regular audits are made by CVF staff; CVF accounts are in turn auditedby the Controleria de la Nacion.) The new management has retained ArthurAndersen & Co., and this firm is currently working with the CADAFE accountingdepartment. In reviewing 1963 statements, Arthur Andersen were unable toreconcile the administrations' accounts with the consolidated accounts main-tained in Caracas, and the corresponding Bs 9.1 million debit is shownseparately in the Balance Sheet (see Annex 5)c, The auditors are working withCADAFE to determine the origin of and to reconcile this discrepancy. ArthurAndersen have withheld certification of CADAFEIs accounts pending appropriateadjustments. In the meanwhile, they have made a number of sugges'ions inconnection with the installation of the new uniform accounting system5 aswell as the development of more meaningful periodic reports to managementfor control purposes (see paragraph 9).

IX. CONCLUSIONS

149. CADAFE's l964-1965 program is reasonable in view of load forecastsand system requirements (paragraphs 15-17). The 1966-1963 program is ten-tative, and requires further study and analysis before it can be firmlyplanned (paragraph 19).

1, CADAFE's President is requesting an additional Ds 30 million commitmernt,which would be needed in the absence of Bank financing.

- 17 -

50. The foreign e::change costs of the 230-kv and 115-kv transmissionkProject now under construction would be suitable for Bank financing. Thework is well advanced, and final costs can be accurately estimated (paragraph31).

51. Past operating results have been poor when measured by rate ofreturn, or operating ratio (paragraph 35). This situation reflects the natureof CADAFEts service area, and the condition of many of the small, isolatedproperties Government has required CADAFE to acquire (paragraph 4), and thesale of bulk power at inadequate rates to major governmient agencies(para-graph 35). CADAFE has also to contend with organizational and personnelproblems both in the Caracas headquarters, and in the operating administrationswhich will require time to overcome. The new management has retained con-sultants to assist in defining its problems, and has instituted measures toefect improvements (paragraphs 8-9).

52. CADAFE may be reasonably expected to continue to achieve modestimprovements in operating results (paragraphs 42-43). Current tariff levelswould produce the rates of return shown in Amnex 4. It had been agreedduring negotiations that it would be reasonable for CADAFE to achieve abefore-taxes rate of return of 8 percent by 1968, which would require anincrease in tariffs. This understanding has been confirmed.

53. Based upon confirmation by the new management and Government of theundertakings given the Bank during the 1963 negotiations, CADAFE would be asuitable borrower for a 20-year Bank loan, including a grace period of threeyears, of US$14 million including interest during the grace period, to beexpended by June 1966. The undertakings obtained were:

(i) the Government will not require CADAFE to take over additionalproperties until completion of and successful initial operationof the Project (paragraphs 10, 21);

(ii) CADAFE will not undertake during the period of construction of theProject any major works other than those now firmly planned, exceptwith the agreement of the Bank;

(iii) CADAFE will not incur any long-term debt, other than the proposedBank loan, prior to the completion of the Project, except withthe agreement of the Bank;

(iv) CVF will invest the flnds required to finance the 1964-1965 program(paragraph 46) and the Government will guarantee to take anyaction required to accomplish this;

(v) the Government will assist CADAFE in obtaining prompt payment byofficial agencies of CADAFE's uncollected accounts (paragraph 37);

(vi) management will continue to implement its consultants' recom-mendations for reorganization and improvement of operations(paragraph 9);

- 18 -

(vii) CADAFE will complete the studies now underway as recozmnended byits consultants, to review the structure and level of existingtariff schedules so that simplified tariffs at levels appropriateto revenue requirements can be placed in effect (paragraph 38);

(viii) CADAFE will adjust its tariffs to such levels, and improve itsoperating ratio to such extent, that in the year 1968 and there-after a before-taxes rate of return of 8 percent on net fixedassets in operation will be achieved (paragraph 42);

(ix) the services of an independent firm of public accountants, accept-able to the Bank, will continue to be retained to audit CADAFE'saccounts annually (paragraph 48);

(x) an agreement will be entered into between CADAFE and La Electricidadfor the supply of energy to CADAFE during 1965, and later years ifrequired (paragraph 20).

August 11, 1964

IBRD

VENEZUELA

CADAFE

ENERGY SALES 1958-1968

(Millions of Kwh)

Actual -------- _ ---- _ Estimated

1958 2j 1959 1960 1%1 1962 1963 1964 1965 1966 1967 1968

RSIDENTIAL 110.1 133.5 177.7 190.9 216.8 234.5 287 327 371 419 469

COmMCIAL & INDUSTRIAL 164.0 192.9 222.3 258.6 286.9 320.0 370 413 443 513 570

OFFICIAL 68.9 86.4 98.0 145.2 184.5 242.1 318 317 348 441 489

IN06 185.5 281.6 247.0 337.7 322.0 324.5 425 463 583 682 682

528.5 694.4 745.0 932.4 1010.2 1121.1 1400 1520 1745 2055 2210

REGION I, EXCLUDING INOS 171.7 207.4 237.6 306.9 358.4 432.2 557 591 643 799 897

INOS 185.5 281.6 247.0 2 337.7 322.0 324.5 425 463 583 682 682

REGION II 51.9 58.4 81.1 89.5 104.4 124.9 148 164 182 200 218

REGION III 108.7 133.9 164.4 182.0 206.5 218.1 244 273 304 336 371

REGION IV 10.7 13.1 14.9 16.3 18.9 21.4 26 29 33 38 42

528.5 694.4 745.0 932.4 1010.2 1121.1 1400 1520 1745 2055 2210

/ Under CVF operation

/ Part of INOS 1960 requirements supplied by La Electricidad

L Curtailment in production at petrochemical plant of Governmeni

August 11, 1964

VENEZUELA

CADAFE

FIVE YEAR SUMMARY OF PROPOSED CONSTRUCTION PROGRAM

1964 - 1968

1964 1965 1966 1967 1968 Tota; 1964 - 1968US $ Bs US $ Bs US $ BusUS $ Bs US $ Bs USS Bs

x1000 x1000 x 1000 x 1000 x 1000 x 1000 x 1000 x 1000 x 1000 x 1000 x 1000 x 1000

Generating Plant 1280 3920 3300 10460 5746 16079 5757 13752 3800 12100 19883 56311

Transmission Plant 5870 18436 9802 19033 4865 11565 8977 22328 7333 19000 36847 90362

Distribution Plant 1566 4901 1702 4507 1149 3156 1869 4620 1600 4600 7886 21784

Miscellaneous 640 3843 640 S800 640 3200 5i30 3200 600 4300 3oso 20143

Total Program 9356 31100 15444 39800 12400 34000 17133 43900 13333 40000 67666 188800

Local Currency Equivalentof Foreign Exchange 42100 69soo St800 77100 60000 104500

Total Program Expressedin Equivalent Local Currency 73200 109300 89800 121000 100000 493300

August 11, 196i

VENEZUELA

CADAFE

PROECT COST ESTIAT1

-Q61 1964 1965 1 66 Total Equiv.US $ BusUS $ Bs US $ Bs US $ Bs US $ Bs US $

x 1000 r 1000 x 1000 x 1000 x 1000 x 1000 x 1000 x 1000 x 1000 x 1000 xooo

230-kv Transmission Lines 1340 2453 5293 10150 829 1289 -- -- 7462 13892 10549

230-kv Substations 18 2340 3451 2282 367 253 3836 4875 4919

Load Dispatching Facilities 5 %41 210 100 136 -- -- 64a 346

Sub-Total 230-kv ivvo 2451 5854 12700 4^80 1707 i67 2sa 11941 19111 16188

115-kv Transmission Lines 341 580 -- -- -- -- 341 580 470

115-kv Substations 222 1067 408 4^0 -__o 60o 1497 a6i

Sub-Total 115-ky S63 1647 408 4^0 971 2077 14n

Sub-Total Construction 1340 2453 6417 14347 4788 4137 367 253 12912 21190 17621

Engineering 25 80 50 120 50 120 25 40 150 360 230

Contingencies 20 80 39 200 59 280 121

Interest During ConstructionFinanced by Proposed Loan 128 557 194 879 __ 879Financed by CADAFE_ 1260 1260 280

TOTAL PROJECT COST 1365 2513 6615 14S47 _434 44s7 1 s14000 2

August n, 1964L

VENEZUELA

CADAFE

INCOME STATEMENTSMillions of Bolivares

ACTUAL ESTIMATED_/

1960 1961 1962 1963 1964 1965 1966 1967 1968

Net Energy Sales - Millions of kwh 745.0 932.4 1010.2 1121.1 1400 1520 1745 2055 2210Average Sales Realization - Centimos per kwh/ 13.3 12.3 12.5 13.1 12.8 13.0 12.6 12.1 12.2

OPERATING REVENUES 99.3 114.6 126.5 1.47.0 179.0 196.9 220.5 248.9 270.4

OPERLATING EXPENSESPersonnel 47.3 55.1 60.6 67.5 72.4 78.2 84.1 90.0 95.9Fuel 11.3 12.3 15.3 16.5 18.2 18.0 17.0 15.2 12.7Purchased Energy 5.7 4.9 5.o 5.5 i.0 3.6 3.2 8.5 13.4Materials & Supplies 6.5 7.7 6.5 7.0 13.3 14.3 15.4 16.8 17.5Maintenance Contracts 2.8 3.6 3.9 4.5 5.8 7.4 8.5 9.4 11.5General Expen es 4.9 6.2 5.o 7.0 10.1 11.2 12.7 14.4 15.8Depreciation3' 19.4 24.3 27.6 30.1 30.2 35.2 39.7 44.4 48.6Taxes on Income 4/ 0.9 0.7 o.6 2.9 11.2 11.6 15.3 18.7 20.7

Total 9°-° 114.15 124.5 1i41.0 162.2 179.5 195.9 2114 236.

OPERATING INCOME 0.5 (0.2) 2.0 6.o 16.8 17.4 24.6 31.5 34.3

OTHER INCOME - NET o.5 0.6 (1.2) (0.2) -- -- -- -- --

GROSS INCOME 1.0 o.4 0.8 5.8 16.8 17.4 24.6 31.5 34.3

Interest on proposed Bank Loan -- -- -- o.6 2.5 3.5 3.4 3.2Interest charged to construction -- - 0.6 2.5 1.8 - --

Interest Expense -- -- -- -- -- -- 1.7 3.4 3.2

NET INCOME 1.0 0.4 0.8 5.8 16.8 17.4 22.9 28.1 31.1

PERFORMANCE RATIOS

Operating Ratio, Excluding Depreciation and Taxes 79.0% 78.4% 76.1% 73.5% 67.5% 67.4% 63.9% 62.0% 61.7%

Rate of Return Before Taxes 0.4% 0.1% o.6% 1.9% 5.5% 4.9% 6.0% 6.8% 6.9%

1/ Exclusive of Further Property Acquisitions/ At Current Tariff Levels

Composite Rate on Average Gross Plant 4%i At 40% on Taxable Income

August n, 1964

VENEZUELA

CADAT2E

BALANCE SHEETSMillions of Bolivares

ACTUAL ESTI24ATED

1960 1961 1962 1963 1964 1965 1966 1967 1968

Gross Plant in Service 467.1 577.6 617.9 645.6 738.7 879.0 958.8 1101.0 L171.0Depreciation Reserve 90.1 113.9 138.8 165.0 195.2 230.4 270.1 31h.5 363.1

Net Plant in Service 377.0 463.7 479.1 4 543.5 646.6 688.7 786.5 07. 9

Work in Progress 125.4 76.8 94.5 119.6 120.3 111.8 143.6 142., 192.4

Net Fixed Assets 502.4 540.5 573.6 600.2 663.8 760.4 832.' 928.9 1000.3

Other Property & Investments - Net 5.1 7.0 5.0 3.0 3.0 3.0 3.0 3.0 3.0

Current AssetsCash 8.2 7.7 2.2 3.8Accounts Receivable - Net 20.5 25.8 29.3 38.3Other Receivables 9.6 15.9 9.9 9.7Materials & Supplies 30.7 35.9 37.7 50.9Other Current Assets 1.1 0.1 1.6 1.1 )

70.1 85.4 80.7 103.8 121.2 136.5 156.7 173.5 189.9

Deferred Charges 5.4 6.4 5.6 7.1 7.1 7.1 7.1 7.1 7.1

Regional ministrations 18.7 9.1 9.1 9.1 9.1 9.1 9.1

TOTAL ASSETS 583.0 639.3 683.6 723.2 804.2 916.1 1008.2 1121.6 12C9.4

CVF InvestmentPaid-In Capital 293.8 293.8 299.4 608.4 668.3 728.3 788.3 868.3 918.3Advances 232.3 281.5 319.8 29.9Surplus & Legal Reserves 1.6 1.4 2.2 8.0 24.8 42.2 65.1 93.2 124.3

527.7 576.7 621.4 6h6.3 693.1 770.5 653.4 961.5 1042.6

Long-Term DebtSuppliers' Credits -- 1.0 6.1 9.7 8.4 7.4 6.6 4.9 4.6Proposed Bank Loan - -- -- -- 30.5 60.Q0 63.0- 62.0 60.0

__ 1.0 6.1 9.7 38.9 67.4 69.6 66.9 64.6

Current LiabilitiesAccounts Payable 32.5 28.0 25.0 29.2Customers' Deposits 8.0 9.3 10.6 12.2Other Current Liabilities 0.1 1.1 0.9 3.6

40.6 38.4 36.5 45.0

Reserve for Employees' Benefits 10.6 13.7 16.0 17.9

Deferred Credits 4.1 9.5 3.6 4.3 )Total: Current Liab., Res., Dfd. Crts. 55.3 61.6 56.1 67.2 72.2 7.2 5.2 93.2 102.2

TOTAL LIABILITIES & CAPITAL 583.0 639.3 683.6 723.2 804.2 916.1 1008.2 112L6 1209.k

August 11, 1964

VENEZUELA

CADAFE

FORECAST OF SOURCES & APPLICATIONS OF FUND]fl/Millions of Bolivares

1964 1965 1966 1967 1968

SOURCESInternal

Operating Income 16.8 17.4 24.6 31.5 34.3Depreciation 30.2 35.2 39.7 44.4 48.6

47.0 52.6 64.3 75.9 82.9

ExternalCVF Investment 30.0/ 60.0 60.0 80.0 50.0Proposed Bank Loan 30.5 29.5 3.0 _ __

60.5 89.5 63.0 80.0 50.0

TOTAL SOURCES 107.5 142.1 127.3 155.9 132.9

APPLICATIONSConstruction Program_/

Local Currency 43.1 51.8 46.o 55.9 52.0Foreign Exchange 50.1 77.5 63.8 85.1 68.0

93.2 129.3 109.8 141.0 120.0

Debt ServiceInterest on Proposed Bank Loan 0.6 2.5 3.5 3.4 3.2Repayment of Proposed Bank Loan -- -- -- 1.0 2.0Repayment of Supplierst Credits 1.3 1.0 0.8 1.7 0.3

1.9 3.5 4.3 6.1 5.-5

Increase in Non-cash Working Capital 8.5 8.5 8.5 8.5 8.5

TOTAL APPLICATIONS 103.6 141_ .3 122., 155.6 134.0

Annual Net Cash Increase (Decrease) 3.9 0.8 4.7 0.3 (1.1)

1/ Exclusive of Further Property Acquisitions/ Exclusive of Interest Charged to Construction 0.6 2.5 1.8

August 11, 1964

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