RETURN TOR--0TS T RESTRICTED

W.Ji T H IN ReportN o. TO-243a

ONE WEEK

This report was prepared for use within the Bank. It must not be published normay it be quoted as representing the Bank's views. The Bank assumes noresponsibility for the accuracy or completeness of the contents of the report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

APPRAISAL OF HUINCO HYDROELECTRIC PROJECT

LIMA LIGHT AND POWER COMPANY

(EMPRESAS ELECT RICAS ASOCIADAS)

PERU

June 14, 1960

Department of Technical Operations COPI

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CURRENCY EQUIVALENTS

U.S. $ 1 - 28 Soles1 Sol - $0.0361 Million Soles - $35,714

TABLE OF CONTENTS

PAGE

Summary 1ii

I INTRODUCTION 1

II THE BOROER4 1General 1Organization and Management 1Associated Company 2

III EXISTING INSTALLATIONS 2

IV PWTFRYARKET 3

V CONSTRUCTION PROGRAM 4

VI THE PROJECT 5Yarcapomacocha Diversion 5Huinco Hydro Power Plant 6General 6Description 6Design and Engineering 7Construction 8Present Status 8Schedule of Construction 8Cost Estimate 9

VII FCONOMIC ASPECTS 10

VIII FINANCIAL ASFECTS 10Electric Pcuer Legislation 10Present Financial Position 11Earnings Record 13Financing Plan 13Estimated Future Earnings 16Interest Coverage and Earnings Test 16Net Tangible Assets Test and Debt/ 17

Equity Ratio

IX CONCLUSIONS 17

LIST OF ANNEXES

1 Records and Forecasts of Operations

2 Records and Forecasts of Power Sales

3 Construction Program

4 Installed Capacity and System Peak Load

5 Technical Details of Project

6 Huinco Hydro Plant, Construction Schedule

7 Estimated Cost of the Project

8 Main Provisions of Electrical Industry Law

9 Typical Monthly Electricity Bills

10 Actual and Forecast Balance Sheets 1955 - 1966

11 Details of Funded Debt

12 Actual and Forecast Income Statements 1955 - 1966

13 Forecast Sources and Applications of Funds 1960 - 1966

Map

Apraisal of Huinco Hydroelectric Project

Summary

Lima Light and Power Company - Empresas Electricas Asociades(Lima Light) has asked the Bank to consider a loan of $24 million equivalentto help finance the construction of the first stage of the Huinco hydro-electric plant (120 NW) and the associated Marcapomacocha diversion tunnel.The total cost of this project is estimated at $49.5 million equivalent, ofwhich $4.2 million equivalent had been incurred by the end of 1959.

ii. Lima Light is a privately owned public utility responsible forsupplying power in the Greater Lima area, and with head office in Lima.About 65% of its share capital, which amounts to about $16.7 million equiv-alent, is owned by a Swiss group of public utility holding companies andbanks.

iii. The management and organization of Lima Light are good. As ofMarch 1960, Lima Light and Hidrandina, a company controlled by the samefinancial group as Lima Light, operated generating plants with a combinedcapacity of 184 NW. Total power sales amounted, in 1959, to 619 million kwh.Based on conservative forecasts, sales are estimated to increase to 1,356million kwh in 1969.

iv. To meet the increase in power demand,Lima Light has prepared ageneral construction program to be carried out during the ten year period1960-1969. This program includes construction of the Marcapomacocha waterdiversion scheme, addition of 20 NW of thermal and 240 NW of hydro capacityand expansion of transmission and distribution facilities. The total cost ofthe program, excluding interest during construction, is estimated at $66 mil-lion equivalent. The program and its estimated cost are reasonable.

v. The project proposed for Bank financing consists of the first stageof the Marcapomacocha diversion and the Huinco plant with an initial capacityof 120 NW. The project is technically sound and satisfactory arrangementshave been made for its execution. Its estimated cost is reasonable. The Huincoplant would produce power at a lower cost than could be produced by a possiblealternative thermal plant.

vi. The present financial position of Lima Light is sound. Its powerrates are satisfactory. Its earnings record is good. Under its proposedfinancing plan, Lima Light would finance about40% of its requirements forthe next five years from its own resources and sales of new share capitaland about 60% from borrowings, including the proposed Bank loan. Financialforecasts show that based on conservative assumptions and present rate levels,the sound financial position of the Company would be maintained in future years.

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vii. The project would be suitable for a Bank loan of e24 million

equivalent with a term of 25 years including a grace period of 5 years.

APPRAISAL OF HUINCO HYDROELECTRIC PROJECT

PE RU

I. INTRODUCTION

1. Lima Light and Power Company - Empresas Electricas Asociadas(Lima Light) has asked the Bank to consider a loan of $24 million equivalentto help finance the construction of the first stage of the Huinco hydro-electric plant (120 IM) and the associated Marcapomacocha water diversionscheme. The total cost of this project is estimated at $49.5 millionequivalent, of which $4.2 million equivalent had been incurred by the endof 1959. The project is scheduled to come into operation in 1964 and isdesigned to meet the increasing demand for power in Lima and its surroundingarea.

2. The appraisal of the project and of Lima Lightts operations andfinances is based on comprehensive documentation prepared by the Companyand on information obtained by a Bank mission which visited Lima in February1960.

II. THE BORROWER

General

3. The borrower would be Lima Light and Power Company, a privatelyowned public utility corporation responsible for supplying power in theGreater Lima area, and with head office in Lima.

4. The Company was originally incorporated in accordance withPeruvian laws in 1910 under the name Lima Light Power & Tramway Company.The name was changed in 1935, when the streetcar operations and associatedproperties were transferred to a separate company.

5. Lima Lightts present concession was granted by the Government in1956. It is valid for a period of 50 years and gives the Company the exclu-sive right for generation and distribution of power within its area of opera-tions.

6. At the end of 1959 Lime Light had an authorized share capital ofSoles 500 million of which Soles 466.8 million was subscribed and paid in.About 65% of the shares are owned by a Swiss group of public utility holdingcompanies and investment banks. The balance of the shares is widely distri-buted and a large number is held by shareholders in Peru.

Organization and Management

7. The shareholders of the Company are responsible for the majordecisions affecting the Company. These decisions include in particularsale and disposal of property, issue of share capital and incurrence ofdebt.

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8. The Board of Directors is responsible for the execution of reso-lutions adopted at the shareholders meetings. It consists of 15 membersincluding 3 alternates. A majority of the Directors is resident in Lima.

9. Two General Mvanagers, one concerned chiefly with engineeringand the other with finance, are jointly responsible for the operation of LimaLight. They are assisted by five Ianagers in charge, respectively, of depart-ments for generation and transmission, distribution, personnel and commercialservices, purchasing and stores, and financial administration. In 1959, theCompany had a total of about 1850 employees and workers.

10. The Company has a good and experienced management and an efficientorganization. Its relationship with Peruvian authorities is good.

Asnociatea Company

11. The financial group which controls Lima Light also holds acontrolling interest in an associated Company, Energia Hidroelectrica Andina(Hidrandina) S.A. This Company was established in 1946 with head office inLima for financing, construction and operation of power plants. The instal-lations owned by Hidrandina form part of the Lima Light power system. Pur-suant to a long term renewable contract between the two companies, Lima Lightpurchases all power generated by the Hidrandina plants and pays to Hidrandinaannual amounts sufficient to cover the total cost of operations as determinedby law. The provisions of this contract are reasonable.

III. EXISTING INSTALLATIONS

12. The total generating capacity of the Lima Light power system inMarch 1960 was 184 IvI, installed in three hydro plants and one thermal plant.

Plant Capacity Owner

Yloyopampa hydro 63 iNW HidrandinaHuampani hydro 30 hW HidrandinaCallahuance hydro 67 W Lima LightSanta Rosa thermal 24 1W Lima Light

13. The hydro plants are located on the Santa Eulalia river.2/ (Seeattached map). The total head developed by the three plants is 1235 meters.Seasonal regulation of the Santa Eulalia is provided by a number of up streamreservoirs with a total capacity of 75 million cu. meters.

14. The Santa Rosa thermal plant consists of one 10 MW gas turbineunit installed in 1949 and three steam turbine units with a total capacityof 14 1vW. The latter units are all over 30 years old and serve only as standby capacity.

2/An old 10 N hydro plant (Yanacoto) was taken out of operation inMarch 1960 upon the commissioning of the Huampani plant.

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15. The transmission line network consists of 368 kilometers of64 kv lines and 118 kilometers of 30 kv lines connecting the generatingplants with three main substations which have a total transformer capacityof 179.2 MVA. The distribution network consists of 641 kilometers of cablesand 413 kilometers of overhead lines operating at 10 kv and 2.3 kv, and1,681 kilometers of cables and 721 kilometers of overhead lines operatingat 220 volts. The network also includes 455 substations, 86 cebins and562 pole transformers.

16. A part of the distribution network is public property but isoperated by Linu Light. This applies to certain primary lines and distribu-tion transformers financed partly from direct payments by consumers and partlyfrom an extension fund administered by the Company. Lima Li,ght is permittedunder present rate legislation to charge as operating costs its annual contri-butions to this extension fund.

17. Low tension feeders and house connections excluding meters are alsopublic property. These installations are paid for directly by the partiesrequiring them. They are however maintained by the Company. In addition tomaintenance costs the Company is permitted to include in its operating costsa charge of 0.5% per annum on the value of these installations.

18. Total energy production in 1959 amounted to 720 million kwh.Losses in the system, including the Company's own consumption were 14%.The load factor of the system was 53%. The system is well maintained andoperated.

IV. POWER iARKLT

19. The concession area served by Lima Light covers about 420 squarekilometers. In 1959 the population was estimated at 1.3 million or about14% of the total population of Peru. The area is the main administrative,coimercial and industrial center of the country. The total number of con-sumers at the end of 1959 was over 192,000 including about 6,800 industrialconsumers. The main industries served included plants producing textiles,cement, rubber goods, paper, vegetable oil, fertilizer, glasswares and shoes.

20. Total power sales during the six year period 1954-59 increasedfrom 401.1 million kwh to 619 million kwh, or by an average annual rateof about 10%. The peak load during the same period increased from 104.2 PWto 155 i-;W or at about the same rate as sales. The load factor on the systemimproved slightly from 50.5% to 532a. (See Annex 1).

21. A breakdown of sales by cetegories during this period shows thatindustrial and commercial sales increased at a somewhat higher annual rate(12.7% and 10.5% respectively) than the average, while residential and publiclighting sales increased at a lower rate. The share of total sales for majorcategories of consumers in 1959 was 40% for residential, 41.5% for industrial,9% for commercial, 5.5% for public lighting and 4%o for traction includingbulk sales to a company which distributes power in the small town of Anconnorth of Lima. (For details see Annex 2).

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22. In the forecast of sales prepared by Lima Light, an increase of10% is assumed for 1960, based on recent monthly sales records which showan increase of at least this magnitude compared with records for the samemonths in 1959. For the following years the Company estimates total sales toincrease at an average annual rate of 8%.

23. Industrial sales are expected to continue to increase at a higherrate (10%) than the average. This seems reasonable in view of the recentenactment of an Industrial Promotion Law, which provides a number of benefitsdesigned to stimulate industrial expansion in Peru.

24. Sales to commercial and residential consumers are estimated toincrease at average annual rates of 7% and 8% respectively, with somewhatmore than half of the increase accounted for by connection of new consumersand the balance by an increase in sales per consumer.

25, Based on these forecasts total sales would increase from 680million kwh to 1,356 million kwh over the 10 year period 1960-69. Withallowance for losses, total generation required in 1969 would amount to1,590 million kwh. A small improvement of the system load factor is expectedover the period, renching 54% in 1969; the system peak load in this year wouldthen be 335 EW.

26. The forecast of future sales, energy requirements and system peakload is based on conservative assumptions and it would not be unreasonableto expect sales to be somewhat higher than estimated. The reason for thisis that there exists within the Company's concession area a number of indus-trial enterprises operating their own power plants with a total capacityestimated at 32 PQW. Several of them have expressed interest in obtainingsupplies from Lima Light, but the Company has hesitated in making commitmentsfor major supplies of firm power before the Huinco plant comes into operation.In addition, an extension of the Company's area of concession is also beingconsidered to include urban areas now under development.-

V. CONSTRUCTION PROGRAM

27. In order to meet the estimated increase in power demand, Lima Lighthas prepared a general construction program to be carried out during the tenyear period 1960-69. It consists of two parts, the first to be carried outduring 1960-64, and the second during 1965-69.

28. The first part includes the expansion of the existing Santa Rosathermal plant by installation of two 10 NW gas turbine generators, the com-pletion of the first stage of the harcapomacocha water diversion scheme andthe construction of the Huinco hydroelectric plant with an initial capacityof 120 Md. The second part includes the second stage of the iarcapomacochadiversion and the expansion of the Huinco plant to total capacity of 240 IW.

29. Both parts of the program include necessary extensions to theCompanyts existing transmission and distribution network.

30. The total cost of the construction program is estimated at$66 million equivalent of which $48 million would be incurred during 1960-

64 and $18 million during 1965-69. These estimates do not include interestcharges during construction and the costs of distribution installations whichwould be financed by the extension fund and by direct payments by the partiesrequesting the installations. Total investments for these works are estimated

at about t1.6 million annually.

31. The costs have been realistically estimated and include areasonable allowance for contingencies. (Details of the program and scheduleof expenditures are given in Annex 3).

32. The generating capacity to be provided by the program andexisting capacity would be sufficient to meet the estimated demand through-out the neriod 1960-69. In 1963 and the first half of 1964, before the firstunit of the Huinco plant would come into operation, only a small margin ofreserve capacity would be available. If sales should increase at a higherrate than estimated, some reduction of the evening peak load might be requiredduring this period.

33. In order to meet the system load after 1969 further constructionwork would have to be started at the latest in 1968. Lima Light has alreadymade preliminary studies of future hydro developments but no firm plans haveyet been made. Consequently no provision for additional works to be carriedout during 1968 and 1969 has been included in the program cost estimates.

34. A comparison between available generating capacity and estimatedpeak load is given in Annex 4. Details of estimated plent operations, lossesand sales are included in fnnex 1.

VI. THE PROJECT

35. The project proposed for Bank financing consists of the firststage of the Marcapomacocha diversion and the Huinco hydro plant with aninitial capacity of 120 MW.

jrca-pomacoche Diversion

36. The Parcapomacocha basin is located on the eastern slope of theAndes mountain range. The diversion scheme consists of structures to collectthe water resources of this basin above an elevation of about 4300 meters andof a tunnel through the mountain range to conduct the water into the SantaEulalia river basin.

37. The first stage of this scReme includes the construction of twosmall concrete gravity dams regulating the outflow from natural lakes, in-take works on the Cuevas, Antacasha and Sangrar rivers, a five kilometer longcanal and the ten kilometer long diversion tunnel. The two lakes would pro-vide a total useful storage capacity of 10 million cu. meters. These reser-voirs would assure the diversion of a minimum of 2 cu. meters/sec, which wouldbe discharged into the Canchis river, a tributary to the Santa Eulalia river.

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The additional flow would benefit the proposed Huinco plant and would increasethe production capacity of existing hydro plants downstream by 140 million kwh.

38. The second stage of the scheme, to be carried out during the period1966-69, would include works providing additional storage capacity of 110million cubic meters. After completion,the minimum flow through the diversiontunnel would be increased to 6 cu.meters/sec.

Huinco Hydro Power Plant

General

39. The Huinco plant would be located on the Santa Eulalia river some65 kilometers northeast of Lima. This river is formed by a number of tribu-taries raising in the Andes mountains. A total of 27 natural lakes are locatedin the upper reaches of the Santa Eulalia basin. Existing dams at the outletsof 15 of these lakes provide regulating reservoirs with a total useful capac-ity of 75 million cu,meters. At Chosica, the Santa Eulalia flows into theRimac river which flows through Lima and discharges into the Pacific atCallao. (See attached map).

4o. The drainage area above Sheque, the site of the intake for theHuinco plant, is about 400 square kilometers. The natural flow of SantaEulalia at Sheque, based on 20 years records, varies between a maximum of 130cu. meters/sec and a minimum of 1.1 cu.meters/sec. With the regulation pro-vided by the existing reservoirs the minimum flow is at present 6 cu.meters/sec. It would increase to 8 cu.meters/sec when the first stage of theMarcapomacocha diversion comes into operation. This would be sufficient forthe operation of the initial two units to be installed in the Huinco plant.After completion of the second stage of the diversion, the minimum flow of theSanta Eulalia river would increase to 12 cu.meters/sec., permitting theoperation of four units in the Huinco plant.

Description

4l. A 40 meter high concrete arch dam would be constructed at Shequewhere two tributaries, the Canchis and the Acombamba, join to form the SantaEulalia. The reservoir would have a capacity of 800,000 cu. meters designedfor weekly regulation. The dam would be provided with a free overflow spill-way and a bottom discharge tunnel.

42. Both tributaries carry a considerable amount of silt. The Acombambawould therefore be diverted into the Canchis by a short tunnel and a siltsluice would be constructed on the right bank of this river. The flood waterand the silt removed by the sluice would be conducted through a 800 meter longdiversion tunnel, with a capacity of 200 cu.meters/sec, and discharged into theSanta Eulalia below the dam. The total flood discharge capacity of 480 cu.meters/sec. provided by the diversion tunnel, the spillway and the bottom dis-charge would be about 3.5 times the highest flood on record.

43. From the reservoir the water would be conducted through a 13 kilo-meter long concrete lined pressure tunnel with a capacity of 24 cu. meters/sec. A valve chamber and a surge tank would be constructed at the

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lower end of the tunnel. The penstock connecting the pressure tunnelwith the underground powerhouse would consist of a 600 meter long steelpipe mounted above ground in the upper section and a 1400 meter long steellined pressure shaft in the lower section.

44. The powerhouse cavern would have a semi circular section andwould be lined with concrete. The cavern would provide space for fourgenerating units. At present two units would be installed, each consistingof 60 kM generator and a Pelton type turbine which would operate under anet head of 1200 meters. Two transformer banks, each consisting of threesingle phase units would also be installed in the powerhouse.

45. The water would be discharged through a 1 kilometer long tailracetunnel into the Santa Eulalia river above the intake for the existingCallahuanca plant. A by-pass canal would provide a direct connection betweenthe tailrace and the Callahuanca intake tunnel. An access tunnel to thepowerhouse would be constructed parallel to the tailrace tunnel.

46. The outdoor switchyard would be located on the left river bank.It would be connected to the Santa Rosa substation in Lima by a 65 kilometerlong 220 kv double circuit transmission line. A 50 kv transmission linewould be constructed to connect the Huinco and the Callahuanca plants. Anextension would be made to the Santa Rosa substation including the installa-tion of two transformer banks, each consisting of three single phase 220/60 kvunits. (A summary of technical data is given in Annex 5).

Design and Tnineering

47. The design of the Iarcapomacocha diversion has been prepared bythe Company's own civil engineering staff, a small group of experienced andwell qualified engineers. This group also carried out the preliminary studiesand prepared the initial plans for the Euinco plant. Because of the size ofthis project, the Company retained, in 1957, the services of the Swiss con-sulting firm hotor Columbus to review the plans and prepare the detaileddesign. The present general design of the project was developed after anextensive study of possible alternatives.

48. A geological survey, drillings and excavation of test pits havebeen carried out and show that the rock conditions in general are favorable.

49. Only preliminary plans have been made by the consultant for theconcrete arch dam at Eheque because the construction is not scheduled to bestarted before the middle of 1961. Additional drillings and exploratorytunnels are being made on the dam site to obtain the necessary data for thedetailed design of the structure. The Company and its consultants have agreedto submit the final plans to the Bank before construction work is started.There is no reason to expect any difficulties considering the consultant firmt sexperience in the design and execution of dams of this type, the size of thedam and the favorable rock conditions established by the preliminary investi-gations.

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Construction

50. The Company's chief civil engineer would be responsible for theexecution of the works. For the detailed supervision of the constructionwork, he would be assisted by qualified personnel made available by theconsultants.

51. The civil construction work would be carried out by Peruviancontractors under force-account contracts. All construction equipmentand materials required for the project would be purchased by Lima Light.This arrangement is dictated by the need for a construction force able to workat the high elevation at which the project is located. Under the prevailingconditions and based on Lima Light's experience from the construction of itsexisting hydro plants, the arrangements are the most suitable for the efficientexecution of the work at the lowest cost. Bids on international basis wouldbe invited on all major pieces of electrical and mechanical equipment with theexception of two main generator units. An order for these has already beenplaced with a Swiss supplier. In addition to having obtained a reasonableprice, the Company took into consideration that all its generators have beendelivered by this supplier which also has established a permanent serviceorganization in Peru. The purchase of the generator would not be financedby the proposed Bank loan.

Present Status

52. The work on the tarcapomacocha diversion was started in 1958. Atthe end of 1959, some 50% of the work had been completed. The proposed loanwould finance the foreign exchange cost of the remaining part.

53. Access roads required for the construction of the Huinco planthave been completed. The main civil works and equipment specificationshave been prepared, permitting bids to be invited as soon as the financingfor the project has been assured.

Schedule of Construction

54. The completion of the first stage of the Marcapomacocha diversionis scheduled for the latter part of 1962. The construction of the Huincoplant is estimated to require about 5 years. The completion would mainlydepend on the time required for the excavation of the powerhouse cavern,pressure shaft and pressure tunnel. It would be reasonable to expect the twogenerating units to come into operation respectively in Pugust and December1964. (A detailed schedule of construction is given in Annex 6).

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Cost Estimate

55. The estimated costs of the project are: (for details see Annex 7)

Foreign Exchange Local Currency TotalMillion Dollars lillion Soles Mill.

1rcapomacocha DiversionCivil Works 1.98 119.74 6.25

Huinco Plant (120 N)Civil Works 10.39 350.32 22.90Equipment 4.85 13.40 5.33Transmission Line and Substation 2 19.70 3.58

Subtotal 20.10 503.16 38.06

Engineering 1.90 6.86 2.15Contingencies 1.92 65.00 4.24Interest during Construction 5.00 5.00

Total Costs 28..2 .5252

Expenditures before December 31, 1959 1.20 95.64 4.24

56. The proposed loan of $24 million would cover 83% of the foreignexchange costs and 49% of the total costs of the project. The loan wouldinclude $2.5million to cover a part of interest charges during the construc-tion period.

57. The estimated costs of the civil works are based on wages andprices in effect at the end of 1959. Equipment costs are based on quotationsobtained from qualified manufacturers and include allowances for freight,insurance and erection charges. Reasonable contingency allowances of 10%on foreign exchange costs and 15% on local currency costs have been addedtoihe cost estimates.

58. The capital cost of the Huinco plant per installed kw for the firststage with an installation of 120 MW including transmission would amount to$380. The additional cost of expanding the plant to its full capacity of240 INW is estimated at $6.8 million. Including this cost and a reasonableshare of the cost of the varcapomacocha diversion, which also will benefitthe existing plants downstream of Huinco, the unit capital cost would bereduced to $220/kw. This is a low cost for a plant designed to provide firmpeaking power to the system.

59. The cost of power to be produced by the Huinco plant and deliveredat the main substation in Lima would amount to Soles 0.22/kwh (8 mills/kwh)based on an installation of 120 VW and an annual production of 460 millionkwh. With the increase in capacity to 240 Md and an annual production of750 million kwh the cost would be reduced to Soles 0.17 (6 mills/kwh). These

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cost calculations are based on operation, maintenance and overhead costs ofLima Light's existing hydro plants, straight line depreciation allowance of3% and financial charges according to the contemplated financing plan.

VII. ECONOMIC ASPECTS

60. The construction of the Huinco plant forms a logical next step inthe development of the hydro resources of the Santa Eulalia river. It wouldprovide at a reasonable cost the additional power required to meet the in-crease in demand in the power system operated by Lima Light.

61. The alternative to the Huinco plant would be a modern thermal plantof equivalent capacity which could be constructed at a site located on thecoast north of Callao. Since the Huinco plant would be expanded to its fullcapacity of 240 MW within a relative short period after the initial two unitsare put in operation, an alternative thermal plant would also have to beplanned with this capacity. This thermal plant could be constructed at alower capital cost than the Huinco plant, but the difference would be morethan offset by the inherently higher operating costs for the thermal plant.The present price paid by Lima Light for fuel oil is Soles 700/ton ($0.60/million BTU). Assuming a more realistic oil price of $0.hO/million BTU, totake into account the size of the alternative thermal plant and its locationclose to a port, the unit operating cost (operation, maintenance, depreciationand fuel), excluding financial charges, would exceed the 6 mills/kwh estimatedfor the production cost of the Huinco plant including financial charges. Inthese circumstances it was not found necessary o 7me a detailed economiccomparison.

62. The construction of the Marcapomacocha diversion scheme would at areasonable cost provide additional water in the Santa Eulalia river during thedry season and make possible a higher power production in the Huinco plantand existing plants downstream. In addition it would help to meet the growingneed for drinking water in Lima. After 1969, when the second stage of thediversion is scheduled for completion, water would also be available forirrigation of an area of about 5000 hectares south of Lima.

VIII. FINANCIAL ASPECTS

Electric Power Legislation

63. The supply of electric power in Peru is regulated by the ElectricIndustry Law of July 1955. The law's provisions regarding power rates andfinancial policies are sound, in accordance with its stated purpose to stimu-late private investment in the industry. (A summary of the main provisions isgiven in Annex 8).

64. Power rates are established by the National Tariff Commission, whichconsists of seven members appointed by the President according to rules design-ed to ensure the competence of the members and a reasonable degree of indepen-dence of the Commission. Rate revisions and revaluations of assets are madeevery three years or, at shorter intervals, at the request of either the Minis-ter of Development and Public Works or the Concessionaire, if existing ratesgenerate more or less than the permitted return.

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65. Installations are revalued by appraisal on the basis of replacementcosts. Corresponding adjustments are made in the Concessionairets accountsfor depreciation reserves, foreign currency obligations and equity.

66. Costs which can be charged to operations include all operatingexpenses, purchased power, straight line depreciation at rates establishedby the National Tariff Commission (with a maximum of 5% annually), interest,taxes, and exchange losses on amortization of foreign debt, if any. The per-mitted return is 11% on common share capital and reserves invested in thebusiness. This return consists of an M2-o dividend to be distributed to theshareholders, and of a 3.% "commercial profit". On the preferred share capital,which the Company intends to raise in connection with the financing of theHuinco project and which would be denominated in U.S. dollars, the TariffCommission has approved a dividend of 8% and a "commercial profit" of 19%.Dividends and interest are tax exempt. The commercial profit is subjectonly to taxes in existence when the law became effective.

67. The present rates of Lime Light are satisfactory. In 1959 theyresulted in an average revenue of Soles 0.47/kwh (U.S. mills 16.8/kwh).(Details of present rates and typical monthly bills are given in Annex 9).

Present Financial Position

68. The financial statements of Lima Light are audited by PriceWaterhouse and Company.

69. Condensed balance sheets for the years ended December 31, 1955through 1959 are shown in Annex 10. As of December 31, 1959, fixed assets,valued at replacement cost, totaled Soles 1,254 million ($44.8 million).Deducting the depreciation reserve of Soles 503 million ($18.0 million),net fixed assets were Soles 751 million ($26.8 million). 1fter the ElectricIndustry Law became effective, assets in operation and the correspondingreserve for depreciation have been revalued twice, in 1955-56 by almost 100%and in 1959 by about 27%. Allowances for depreciation in each of the pastthree years, were made at a conservative rate of about 4%.

70. The capitalization at the end of 1959, resulted in a debt/equityratio of 39/61,as shown below (in millions):

US $ %Soles equiv. of total

Share Capital: 18,843,750 Shares, 376.9 13.5 45.0Soles 20 par

Provisional Certificates for 90.0 3.2 10.7Capital Increase

Retained earnings (net of dividends 42.6 1.5 5payable)Total Equity 509.5 18.2 60.7

continued

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us $ %Soles eguig of total

Long Term Debt15 year - $US Sinking Fund DebenturesSeries A 7% 1972 162.8 5.8 19.3Series B 7% 1973 166. 6.0 30.

Total Long Term Debt Outstanding 329.6 11.8 39.3

Total Capitalization 839.1 30.0 100

The provisional certificates were issued in 1956 for the amount of the in-crease in equity reflecting the initial revaluation of assets. They arebeing converted into ordinary shares at the rate of Soles 22.5 million annu-ally over the eight year period 1956-63.

71. The debt, entirely in foreign exchange, was issued under anindenture dated July 1, 1957 (Series A) and a supplemental indenture datedNovember 1, 1958 (Series B). A summary of the main provisions is given inAnnex 11. Most of the issues was placed in Switzerland and largely withthe group of holding companies which controls Lima Light. Both issues aresecured by a first floating charge on all property, present and future.The Bank would obtain the same security for the proposed loan.

72. The issue of additional debentures is limited, under theindenture, by earnings and assets tests which require a) that actual netincome for a recent 12 month period be at least 150% of annual interestcharges on existing and proposed debentures, and b) that net tangible assetsat the time of the proposed issue be not less than 150% of debentures andother funded debt outstanding and proposed. These tests provide an effec-tive safeguard against excessive indebtedness and an incentive to maintainadequate earnings.

73. As will be seen in paras. 91 and 92 below, forecasts indicate that,on the basis of the proposed financing plan, -hich provides for additionalequity, Lima Light could borrow over the next five years a total of $32.5 mil-lion including the proposed Bank loan, and could meet the above tests. Dis-bursements procedures in connection with the proposed Bank loan, provide thatLima Light shall deliver debentures meeting these tests each time a disburse-ment is made.

74. In order to obtain a portion of the funds to construct theMoyopampa hydro plant, the entire output of which is sold to and distributedby Lima Light, Hidrandina issued $10 million 20 year sinking fund 7% bondsin 1951. Of these, $7.3 million were outstanding as of December 31, 1959.The power contract between the two companies provides that Lima Light willpurchase all power generated by Hidrandina at a cost representing Hidrandina'stotal operating expenses, including depreciation, interest, dividends and netprofits as specified by the Electric Industry Law. As part of the paymentsunder this power purchase agreement, Lima Light assigned to the trustee

- 13 -

for the bonds the revenues from certain of its power sales contracts.Therefore, from a legal standpoint, this assignment of revenues constitutesa prior charge on Lim Light's revenues for debt service on the bonds.However, amounts so paid to the trustee are deducted from payments due fromLima Light to Hidrandina for supply of nower. Since Lima Light will continueto need and purchase the power produced by Hidrandira, payments to the trus-tee are in effect payments for power. Furthermore, the debentures to beobtained by the Bank (and consequently the proposed Bank loan) will be securedon the same basis as the publicly issued debentures, which recognize the ex-istence of the technical priority in favor of the Hidrandina bonds.

75. Over the three year period through 1959, Lima Light's equity rosefrom Soles 385 million ($13.7 million) to Zoles 509.5 million ($18.2 million).Of this increase Soles 76.2 million reflected the revaluation of assetscarried out in 1959 and Soles 15 million the conversion of old debt intoshare capital. The balance of about Soles 33.3 million was contributed fromretained earnings.

Earnings Record

76. The earnings record of Lima Light is good. Earnings statementsfor recent years are summarized in Annex 12. Net income before interestincreased from Soles 33.5 million ($1.2 million) in 1956 to Soles 67.6 million($2.4 million) in 1959, producing a return on total net fixed assets of 8 to9% annually. The return in 1959 was 9.1%.

77. Lima Light has a long record of dividend payments. Up to 1956,cash dividends of 7%o on the par value were paid for several years. Startingin 1956 dividends were paid net of taxes at the rate of S-%, in accordancewith the provisions of the Electric Industry Law. In addition stock isdistributed from time to time to incorporate into share capital the re-valuations of assets and retained earnings.

Financing Plan

78. A forecast of sources and applications of funds for the seven yearsthrough 1966 is given in Annex 13. During the five year period ending 1964,when the Huinco plant would start operation, plant additions including interestcharged to construction (as shown in Annex 12), and provision for increase inworking capital would amount to about $54 million equivalent (Soles 1,513.5million). This program would more than double the fixed assets of the Company,presently valued at about $44.8 million equivalent (Soles 1,254 million).

79. In working out a financing plan the following main considerationshad to be taken into account:

a) a substantial contribution from Lima Light's own resourceswould be necessary in order to meet the tests of the existingindenture (see para 72); in view of the size of the projectedexpansion, these would have to obtained both from new sharecapital and retained intemal earnings.

- 14 -

b) new stock and debt issues would have to be apportioned overthe construction period of the project and would have totake into account both the Company's requirements and arealistic assessment of its ability to raise the proposedamounts in the capital market.

80. Under the proposed plan, Lima Light would finance about 40% of itsrequirements from its own resources and sales of new share capital, and about60% from borrowings, as shown below (in millions):

1960 1961 j6 1 l96 Total U16 fSoles 24i. total

Net cash generated 60.8 57.8 60.3 57.8 72.0 308.7 11.0 20.4(including Soles17.7 millionavailable as ofDecember 31, 1959)

Common Stock 33.0 - - 65.0 - 98.0 3.5 6.5Preferred Stock 168.0 - - - - 168.0 6.0 11.1Advances from 22.5 - - 1.0 12.1 35.6 1.3 2.4

Hidra,. na

Sub-total 284.3 57.8 60.3 123.8 84.1 610.3 21.8 40.4

Proposed IBRD Loan 53.2 254.0 145.8 116.0 103.0 672.0 24.0 44.4

Debenture Issues 84.0 84.0 - - 42.0 210.0 7.5 13.9

Suppliers' Credit 21.2 - - - - 21.2 .7 1.3

Sub-total 158.4 338.0 145.8 116.0 145.0 903.2 32.2 59.6

Total 442.7 395.8 206.1 239.8 229.1 1513.5 54.0 100.0

Additions to Plant 343.3 366.1 362.4 242.7 199.0 1513.5 54.0and Working Capital

81. New share capital would be issued for Soles 266 million ($9.5 mil-lion), or 17.6% of total requirements, in three tranches. Two of these wouldbe in the form of common stock of Soles 33 million ($1.3 million) in 1960and Soles 65 million ($2.2 million) in 1963. The third tranche would be in theform of preferred stock; the total amount of Soles 168 million ($6 million)would be issued in 1960. The management of Lima Light is reasonably assuredthat it can sell the new common stock in Peru, mainly to its own consumers.The preferred stock, to be denominated in U.S. dollars, would largely be placedwith the present shareholders and particularly the Swiss holding group. TheCompany has obtained the necessary permission by the Peruvian authorities toissue preferred stock up to an amount of $10 million and an assurance that nocurrency restrictions would be imposed on the payment of dividends. The

- 15 -

subscription of the initial stock issues (Soles 33 million of common andSoles 168 million equivalent of preferred) would be made before the proposedBank loan is made effective.

82. Cash earnings (including depreciation), after deduction of interestchargeable to operations, taxes, amortization of existing and proposed debtand cash dividends.are expected to contribute about Soles 309 million ($11.0million), or 20.4% of total requirements.

83. The long term borrowings contemplated are:

a) a proposed Bank loan of $24 million (Soles 672 million).For the purpose of financial forecasts an interest rateof 6% and a term of 25 years,with first repayment in 1965,have been assumed.

b) public issues of two new series of debentures, one of$6 million (Soles 168 million) to be sold in 1960 and 1961and one of $1.5 million (Soles 42 million) to be sold in1964. In the financial forecasts an interest rate of 7%and a term of 15 years, including a grace period of twoyears, have been assumed.

As in the case of the preferred stock, Lima Light would rely on Swiss inves-tors to subscribe for the proposed issues, but plans also to sell a portionin Peru. Of the first of the two new series of debentures, $3 million wouldbe sold before the proposed Bank loan is made effective. Lima Light plans tosell the remaining $3 million of this series during 1961. It would, however,before the proposed Bank loan is made effective, obtain a firm undertakingfrom its largest shareholder, Cie. Sud-Americaine dtElectricite (Sudelectra)of Zurich that this holding company would purchase by the end of 1961 anaggregate principal of $3 million of the debentures if they are not otherwisesold. The financial resources of Sudelectra are sufficient to fulfill thisobligation.

84. Hidrandina would provide 2.4% of the capital requirements including:

a) Soles 22.5 million ($0.8 million) representing chiefly

repayment of advances made by Lima Light to Hidrandina;

b) long term advances of about Soles 13 million ($0.5 million)representing Hidrandinals estimated cash generation inexcess of its requirements.

Before the proposed Bank loan is made effective, a contract would be signedby the two companies obligating Hidrandina to make these funds available toLima Light.

85. Finally, Lina Light has obtained a 7 year suppliers credit at aninterest rate of 626 of about $1 million equivalent (Soles 28 million) inconnection with the purchase of generator units for the Huinco plant. After

- 16 -

allowing for an initial payment, Soles 21.2 million would be available.

86. It is to be noted that under the proposed schedule of financing,Lima Light must obtain temporarily in the two years 1962 and 1963 an addi-tional maximum amount of Soles 30.1 million ($1.1 million). Lima Lightshould not experience any difficulty in obtaining short term bank loans oradvances to cover this requirement.

87. The financing plan proposed by Lima Light is realistic and formsa reasonable basis for an estimate of Lima Light's financial position overthe next five years. Of the total amount of about $17 million to be raisedin the capital market in the form of new stock and debentures, $13.2 millionwould be firmly assured before the proposed Bank loan is made effective.This leaves a balance of $3.8 million to be raised in 1963 and 1964. Takinginto consideration the good financial record of Lima Light and the size of theamount involved, it is reasonable to expect that it can raise the funds whenrequired.

Estimated Future Earnings

88. Forecast income statements for the seven years ending 1966 areshown in Annex 12. Net income before interest is estimated to increasefrom Soles 67.6 million ($2.4 million) in 1959 to Soles 140.4 million($5.O million) in 1964, the scheduled year of completion of the Huincoplant, and to Eoles 171.6 million ($6.1 million) in 1966. This forecastis based on conservative assumptions of increase in power sales. In addi-tion a small gradual increase of the average revenue per kwh would be neces-sary in order to obtain the permitted return. This increase, which wouldamount to 4% in 1964 compared with 1959, could be accomplished by smalladjustments to the existing rate structure. If power sales were to increaseat a slightly higher rate than assumed, these adjustments would not berequired.

89. Over the seven year period, the return on net fixed assets inoperation would average about 10.5% and the return on total net fixed assets,including work in progress, would average 7.7%, ranging between 6.4% and 8.8%.

Interest Coverage and Earnings Test

90. Net income before interest would cover interest charges, in thecorresponding year, at least 2.0 times except in 1962 and 1963, when thecoverage would be 1.8 times.

91. It is estimated that on the basis of the proposed financingplan and earnings forecasts described in this report, the 150% earningstest required in the indenture would be met throughout the period. Thisis shown by the table below, which indicates that the annual interestcharges on all existing and proposed new debt in each of the years 1960 to1964, would be covered at least 150% by the previous years net income beforeinterest.

- 17 -

959 1960 1961 1262 1 1964 195(in millions of oles)

Net income before interest 67.5 87.0 101.5 108.8 116.5 140.4Interest charges 27.1 48.5 .32 .64- 652. .212

Ratio: % 249 179 171 170 168 196

Net Tangible Assets Test and Debt/Equity Ratio

92. As an approximation, the following table indicates that, throughthe period, the 150% net tangible assets test would be met with a margin:

1260 1961 1962 1963 194_Net fixed assets 1,045,3 12358.9 1,662.2 1,833.8 1,933.0 1,931.8Net other assets 3_Q 4 170.1 1 _ 67.3 82.0

Total 1,185.7 1,529.0 1,676.0 1,849.7 2,000.3 2,013.8Long Term Debt 479.4 800.0 919.4 1,003.4 1,114.4 1,088.4Ratio: % 247 191 182 184 179 185

93. As a result of the sizeable expansion program proposed, the debt/equity ratio of Lima Light would change from 39/61 at the end of 1959 to amaximum of 56/44 in 1964. It would gradually improve thereafter to reach52/48 in 1966, as shown in Annex 10.

IX. CONCLUSIONS

94. The project to be carried out by Lima Light and proposed forBank financing, is technically sound. The estimated cost of the projectis reasonable.

95. The project is necessary to provide the capacity required to meetthe conservatively estimated increase in power demand in the area served.The Huinco plant would produce power at a lower cost than could be producedby any possible alternative plant.

96. The management of Lima Light is good. Its staff with the assis-tance of the consultants already retained, is well qualified to execute theproject.

97. The present financial position of Lima Light is sound. Itsfinancing plan for the substantial expansion to be carried out over the nextfive years, is realistic. The main part of the funds required in additionto the proposed Bank loan would be firmly assured.before the loan is madeeffective. It is reasonable to expect that the relatively small balance,which would be needed towards the end of the period, could be raised by theCompany. Financial forecasts show that Lima Light's earnings, with powerrates at their present level, would be satisfactory and that the soundfinancial position would be maintained in future years.

98. The project is suitable as the basis for a Bank loan of $24 millionequivalent with a proposed term of 25 years including a grace period of 5years.

LIMA LIGHT AND POMSR COMPANY

Records and Forecasts of operations

RECORDS

124 125. 1956 1957 1958 159

Total Sales (mill. Kwh) 401.1 432.7 478.4 526.3 564.0 619.0

Losses including own cona2mption 67.7 77.3 11 822. 90.0 101.0

Total generation 468.8 510.0 559.5 608.6 654.0 720.0

Hydro 435.9 476.0 552.0 580.0 633.0 706.0

Thermal 34 30.0 .55 286 ZL,0 14.0

Peak Loan (MW) 104.2 113.2 120.1 130.2 140.0 155.0

Load factor () 50.5 51.5 53.0 53.3 53.0 53.0

FOREASTS1960 1961 1962 1963 1964 196 1966 iZ 196 6

Total Sales (mill. Kwh) 680 734 792 855 923 997 1,077 1,163 1,256 1,356

Losses including own consumption 10 121 130 143 152 163 181 197 24 234

Total generation 790 855 922 998 1,075 1,160 1,258 1,360 1,470 1,590

Callahuanca hydro 340 366 395 1l 350 320 336 345 363 380

Moyopampa hydro 350 370 392 396 350 320 336 345 363 380

Huampani hydro 90 100 100 136 125 110 120 130 140 150

Huinco hydro 210 410 466 540 604 680

Santa Rosa thermal 10 19 35 55 40 - - - - -

Peak Load (MW) 168 181 195 211 228 246 266 287 310 335

Load factor (%) 53.5 54.0 54.0 54.0 54.0 54.0 54.0 54.0 54.0 54.0

Note: The hydro generation has been estimated on the basis of average stream flow and a reasonable program of operation of individual units.

AINEX 2

LIMA LIGHT AND POWER CCMPANY

Records and Forecasts of Power Sales(millions of Kwh)

RECORDS

PercentageShare

4195 1 1959

Residenti al 137.1 153.5 190.6 204.9 228.7 249.1 40

Comercial 34.2 37.0 40.1 43.5 48.3 55.6 9

Industrial 179.0 193.0 196.7 223.2 229.4 258.5 42

Traction 27.2 24.2 24.2 26.6 25.2 21.6 3.5

Public Lighting 23.6 25.0 26.8 28.1 31.3 33.4 5.0

Bulk Sales 1.1 1.6 0.5

Total Sales 401.1 432.7 478.4 526.3 564.0 619.0 100

Percentage increase over previous year (%) 13.9 7.9 10.6 10.0 7.2 9.8

FOREGAST

1960 1961 1962 1963 1964 1965 196L 1967 196

Residential 270 292 311 330 352 375 398 425 452 4180Comercial 61 65 70 75 80 86 92 98 105 112

Industrial 289 315 346 381 419 461 507 556 610 671

Traction 22 22 22 22 22 22 22 22 22 22

Public Lighting 36 38 41 44 47 50 54 58 62 66

Bulk Sales 2 2 2 3 3 3 4 4 5 5

Total Sales 680 734 792 855 923 997 1,077 1,163 1,256 1,356

Percentage increase over previous year (%) 10 8 8 8 8 8 8 8 8 8

LDA LIGHT AND POWER COMPANY

Construction Program

Total1960 1961 1262 1963 14 1965 1966 1267 1968 1969 1960-69

(million Sales)

PAlRT I

Marcapomacocha Diversion

Stage 1 92.8 65.0 30.1 95.1

Huinco hydro plant

Stage 1 (120 MW) 26.0 173.9 290.9 267.4 162.6 118.4 15.6 1,028.

Santa Rosa thermal plant

gas turbo generator units No. 2 and No. 3 (20MW) 39.5 14.0 53.5

Transmission and distritution 55.0 14.0 42.8 30.8 32.2 174.8

Sub-total 333.4 335.0 324.2 193.4 15096 15.6 11352.2

PART II

Marcapomacocha Diversion 25.0 50.0 25.0 20.0 120.0

Stage 2

Huinco hydro plant

Stage 2 (120MW) 45.2 76.2 44.1 22.0 4.2 191.7

Transmission and distribution 34.0 36.0 38.0 40.0 42.0 190.7

Sub-total 79.2 137.2 132.1 87.0 66.2 501.7

Grand total 333.4 335.0 324.2 193,4 150.6 94.8 137.2 132.1 87.0 66.2 105S3.9

ANNEX 4

PERU - LIMA LIGHT AND POWER COMPANYINSTALLED CAPACITY AND SYSTEMPEAK LOAD(MEGA WATTS)

600

0

5000

4D44 MW

INSTALLED CAPACITY

/00-

3,00

n324 MW

300

2264 MW

r-24

200

M0apmp33 w 64M

0 o

0

Yaaot 0 w 20 .. ,. MJP KLA

3001

Callahuanco 36 MW 184MWMoyapompo 63 mwYonccoto 10 MWPEKLDSanto Rosa 24 MW

133 MW

100

'55 '56 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69

S ACTUAL »_ C FOREGAST

IBRD- Economic Staff1605

A NTNFX 5

Page 1

Lima Light and Power Company

Technical Details of Project

Marcapomacocha Diverstion 1st Stage

Reservoirs.

Lake Huarmicocha on Rio Cuevas, concrete gravity dam, maximum level4624 meters, minimum level 4615 meters, capacity 2 million cu. meters.

Lake Sangrar on Rio Sangrar, concrete gravity dam, maximum level460 meters, minimum level 4b38 meters, capacity 8 million cu. meters.

Diversion Structures.

On Ric Antacasha at elevation 4361 meters.On Rio Cuevas at elevation [357 meters.On Rio Sangrar at elevation 4351 meters.

Diversion Canal.

Total length between intake on Rio Antacasha and tunnel inlet 2.6.kilometers, capacity 6 cu. meters/sec.

Main Tunnel.

Length 10 kilometers, maximum capacity 10 cu. meters/sec, elevation atinlet 4330 meters, elevation midway 4335 meters, elevation at outlet

h322 meters.

Huinco Hydro Plant

Structures at Sheque.

a. Concrete diversion weir on Rio Acobamba.

b. Tunnel, about 600 meters long, diverting the water of RioAcobamba into Rio Canchis.

c. Intake structure on Rio Canchis with gates and trashracks.

d. Silt trap on right bank of river.

e. Flood water by-pass canal and tunnel on left bank of river.Length of tunnel about 800 meters and capacity 200 cu. meters/sec.

A"NNE2 5Page 2

Structures at Sheque contd.

f. Single curvature concrete arch dam across Rio Santa Eulalia.Height above riverbed about 40 meters.Crestlength about 110 meters.Free overflow spillway with capacity of 250 cu. meters/sec.Bottom discharge tunnel with capacity of 30 cu.meters/sec.Crest level 3154 meters a.s.l.Maximum reservoir level 3150 meters a.s.l.Minimum reservoir level 3127 meters a.s.l.Capacity of reservoir 800,000 cu. meters.

Pressure Tunnel.

Intake on left bank of reservoir.Total length 13 kilometers with five intermediate adits.Concrete lined over total length with diameter of 3 meters.Maximum capacity 24 cu. meters/sec.

Surge Tank and Valve Chamber

The surge tank consists of:Two chambers and a connecting shaft, all to be excavated in rock.Valve chamber at termination of pressure tunnel and equipped with asafety valve.

Penstock.

Upper part about 600 meters long steel pipe, 2.50 meters inside diameter,mounted above ground. Lower part, about]400 meters long, steel linedshaft, diameter decreasing to 2.20 meters at lower end. Slope of pen-stock 80%.

Powerhouse.

Underground cavern, concrete lined, 111.5 meters long, 32 meters wideand 21 meters high and with a semi-circular section. Access tunnel,semi-circular, 7.30 meters wide and 5.30 meters high. Tailrace tunnel,horseshoe-section 5.75 meters wide and 6 meters high with maximumcapacity h6 cu. meters/sec. Both tunnels 1 kilometer long. By-passcanal about 500 meters long to connect tailrace with existing intakefor Callahuanca plant.

Equipment.

2 Turbines, horizontal shaft twin wheel Pelton, discharge at full load5.8 cu. meters/sec.

2 generators, 85 MVA capacity each at 75% power factor, 14 kv generatingvoltage.

Page 3

Equipment (contd.)

2 transformer banks of three single phase units with one spare,1 kv/220 kv and 90 MVA each bank.

Auxiliary equipment, 500 kva diesel group, three 600 kva transformers,two 75 tons travelling crane.

Maximum static head, 1273 meters.Average net head, 1200 meters.

Transmission Line.

65 kilometers long, double circuit, 220 kv, steel towers, "Aldrey"conductors, steel ground wire.

Santa Rosa Step-down Substation.

6 single phase 220 kv/60 kv transformers forming two banks of 90 MVAcapacity.

PERU Annex 6

HUINCO HYDRO PLANT CONSTRUCTION SCHEDULE

LIMA LIGHT and POWER COMPANY

1959 1 1960 1961 1962 1963 1964 1965911CLl( 2345 6789 i1II2 3456 789ou 12 3 i557setoi 234(5 6789 I (12345678910\ -223

PRELIMINARY WORKSAccess road to Sheque intake and tunnel shafts IIAccess road to underground powerhouseElectrical power supply to the work sites

SHEQUE INTAKE and RESERVOIREquipment installation for aggregate preparationDiversion of Sacea RiverGate inlet and diversion of Canchis River ........

Grit chanber, sand trap and tailrace IliDam

PRESSURE TUNNEL and SURGE TANKEquipment installation for aggregate preparationExcavationConcrete liningGrouting

PENSTOCK (bare and in rock sector)Valve chamber II1Penstock: supports and anchor blocksPenstock erection and protective coating NlPenstock in rock sector: excavationPenstock: steel lining 1 RPenstock: grouting and protective coating

UNDERGROUND POWERHOUSEPilot shaft and trial borings momExcavation I IConcrete lining a lEMachinery foundationsFinishing and installation worksMechanical and elecrical erection

TAILWATER TUNNEL

ACCESS TUNNEL TOUNDERGROUND POWERHOUSE

ExcavationConcrete liningGrouting

OUTDOOR SWITCH YARD

TRANSMISSION LINE a

TRIALS --

Pressure testsOperational trial periodFirst Unit official operationSecond Unit official operation

APRIL 1960 IB RD-676

Page 1

LIMA LIGHT AND POWER COviPANY

MARCAPOMACOCHA DIViRSION STAGE I

Cost Estimate

Foreign LocalExchange Currency Totalmill US$ mill. Soles mill. US

Access road 0.04 14.95 0.57Construction camp and

equipment 0.52 3.48 0.64Diversion tunnel 1.40 70.65 3.92Diversion dams 0.02 10.50 0.40Canals - 8.80 0.31Engineering and overhead 11.36 0.41Contingencies 0.12 11-40 053

Total 2.10 131.14 6.78

Expenditures beforeDec. 31, 1959 0.90

Balance 1.20 61.50 3.40

ANNEX 7- 2 - Pago 2

HUINCO HYDROFLFCTRIC PLANT STAGE I

Cost Fstimate

Foreign LocalExchange Currency Total

Mill.US$ Mlill. Soles vdill. Us$

Civil Works

Land and preliminary works 0.19 30.80 1.29Diversion structures and silt

trap 0.34 31.90 1.48Sheque dam 0.78 43.30 2.33Pressure tunnel 3.58 132.59 8.30Surge tank and valve house 0.28 4.44 0.A4Penstock, pipe section 0.77 4.58 0.93Penstock, shaft section 2.89 35.40 4.16Powerhouse 0.96 51.50 2.80

Access and tailrace tunnels 0.59 30.80 1.69Cwitchyard 0.01 6.65 0.25Pernanent housing - 2.44 0.09

iiechanical Equipment 1.92 5.35 2.11Electrical Equipment 2.93 8.05 3.22Transmission line 1.38 12.40 1.82

Receiving substation 1.50 .2.3 1.76

Subtotal 18.12 407.50 32.67

Consultant services 1.90 6.86 2.15Contingencies 1.80 53.60 3.71Interest during construction 5.00 5.00

Subtotal 26.82 467.96 43.53

Credit for rest value ofconstruction equipment .24.08 0.86

Total Cost 26.82 443.88 42.67

Foreign exchange cost financed

by Company 1.2 1.52

Local currency expenditures beforeDecember 31, 1959 26.0 0.93

Balance 25.17.88 1.22

ANNEX 8Page 1

LIM1A LIGHT AND POWER COMPANY

Main Provisions of Electrical Industry Law

National Tariff Commission

Tariffs for sale of electricity are established by the NationalTariff Commission which consists of seven members. The Chairman is appoin-ted by the President of Peru for a term of four years. The other six membersare appointed for two year terms and represent respectively the Departmentof Industries and Electricity (Ninistry of Development and Public Works),the Department of Taxes, the National School of Engineering, the NationalSociety of Industries, the Electrotechnical Association of Peru and theAssociation of Peruvian Electrical Companies. The terms of appointmentmay be extended. The members must be professionally qualified and, withthe exception of the member representing the Association of ElectricalCompanies, must not have a direct or indirect financial interest in electricpublic utility enterprises.

Regular tariff revisions are carried out every three years.Additional revisions can be made at the request of either the Departmentof Industries and Electricity or the Concessionaire. The Commission shallreach a decision within a period of 60 days. This may be extended to 90days in complex cases. Tariffs established by the Commission become effec-tive after a period of 15 days unless an application for reconsiderationhas been made either by the Department of Industries and Electricity or theConcessionaire concerned. The Commission must act on any such applicationwithin 30 days.

Revaluation of Assets

The assets of a Concessionaire are defined to include all fixedand movable property necessary for the operation of the concession, intangibleassets like promotion, surveys, options, contracts and other expenses relatedto the organization of the concession, interest and other financial chargesduring construction and working capital in an amount not exceeding three monthsrevenues from sale of power.

At the time of each tariff revision the assets are revalued on thebasis of an appraisal made by the Commission to determine the replacementvalue of fixed and movable property and intangible assets. Experts nominatedby the Ministry of Public 1,Torks and the Concessionaire shall present to theCommission independent appraisals.

The adjustments to be made in the Concessionaire's accounts toreflect the new value of the assets shall be made in the following order:

a. Depreciation reserves are adjusted in the same proportionas the assets are revalued.

- 2 - ANNFX 8Page 2

b. Foreign currency obligations expressed in Peruviancurrency are adjusted in the same proportion as theassets are revalued. The difference between the amountobtained and the obligation converted at the current rateof exchange shall be reflected in an "Exchange EqualizationAccount".

c. The balance remaining is used to adjust the Concessionairetsequity capital.

Determination of Tariffs

The tariffs are established at a level sufficient to produce revenuesto cover all operating costs and a return of 111% on the capital invested bythe Concessionaire. The return consists of an annual dividend of 8-% and a"commercial profit"of 3%. 2;/

Operating costs include salaries, wages, social benefits, adminis-tration, cost of fuel and materials used for maintenance, cost of purchasedpower, interest, foreign exchange losses, depreciation allowance, contri-bution to Extension Fund and all taxes. The depreciation allowance shallbe based on the useful life of the individual pieces of property. Totaldepreciation shall not exceed 5% of the total value of the property.

Tax and Other Privileges

Public utility companies enjoy the following privileges:

a. Interest on bonds and the fixed dividend of S-% areexempt from existing and future taxes.

b. Dividends paid out of the 3% commercial profit are subjectonly to the income and unemployment taxes which were ineffect in 1955.

c. Equipment and materials to be used for public electricservices shall be exempt from customs duties unless thearticles are produced in sufficient quantity and of qualityin Peru.

d. If free exchange is not available to meet foreign currencyobligations, the Government shall provide the necessary foreignmoney at the official exchange rate.

/ On the preferred share capital a return of 92% has been established,consisting of a 8% dividend and a 1i% "commercial profit".

ANNEX 9

LIYA LIGHT AND POWER COMPPNY

Typical Nonthly Electricity Bills

Class of Consumer Consumption Load Bill Average Rate

kwh kw So1e soles/kwh mills/kwh

Residential - light 14 - 5.60 0.40 14.3

Residential - light 50 - 38.53 0.77 27.5

Residential - combined 150 - 62.91 0.42 15.0

Combined Commercial 85 Neon 0.14Light 0.35 90.28 1.07 38.0

Small industrial 1,180 6 437.46 0.37 13.2

Combined industrial 1,455 Light 1.5Iotors 5 644.12 0.44 15.7

Industrial 14,500 50 3915.00 0.27 9.6

LIMA LI(IM & POMER CCPANY

Lima - Peru

ACTUAL AND FORECAST BALANCE SHEETS 1955-1966

IN MILLIONS OF SOLES

ACTUAL FOREC ASTAS AT DECEMBER 31 AS AT DEMWBER 31

13 12 125 122 126 1961 162 12 1964 1965 126

ASSETS

Fixed Assetov 422.10 741.53 733.97 B08.95 1,068.66 1,116.8 1,406.1 1,434.1 1,476.9 2,671.9 2,719.7 2,753.7Leess Reserve for Depreciation.

/ 167.27 331.l 350.92 377.l 502.78 5149 567.4 626.5 692.6 71.1 867. .. 0

Net Fixed Assets in Operation 254.83 410.32 383.05 431.18 563.ft 601.9 838.7 807.6 784.3 1,900.8 1,852.6 1,764.7

Work in Progress 65.03 1L9 . 9.u43.4 520.2 a 19.5 32.2 79.2 182,

Total Net Fixed Assets 254.83 410.32 448.08 510.08 750.86 1,045.3 1,358.9 1,662.2 1,833.8 1,933.0 1,931.8 1,947.1

Current and Other AvseteV 69.09 76.76 171.80 227.75 146.83 140.4 170.1 13.8 15.9 67.3 82.0 75.8Deferred Assets 1.77 - 3.50 37.12 12.49 19.8 15.4 .4 .0 52 5.0 .

TOTAL ASSETS 487.Afs08 62.38 910.18 L2Ld jo"~ 1.683.' 1.856.7 2,05.5 2,018.8 2,027.9

LIABILTrwS

EquityOrdinary Shares 18.00 202.50 225.00 262.50 376.87 432.4 454.9 486.5 574.0 574.0 585.5 585.5Preferred Shares- - - - - 168,0 168.0 168.0 168.0 168.0 168.0 168.0Provisional Certificates for Capital Inc-asel- 157.50 135.00 112.50 90.00 67.5 45.0 22.5 - - - -Contributions from H randina - - - - - - - - 1.0 13.1 24.8 35.5Reserves and Surplus: 43r 25.03 37. 35.10 42.65 58,2 76.5 70 110.3 136.0 152.1 182.7

Total Equity 223.90 385.03 397.42 410.10 509.52 726.1 744.4 764.0 853.3 891.1 930.4 971.7

Long Tem DebtMortgage Bonds 36.56 43.97 21.6 6.65 - - - - - - - -Debentures - - 114.96 300.00 329.56 405.0 471.6 448.9 420.4 431.9 427.2 417.4Proposed IBRD Loan - - - - - 53.2 307.2 453.0 569.0 672.0 654.2 635.3Suppliers' Credit - - - - - 21.2 21.2 17.5 14, 10.5 7.0 3

Total Long Term Debt 36.56 43.97 136.57 306.65 329.56 479.4 800.0 919.4 1,003.4 1,114.4 1,088.4 1,056.2

Current Liabilities 54.02 36.50 71.93 42.36 61.60 - - - - - - -Deferred Liabilities and Provisions 11.21 .5 17.4 15.84 9.50--

TOTAL LIABILITIES 325.69 487.08 62.8 7749 910.18 !.?5W 1,544.4 1,683.4 1.856. 2.02.9

Rate of Exchange (Soles per US$) 19 19 19 25 27.8 28 28 28 28 28 28 28Debt/lquity Ratio 14/86 10/90 26/74 43/57 39/61 40/60 52/48 55/45 54/46 56/44 54/46 52/48

I/ The substantial increase of fixed assets in operation and reserve for depreciation in 1956 and 1959 over the previous year reflect mostly revaluations of assets.

3/ Include in 1959:a) Soles 36 million worth of inventories, of which about Soles 17 aillion pertaining to construction.b) Soles 17.0 million worth of advances to Hidrandina, mostly in connection with the construction of the Huampani plant, to be repaid in 1960 by Hidrandina along with Soles 5.5 million renresenting the

purchase of the Tanacoto plant to be retired by Lima Light when Huampani is cmmissioned. These figures are still subject to adjustments.After 1959, current and other assets are shown after deductions of current and other liabilities,

/ These certificates were issued in 1956 for the amount of additional equity which resulted from the first revaluation of assets. They will be converted in ordinary shares over an eighit year period endingin 1963 at the rate of Soles 22.5 million per year.

j/ Adjusted to reflect the position after appropriations and payment of cash dividends.

ANNEX 11Page 1

LIA LIGhT AiD POVLR COMPANY

Details of Funded Debt: 7% Debentures Series A and B

Series A Series B

Amount $6,000,000 46,000,000Date July 1, 1957 November 1, 1958Maturity July 1, 1972 November 1, 1973Interest At 7%. Principal and interest payable in US currency

at Schroder Trust Co., New York or, at theoption of the holder, in such dollars or theequivalent thereof in Swiss francs at pre-vailing appropriate rate of exchange atPrivatbank & Verwaltungsgesellschaft, Zurich,Switzerland.

Trustee Schroder Trust Co., New York: Privatbank &Verwaltungsgesellschaft, Zurich, bwitzerland,co-trustee.

Denominations Coupon, 0100, 6500 and 01,000

Callable As a whole or in part on any interest date onat least 90 days notice, at a premium from1959 to 1967 including (Series A) and from1960 to 1968 including (Series B); thereafterat 100.Callable for sinking fund on at least 10 days'notice at 100.

Sinking Fund Semi-annually beginning November 30, 1959(Series A), March 31, 1961 (6eries B), equalto 0355,233 for interest and principal of eachseries.

Security Secured by a first floating charge on allproperty present and future.

Additional Debentures may be issued provided opinions and certificatesare supplied that the following tests are met:

1)"The net income of the Company before interestand income taxes for the twelve months endingwith any calendar month (not more than fourmonths prior to the date of the applicationfor the authentication and delivery ofadditional Debentures) specified in suchcertificate, has been not less than 150l' ofthe aggregate amount of the annual interest

ANNEX 11Page 2

-2-

charges on all Debentures outstandingunder this Indenture on the date of suchapplication and the additional Debenturesapplied for and all other funded indebtednessof the Company;"

2) "The net tangible assets of the Company, com-puted as at the end of the twelve-monthperiod specified in such certificate pur-suant to subdivision (1) above, are at leastequal to 150% of the aggregate principalamount of all Debentures outstanding underthis Indenture on the date of such applicationand the additional Debentures applied for andall other funded indebtednEss of the Company."

It should be noted that assets and income mustbe translated into dollars for the purpose ofthese tests.

Dividend Restrictions Company may not pay cash dividends in excess ofnet in-ome after December 31, 1956.

Purpose Refund outstanding Expansiondebentures and bonds program

Tax Status Free from Peruvian taxes

LIMA LIGHT & POWER COKPANY

Lima - Peru

ACTUAL AND FORECAST INCOME STATM S 1-1966

--- - - -ACT UAL - - - --- - - ----- - -F 0 R E C AS T5 - - --

YEARS ENDED DECEMBER 31 YEARS ENDING DECEMBER 31

195 a_%_ 1957Z 198 95 1960 126_1 3-962 1963 1964 1965 16

Sales (Millions of KWH) 433 478 526 564 619 680 734 792 855 923 997 1,077

Average Revenue per KWH sold (Cent of Soles)!/ 34.66 38.82 42.69 44.75 47.08 48.0 48.5 48.5 49.0 49.0 49.0 49.0IN MILLIONS OF SOLES

OPERATING REVENUES 150.10 185.54 224.57 252.41 291.42 326.4 356,0 384.1 419.0 452.3 488.5 527.7

OPERATING COSTSOperating Experlses 61.31 79.08 97.28 112.38 116.88 122.3 128.9 141.1 156.5 153.8 142.4 154.7Cost of Purchased Power (Hidrandina S.A.)Z / 37.16 48.67 49.53 54.63 60.05 71.6 73.8 73.4 72.9 72.6 72.7 72.5Depreciation 19.00 24.27 29.36 33.98 42.75 43.4 52.5 59.1 66.1 78.5 96.0 121.9Depreciation o0p8stomers Installation 0.87 3.17 3.5 1.7 1.7 2.0 2.0 2.0 2.0Extension Fundd/ . 7.50 5.00 1.00 0.6 3.0 3.0 5.0 5.0 5. -0

Total Operating Costs 117.47 152.02 183.67 20686 233. 241.4 259.9 278.3 302.5 311.9 318.1 36.1

OPERATING INCOME 32.63 33.52 40.90 45.55 67.57 85.0 96.1 105.8 116.5 140.4 170.4 171.6

OTHER INCOME - - - - - 2.0 5.4 3.0 - - -

NET INCOME BEFORE INTEREST 32.63 33.52 40,90 45.55 67.57 87.0 101.5 108.8 116.5 140.4 170.4 171.6

Interest Payable 4.55 4.59 3.98 11.35 18.95 27.1 48.5 59.3 64.0 69.5 71.7 69.9Interest Charged to Construction (Credit) - - - (3.88) (4.40) (9.9) (31.1) (38.2) (44.3) (27.1) - -Financial Expenses - - 4.27 2.57 4.40 7.9 8.6 8.0 5.4 3.9 1.6 1.4Taxes 14.15 5.08 2.30 1.57 2.28 3.0 3.6 3.8 4.4 4.6 4,7 4.9

Total Income Deductions 18.70 9.67 10.55 11.61 21.23 28.1 29.6 32.9 29.5 50.9 78.0 76.cNET PROFIT 13.93 23.85 30.35 33o94 46.34 58.9 71.9 75.9 87.0 89.5 92.2 29429

LESS: Cash Dividends 12.60 17.21 19.12 23.63 32.03 42.0 52.1 54.8 62.2 62.2 63.2 63.2Retained Surplus 0.63 5.78 10.27 9.19 13.01 15.6 18.3 19.6 23.3 25.7 27.6 30.6Directors Bonuses 0.70 0.86 0.96 1.12 1.30 1.3 1.5 1.5 1.5 1.6 1.6 1.6

Returm on net fixed assets in operation 12.8 8.2 10.7 10.6 11.9 14.4 12.1 13.4 14.8 7.4 9.2 9.7

Return on net fixed assets, including workin progress 12.8 8.2 9.1 8.9 9.0 8.3 7.5 6.5 6.3 7.3 8.8 8.8

I/rrom 1960 en, this figure shows the average revenue necessary - on the basis of the conservative sales forecast in this report - to meet operating costs, interest and other fixed charges,and the 11j% return on equity permitted by the tariff legislation. The increase represents 2% in 1960 and a maximum of 4% in 1963 above the average revenue for 1959. Lima Light hasindicated that such increase in average revenue wculd be secured should sales not progress faster than assumed here.

/In accordance with its exclusive purchase contract with Hidrandina, Lima Light pays for power purchased the total of the operating costs, interest and fixed charges and net profit ofHidrandina as determined by the tariff legislation. The substantial increase after 1959 of the cost of purchased power reflects the operation of Hidrandina's Humapani plant commissionedin 1960.

/Represent depreciation charges on distribution works financed by customers, owned by the public and supervised by Lima Light. The depreciation cash is used, under control by the Ministryof Industry, for meeting Lima Light costs of supervision, administration and maintenance of the works, and for reinvestment in distribution.

LIMA LIGHT & PCVJER COtPANY

Lima - Peru

FORECAST SOURCES AND APPLICATIONS OF FUNDS 1960 - 1966

IN MILLIONS OF b0LES

196 1961 1962 1963 194 96 11o66

SOURCES OF FUNDS

Internal Cash Generation

Net income before interest 87.0 101.5 108.8 116.5 140.4 170.4 171.6

Depreciation -9sA 52.5 59.1 66.1 78.5 96.0 .

Total 130.4 154.0 167.9 182.6 219.9 266.4 293.5

Borrawings

Proposed IBRD Loan 53.2 254.0 145.8 116.0 103.0 - -

New Debentures (Series C & E) 84*0 84.0 - - 42.0 28.0 28.0

Total 137.2 338.0 145.8 116.0 145.0 28.0 28.0

Suopliers' Credit 21.2 - - - - - -

Contributions from Hidrandina* 22.5 - - 1.0 12.1 11.7 10.7

New Share Capital - Ordinary 33.0 - - 65.0 - - -

- Preferred 1,0 - - -20 0 - -- 65.0 ---

Total Sources of Punds 512.3 492.0 313.7 364.6 376.0 306.1 332.2

APPLICATINS OF FUNDS

Additions to Plant

Huinco I Stage 173.9 290.9 267.4 162.6 118.4 15.6

Marcanonacocha I Stage 65.0 30.1

Other Generation 39.5 - 14.0 - - 45.2 101.2

Distribution etc...... 55.0 14.0 42,8 30.B 32.2 34.0 36.C

Total Additions to Plant 333.4 335.0 324.2 193.4 150.6 94.8 137.2

Interest

Existing Debt (Series A & B) 23.1 22.3 21.1 19.7 18.3 16.7 15.0

IBRD Loan 1.8 14.5 25.0 31.9 37.6 40.3 39.2

New Debentures (Series C & E) 1.5 10.3 11.8 11.3 12.7 14.0 15.3

Short tenm & Suppliers' Credits 0 1.4 1.4 1.1 0.9 0.7 0.4

Total Interest 27.1 48.5 59.3 64.0 69.5 71.7 69.9

Amortization

Existing Debt 8.6 17.4 18.6 20.0 21.4 23.0 24.7

IBRD Loan - - - - 17.9 18.9

New Debentures - - 4.1 8.5 9.1 9.7 13.1

Suppliers' Credit - - 3.7 3.5 3.5 3.5 3.5

Total Amortization s.6 17.4 26.4 32.0 34.0 54.0 60.2

Cash Dividend and Bonuses 43.3 53.6 56.3 63.7 63.8 64.8 64.8

Taxes 3.0 3.6 3.8 4.4 4.6 4.7 4.9

Financial Expenses 15.2 4.2 - 5.0 2.1 1.4 1.4

Provision for Working Capital - - - ,0 15.0 5.0 -

Total 61.5 61.4 60.1 78.1 85.5 75.9 71.1

Total Application of Funds 430.6 462.3 470.0 367.5 339.6 296.4 33e.4

Surplus or (Deficit) 81.7 29.7 (156.3) (2.9) 36.4 9.7 (6.2)

Cash Balance Beginning of Tear 17.7 99.4 129.1 (27.2) (30.1) 6.3 16.0

Cash Balance End of Year 99.4 129.1 (27.2) (30.1) 6.3 16.0 9.8

Number of Times Interest on Long Tenm Debt Covered byNet Income Before Interest 3.2 2.1 1.8 1.8 2.0 2.4 2.5

- Number of Times Debt Service Covered by InternalCash Generation 3.6 2.3 1.9 1.9 2.1 2.1 2.2

The amount shown in 1960 represents the reimbursemsent of advances previously made by Lima Light toHidrandina, and the sale of the retired Yanaeoto Plant by Lima Light to Hidrandina. From 1963onwards, Hidrandina would make to Lima Light equity contributions for the surplus of cash generatedfrom its operations.

LIMAP LIH and LOE COMPAN

EXISTNGPOPOED FTtR

BAR , COCHA Cosapolca

DiversLon~~So Moneteo.PN/ * /

gobomba jMATUCANA

Peue

CANTA

eSurco

11Hudchampa

Auhsha Cocochocrc;

OG

CALLAHUANC

PERU

LIMA LIGHT and POWER COMPANYMYOPA MPA

4 COSICA

EXISTING PROPOSED FUTURE

Hydro Plants YANACOTd-*COOMBIA

Diversion Tunnels HUVAMPANdrjÄ Chöaciacayo ECI.UADOR

Canals

'.31

Tran,sformer StationsBRAZIL

Tr~sission Lines•·-60K

Concession Area LIMA

Catchment Area f

Reservoirs

130

0 5 10 15 20Km -Vjtorfe

Alocongo

eANCON LURIN

I jROSA

det SUR

\ OCHORILLOS

BRSt

CALLAO

MARCH 960 IBRD-669