Document ef

The World Bank

FOR OFFICIAL USE ONLY

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

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

STAFF APPRAISAL REPORT

ARGENTINA

YACYRETA HYDROELECTRIC PROJECT II

AUGUST 31, 1992

Infrastructure and Energy DivisionCountry Department IVLatin America and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in the perfonnance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

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

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

E:ASURES

MMTOE million tons of oil equivalentW wattWh watt-hourV voltVA volt amperek kilo thousand (103)M mega million (106)

G giga billion (109)T tera trillion (1012)

ACRONYMS

AyE Agua y Energia Electrica S. E. (federally-owned, nationwideelectric utility and irrigation agency)

CFE Consejo Federal de Electricidad (Federal Electricity Council)CNEA Comisi6n Nacional de Energia At6mica (National Nuclear Energy

Commission)CTMSG Comisi6n T6cnica Mixta del Salto Grande (A-gentine/Uruguayan

commission in charge of the Salto Grande hydroelectric plant)DC Despacho Unificado de Carga (Dispatch Center)EBY Entidad Binacional Yacyreta (Argentine/Paraguayan entity in charge

of the Yacyreta hydroelectric plant)HIDRONOR Hidroelectrica Norpatag6nica (federally owned, electricity

generation aaud transmission utility)ME Ministerio de Economia y Obras y Servicios Piablicos (Ministry of

Economy and Public Works and Services)NIS National Interconnected SystemSE Sucretaria de Energia Electrica (Secretariat of Electric Energy,

under the ME)SEGBA Servicios Electricos del Gran Buenos Aires (federally owned,

electric utility serving the Buenos Aires metropolitan area)UESTY Unidad de Ejecuci6n del Sistema de Transmisi6n de Yacyret&

(Execution Unit for the Yacyret& Transmission System, under the SE)UNDP United Nations Development Program

FISCAL YEAR

January 1 - December 31

FOR OmCL USE ONLYAROBTRWI

YACYRET& II PROJECT

STAFF APPRAISAL REPORT

Table of Cantents

LOAN AND PROJECT S .T...RY .. i............ . . ... . iii-iV

1. THE ENERGY AND POWER SECTORS

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

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

2. TH PROJECT

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

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

C. Economic Justification .................... . 35

D. Risks .......................... 36

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

7his repo s based on the fndings of an rsl miion conist of Meu. Neson de Franco odison LAder), Ricado Kiockner,Hean Garcia, Vrliam Paridge, nd George Led, which visied Agni d the project site in April 992. Mesrs. Jor6 LreonoVieti, Robet Schneider, nd Bdwin Moore wee pecr reviewer. Supervison Manue include: Mr. min Ihys, Division Chief and Mr.PiFngCbeung Lob, Depament Direcor.

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

(ii)

LIST OF ANNBXS

1.1 Energy Sector Organization Chart . . . . . . . . . . . . . . . . . . . .1.2 The New Regulatory Fri tework . . . . . . . . . . . . . . . . . . . . .1.3 The Power Market . . . . . . . . . . . . i . . . . . . . . . . . . . . .

Attachments 1-2, Demand Projections for High and Low Scenario . . . . .1.4 Capacity and Energy Balances . . . . . . . . . . . . . . . . . . . . . .

Attachment 1, Installed Capacity . . . . . . . . . . . . . . . . . . .Attachment 2, Energy Requiremants for High and Low Demand Scenarios . .Attachments 3-6, Balances for High/Low Scenarios & Normal/Dry Conditions

1.5 Finances of the National Utilities . . . . . . . . . . . . . . . . . .Attachment 1, Electricity Tariff of SEGBA and Provincial UtilitiesAttachment 2, Combined Income and Source, and Application of Fund

Statemento of the National Utilities (1991-1992) . . . . .Attachment 3, Balance Sheets of the National Utilities (1991-1992). . ..

2.1 The Yacyret& Treaty. . . . . . . . . . . . . . . . . . . . . . . . . . .2.2 The Yacyreta Hydroelectric Sclenme . . . . . . . . . . . . . . . . . . .

Attachment 1, Status of Execution . . . . . . . . . . . . . . . . . . .Attachment 2, Execution Schedule . . . . . . . . . . . . . . . . . . .Attachment 3, Estimated Cost of the Hydro Project Component (19Q2-1995)Attachment 4, Estimated Cost and Financing (1992-1995) . . . . . . . .Attachment 5, Cost Variations Since the Project's Inception . . . . . .Attachment 6, Reduced Elevation Operation Study . . . . . . . . . . . .

2.3 The Yacyret& Transmission System . . . . . . . . . . . . . . . . . . . .Attachment 1, Estimated Cost and Financing . . . . . . . . . . . . . .

2.4 -Estimated Project Costs and Financing (1992-1995) . . . . . . . . . . .Attachment 1, Summary of Estimated Project Cost and Financing . . . . .Attachment 2, Project Financing Plan . . . . . . . . . . . . . . . . .

2.5 EBY's Organization Chart . . . . . . . . . . . . . . . . . . . . . . . .2.6 BBY's Finances . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Attachment 1, Detailed Total Cost and Financing . . . . . . . . . . . .Attachment 2, Actual and Forecast Income Statements . . . . . . . . .Attachment 3, Actual and Forecast Balance Sheets . . . . . . . . . . .Attachment 4, Long-term Debt Schedule .................Attachment 5, Forecast of Debt Service - Amortization . . . . . . . . .Attachment 6, Forecast of Debt Service - Interest . . . . . . . . . . .Attachment 7, Disbursement of Loans and Credits . . . . . . . . . . . .

2.7 Resettlement and Environmental Management Progrms . . . . . . . . . .Attachment 1, Resettlement Program . . . . . . . . . . . . . . . . . .Attachment 2, Environmental Management Program . . . . . . . . . . . . .Attachment 3, Execution Timetable for the Resettlement and

Environmental Management Programs . . . . . . . . ... . .2.8 Project Disbursement .. . . . . . . . . . . . . . . . . . . . . . . . . .2.9 Bconomic Justification ............... .......... .

Attachments 1-5, Net Present Value and Rate of Return for VariousSchemes . . . . . . . . . . . . . . . . . . . . . . .

2.10 Project File ....... ... .. ... .. .. . ........

IS=: IBRD Nos. 14128R and 21188R

- ifii -

ARGZNTINA

YACYRSTI HMDROBLECTRIC PROJZCT IT

ETAFF APPRAISAL REPORT

LOAN AND PROIRCT SX-MARY

Borrower: The Argentine Republic

Beneficiaries: Entidad Binacional Yacyrett (EBY) and the Executing Unitfor the Yacyret6 Transmission System (URSTY)

Amount: US$300 million equivalent of whichUS$299 million for EBY andUS$1 million for URSTY

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

Proiect Oblectives: The project is designed to achieve the followingobjectives: (a) help provide efficient supply of energyin the mid 19905 by ensuring completion of Yacyret§'scivil works and commissioning of its first six units withan adequate transmission system; (b) bring about tighterenvironrmcntal protection and appropriate handling ofsocial aspects in Yacyreta; and (c) encourage privatecapital participation in EBY.

Prolect Benefits: The project would enhance the allocation of Argentina'sscarce financial resources by facilitating the completionof the two largest ongoing projects (Yacyreta, by directfinancing, and Piedra del Aguila, by use of 4reedTreasury resources originally shared with Yacyrera) withrelatively modest additional investments. Yacyreta'scost of completion is about half of the cost of the nextbest option for system expansion.

Risk: The major risks facing the Project would be: a)unavailability of siafficient funds or supply ofelectromechanical equipment at the time required forproper execution of the works, mainly due to: (i)untimely contribution from Goverzment for payment of theccntractors and; (ii) delays in the negotiation withsuppliers (or export credit agencies) for financing ofelectrical equipment that remains to be contracted out;(b) failure to implement satisfactorily the programs forRer.ttlement and Environmental Management; and (c)failure to implement the transmission system in a timelymanner.

- iv -

La Cas Foreiun Total -lecal CetCt C cost -

Yacyretf Generation pj 402.5 814.0 1216.5 48

Yacyret6 Transmission 54.5 51.3 105.8 4

Base Cost bt 457.0 865.3 1322.3 52

Physical Contingencies 29.0 31.4 60.4 2

Price Contingencies 29.0 78.1 107.1 4

Total Investuent 515.0 974.8 1489.8 58

Debt Service Interest/Other Charges S/ 27.6 630.8 658.4 25

Amortization 41.1 401.8 442.9 17

Total Debt Service 68.7 1032.6 1101.3 42

|Investnt and Debt Service 583.7 2007.4 2591.1 100

[_ _I ' -- -' -"LL

Net Internal Funds 57.1 37.7 94.8 3

Loans Governoent 335.8 1268.8 1604.6 62

IBRD S/ 137.4 162.6 300.0 12

IDB 15.8 15.7 31.5 1

Export/Supplier Credits 37.6 522.6 560.2 22

Estimated Disbursement:

1" I "" I I 1 towAnnualt 196 68 31 4 1

Cumulative 196 264 295 299 300

Rate of Return: Economic Rate of Return: 17*

IBRD Nos. 14128R and 21188R

I/ This basically corresponds to the period 1992-1995, except for some USS1.5 million of Bank-financedtechnical assistance for resettlement and environmental management programs after this period.

ki January 1992 price level.I/ Includes US$390 million interest during the period 1992-95 on current and proposed IBRD and IOB loans

financing the YacyretU project.SV Local component of existing civil works and engineering services already procured internationally

according to Bank guidelines.

1. 5HE EERGY AdD POWER SBCTORS

T The JEner-cv Sector

Bnerav Resources. Demand. nduly

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

1.2 Demand and Su=D1v. The country's gross energy production in 19901'is estimated at 48.8 MMTOE, resulting in a per capita consumption of 1.52 tonsof oil equivalent (TOE) p.a., compared with the Latin American average of 1.0 TOEp.a. It can be considered self sufficient, although it has imported modestamounts of gas from Bolivia since 1972; a recent agreement extended supply unt.1the end of 1993. The patterns of energy consumption have changed significantlylately. As proven gas reserves have increased and gas fields have developed, gashas substituted for oil in industry and electricity generation. Thus gas'participation in the country's energy balanco has increased from 341 in 1985 to401 in 1990. This trend is expected to continue during the 1990s, following therecent hydrocarbon deregulation, price rises and greater incentives for privateparticipation, with increased use of natural gas in power generation, industryand households. The share of hydroelectricity in the overall energy consumptionis expected to grow, rising from a current level of 11* to 15* by 1996 withcommissioning of three plants currently under construction (para. 1.21).

Enerav Policy. Sector Obiectives and Institutional Structure

1.3 Snerav Policy. Traditionally, Argentina's energy policies have notfostered efficient use of the country's energy resources. Distorted pricingpolicies were the main problem since, for long periods of time, the Governmentallowed prices of oil derivatives and electricity to decrease in real terms. Inthe oil and gas oector, Government monopolies on exploration and exploitationresulted in inefficiency and inadequate development. In the power sector,decisions taken without due regard to least-cost principles led to thedevelopment of an expensive nuclear power program, while electricity planning didnot appropriately weigh the financial and cost uncertai.ities associated withlarge hydroplants.

1.4 Sector Objectives. New Government policies in the energy sector areconsistent with its overall effort to reduce the size of the government throughdiveetiture and to increase efficiency in the entities which will remaincontrolled by the state. A recently completed energy plan aims at establishingan environment of open competition and equal opportunity for both public and

3/ The latest year with reliable information.

-2-

private companies in the exploration, production, sales, arid distribution ofenergy resources. The Government would limit its own function to setting thegeneral parameters for the development of the sector and to regulating itsoperations. The Government deregulated crude oil and refined product prices andtrade, opening competition at all levelp and attracting private in'.estors.Previously reserved exploration areas, as wbe.l as margina. producing areas, havebeen opened to private acquiLition, which have attractcni comm.tments of up toUS$1 billion from private oil comranies. In the power sector, the Government isalso undertaking sweeping reforms; it is divesting important assets and cuttingback on public management in favor of private capital operation under arm'slength Government regulation. It will renounce investment across the board innew generation and transmission facilities (para. 1.z,.

1.5 Institutional Structure. The MN .stry of Economy (ME) controls theenergy sector through the Secretariats of Electric Energy (SE) and Fuels (SF)(organizational chart shown in Annex 1.1). The SE and SF are jointly in chargeof defining sector policies; their major responsibilities are: (a) overallenergy planning; (b) granting of concessions; (c) defining pricing policies; and(d) policies for energy conservation and development of new sources of energy.The ME still retains the final authorization for electricity tariff adjustmentsuntil the new regulatory framework is implemented (para. 1.6). Deregulation ofgas and oil prices and the new electricity legislation will make unnecessary BE'sintervention, which has aimed at a consistent, overall price setting policy.Government has actively participated in the energy sector as the sole owner ormajor shareholder of huge utilities which report to the SF (such as thevertically integrated YPF and its subsidiary, Gas del Estado, for gastransportation and distribution) and to the SE (such as the vertically integratedSEGBA and AyE, and HIDRONOR for bulk generation and transmission) (para. 3.8).

1.6 To achieve the institutional restructuring of the energy sector,Government has devised new regulatory frameworks for the power and gas sectors;the former was established by law No. 24065 of December 20th, 1991 and enactedby presidential decree No. 13192 of January 3rd, 1992 (para. 1.12), whileCongress is still discussing the Government proposal for the gas sector. Inaddition, it has deregulated the oil sector. Independent regulatory agencieswould be created for the power and gas sectors, which would report to theGovernment through the SE and SF respectively. To implement one of its keyobjectives in the public sector privatization, Government is promoting theprogressive private capital participation in YPF, Gas del Estado, and HIDRONOR,the liquidation of SEGHA by privatization of its different business units and thetransformation of AyE in a priva^; transmission utility after the divestiture ofits other assets.

B. Tbh Electric Power Sector

Or_anization. Reoulation and Private Participation

1.7 Oraaniation. The focal point for Government's participation in thepower sector is the SE. The SE has limitations for contracting personnel andusually resorts to borrowing staff from the national utilities. Loans 2998-AR

-3-

(Electric Power Sector Project) and 2592-AR (Gas Utilization and TechnicalAssistance Project) provided funds to support the strengthening of the SE'stechnical staff ane to carry out studies, which have been pivotal for thedischarging of its responsibilities. A plan for adjustiig the SE to the rolesdefined in the recently approved energy regulatory framework is under execution.The Federal and Provincial Governments interact in the Federal ElectricityCouncil (CFE), which includes representatives of the SE, the national utilitiesand provincial authorities. It is responsible for coordinating planning andpolicies in the power sector, as well as administering national electricityinvestments.

1.8 Most of the power facilities are owned by the federal and provincialgovernments, although captive generation, mainly in the hydrocarbon and miningindustries, contributes an important share of the total production (about l0o in1990). Electric.power in Argentina is provided by three national uXilities, onenational nuclear entity, one binational entity, 19 provincial utilities, andseveral cooperatives. The national utilities are: (a) Agua y Energia Blectrica(AyE), responsible for generation and transmission nationwide, also distributes

electricity in four provinces; (b) Servicios Elfctricos del Gran Buenos Aires(SEGBA), which generates, transmits and distributes electricity within the Buenos

Aires metropolitan area; and Hidroelectrica Norpatag6nica (HIDRONOR), whichdevelops the hydro resources of the North Patagonia region and transmits to theBuenos Aires metropolitan area. The Comisifn Nacional de Energia Atomica (CNBA)is responsible for all matters regarding nuclear activi.nes in the country,including design, construction and operation of nuclear power plants. Thebinational (Argentina/Uruguay) agency is the Comisi6n T6cnica Mixta del Se' .oGrande (CTNSG) that owns and operates the 1890 NW Salto Grande hydro plant.En-idad Binacional Yacyreta (EBY), another binational entity (Argentina/Paraguay)is in charge of the construction of the Yacyreta hydro plant. National utilitiesreport to the SE. CNEA reports to the Presidency, whereas the Argentine segmentof CTMSG and EBY report to the Ministry of Foreign Affairs. The NationalDispatch Center, located in Rosaric, ensures the economic use of the countrygeneration facilities; it reports to the SE and is staffed with AyE personnel.

1.9 Performance of the national utilities is uneven and has reflected thesector's lack of clear objectives and regulationsV. Ays is weakest in allaspects - managerial, staffing, operations and finances - after years ofpolitical interference, high rotation of personnel, poor maintenance of thermalpower plants and financial difficulties. SEGRA has also been affected by thesector institutional and financial deterioration. Power losses have reachedabout 25t of net get.eration, of which 16* corresponds to non-technical losses,and some thermal power plants have deteriorated due to lack of maintenance.HIDRONOR is the least affected sector utility although its performance hasworsened in the last five years. EBY has also been affected by politAcalinterference, weak management, and overstaffing, a situation which is now beingreversed (paras. 1.49 and 2.21-2.23).

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

3/ See section on pest ffnanciaL perforamce (para. 1.30) which also includes in its related Arnex 1.5the main market, operatifnal and manaerial data of each national utility.

4-

Ministry of Economy, Finance, or Public Works of each province. All provincialutilities, except thone in Chubut, Santa Cruz, Tierra del Fuago and Nisiones, areintegrated into the national interconnected system. Provincial lutilities setfinancial rules and electricity rates that subsequAntly have to be approved byrrovincial authorities. The autonomy provided to the provinces by theConstitution has contributed to sector inefficiencies through the establishmentof royalties on the use of hydro resources, setting of tariffs to final customerswhich depart from economic costs, application of taxes and other surcharges overand above electricity rates, and other distortions. Cooperatives partiallyprovide services in 16 p,ovinces, representing 10W of the total electricityconsumed in the country.

1.11 The Argentine power sector, like many others in the region, evolvedfrom mostly isulated, privately owned utilities of the 1940s into larger nationalutilities concentrated in the hands of the Government as a result of tnenationalistic waves of the 1950s and the 1960e. SEGBA was created in 1958 toserve the Buenos Aires metropolitan area and absorbed the last of the private-owned utilities (CIAN, formerly Italo) ir 1982. AyE was created in 1947 fordeveloping electricity in the whole country, but twenty years later, HIDRONOR wasestablished with the specific mandate of developing the hydro resources of the'7omahue Region. In 1980 the Government decided to transfer most of AyE'Sdistribution facilities to the provinces in a disorderly process which resultedin the formation of 19 distribution utilities with uneven capabilities. Theabove process coupled with poorly conceived, unstable and rolitically appliedregulations, in addition to the past unfavorable macroeconomic environment, haveprecluded until recently any meaningful participation of private ventures in thesector.

1.12 The New Framework. The Government has begun a ewoeping reform in thesector to improve efficiency and reduce its financial gap; it is centered ondivestiture and reorganization of the national utilities, further participationof private investors in new undertakings, and a new regulatory framework(para. 1.6) designed to provide clear rules to the existing actors and topotential investors, as detailed in Annex 1.2. This new framework alsoencourages the transparent bulk supply pricing mechanism and a fund formitigating regional tariff differences (para. 1.29). The regulatory nystem hasprovisions to correct the above-mentioned distortions in provinces which adhereto the regulatory framework (paras. 1.10 and 1.11). In line with the sectorreform , the SE should concentrate on indicative power planning, grant of hydroconcession, coordination of a national power dispatch center, and Retting of theoverall country policies. It would also be the channel th%-uSh which theregulatory agency, to be created, would report to the Government.

1.13 The Privatization asd Restructuring Process of the national utilitiesstarted in 1990, with Government's decision to privatize SEGBA' s distribution andcommercialization (Law No. 23696 and Decree No. 2074). With ongoing Banktechnical assi-t'--nce, this privatization is completed, except for a small arearepresenting 6* of SEGBA's consumption. In accordance with Government Decree No.634 of April 12, 1991, SEGBA and AyE are implementing the privatization of theirthermal generation. ROSBA has already sold its steam plants, amounting to over

2000 MW or some 85t of its installed capacity. Upon promptly transferring thedistribution and flood control facilitien to the hosting provinces, andprogressively divesting the hydro generation, AyR wi,ll merge its 500 Kv

transmission system with HIDRONOR's to form the new grid company. This companywill be privatized by year-end 1992, if marlcot conditioris are favorable. Besidesthe transfer of its 500 kV facilities to a new grid compaxny, HIDRONOR willundergo a financial restructuring, and organizational streamlining, thus creatingthe conritions for private capital participation through the public sale ofshares. IDB will finance technical assistcuice for AyE's and HIDRONOR'stransformation through a loan for the power sector refov'rn recently signed.Government has displayed resolve in implementing the privatization processthoroughly and promptly.

Rxoansion Planninct

1.14 Power Market. The degree of electrification in Argentina (90%) ishigh compared to the Latin American average of 70a. 959 of urban population andabout 45% of the rural population have electrical set-vice. Per capitaelectricity consumption was about 1290 kWh in 1991, above the average level of1000 kWh for Latin America. Consumption increased at a rate of 6.1% p.a. in theperiod 1970-1980. It slowed after 1980, reflecting the difficult economicsituation of the country, averaging 2.8% p.a. in 1980-1984 and 1.3% p.a. in 1984-1990 (Annex 1.3). This modest growth was due in part to a severe drought which,associated with low availability of the thermal facilities, resulted in energycurtailments during the veriod 1988-1989. Consumption in 1991, however increasedat a rate of 4.1%, the highest growth in a single yea ,since 1985.

1.15 Existing Facilities. Despite the vastness of its territory, electricfacilities are highly integrated in Argentina. Most of the country's powerfacilities with a total installed capacity of 12,102 Ml (para. 1.21) are linkedthrough the National Interconnected System (NIS), which covers about 92% of thenation's electricity market. A 500 IcV transmission system, consisting of 7,560km of lines and 24 substations, and complemented by a network of 230 KV lines,links the major consumption areas with the production centers and is used for thetransfer of large blocks of energy. This network currently belongs to AyE,HIDRONOR and SEGBA and interconnects Argentina to Urugutay through the SaltoGrande hydro plant which belongs to CTMSG, facilitating energy interchangesbetween the two countries. A centralized dispatch center is in charge ofoptimizing the generation system operation while seeking a satisfactory level ofsystem reliability.

1.16 Plannina Methodologv. Under the sector's ? iditional centralizedplanning, sector expansion plans have been prepared by .e SE, which developeda sound methodological approach to this end. Electricitxydemand (Annex 1.3) isestimated on the basis of a sectoral econometric model, with sub-models for theresidential, commercial, and induatrial sectors; consistency checks are made bycorrelation between the total cons:'mption grovth and the GDP growth. Prices arerepresented in the model, though itferences regarding price elasticity hive notbeen conclusive because electricity .ias been underpriced for long periods and thedistortion to the price signal introuuced by high inflation periods. Generationexoansion 2lans are based on least cost analyses using a set of mathematicalmodels: (i) a linear prograzming model to selezct the besc expansion alternatives

fromA the inventory of all thermal and hydro options available, (ii) a oimulationmodel which defines the appropriate timing for the selectee projects, and (iii)a loss of load probability model which evaluates the expected reliability of thegeneration plus transmisuion system. TraMinsion exoansion plans are preparedby the utilities that own the trunk transmission system (AyE and RIDRONOR) andapproved by the SE. Diatribution olannina is made by SEGBA and ths provincialutilities.

1.17 Sector planning procedures are likely to evolve with the gradualtransition towards a mostly privatixed sector, since the private sector wil4consider parameters, criteria and constraints that will certainly be differentfrom those that have prevailed in a centralized public sector. However, it isimportant to ensure that, during the transition period the sector would onlyimplement with public funds those projects that respond to the most efficient useof resources. Thus, during negotiations, it was agreed with the Government thatit will only authorize or undertake the construction of major public powergeneration or transmission projects that meet the least-cost expansion criteria,and have adequate financing [para. 3.01(a)3. In assessing the adequacy offinancing, the Bank will ensure that any envisaged Government contributions wouldnot adversely affect the achievement of fiscal targets agreed in the frameworkof our continuing macroeconomic dialogue with the Government.

1.18 Demand Prolections. The current national demand projections for 1992-2000, prepared by the SE for the whole country are based on an aversge GDP growthof 3.6*, and do not take into acco;unt the consumers' response to pricecorrections to reflect costs. During appraisal of the proposed project, twodemand scenarios were prepared which cover a sufficiently wide range of possiblevariations in demand growth:

(a) Hiah Demand Scenario. Corresponds to the projections prepared by theSE, but takes into account price elasticity to electric consumptionof -0.15 and 15 price increases to the residential sector during theperiod 1992-1995, which would bring all prices to the LRMC levels.This projection results in an average electricity consumption growthof 6.61 p.a.

(b) Low Demand Scenario. Assumes a more modest GDP growth of 2.5* p.a.for 1992-2000, a -0.20 price elasticity to electric consumption and15 increase in prices to the residential sector during the period1992-1995. This results in an average energy growth of 5.41 p.a.

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

A/ When GDP f1 corrected to reflect participatIon of the informal econo=; or 2.55 for officiallyrecorded GDP.

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

-7-

1.20 NIS' 8neray Reauirements for both demand scenarios are detailed inAnnex 1.4. They are based on a regionalization of the national demand and theaddition of energy losses. Current subtransmission plus distribution losses, at20 of the energy supplied (or 2.,* of the sales), are very high. They occurmainly in SEGBA's system due to the poor status of the distribution system andloose commercial practices which have been unable to control electricity theftand fraud. Despite loss reduction programs being developed by SEGBA, losses havenot actually decreased. However it is expected that they will progressively inthe future, as a result of the utility's improved efficiency brought about by theprivatization of its distribution facilities. For purposes of the energy andpower balances, total losses were supposed to 6ecrease to 13.8W by the year 2000,which include an estimated 12% for normal technical losses plus 1.8% for residualfraud losses whose attempted elimination would not be cost effective. On thesebases, the energy requirements for the NIS, currently at 43.5 TWh, are expectedto grow to 74.7 TWh by the year 2000 (6.2% p.a. increase) under the High Demandscenario and to 67.8 TWh by the year 2000 (5.1 p.a. increase) under the LowDemand scenario.

1.21 Generation Exoansion. The total installed capacity of the NIS by end1991 was 12,102 MW of which 5,171 MW (43%*) was hydro; 5,984 MW (49%) conventionalthermal, and 947 MW (8%) nuclear; net generation reached 44,070 GWh, being 30%hydro, 53% fossil fuel, and 17% nuclear (Attachment 1 of Annex 1.4 presents asummary of available installations). The following plants are currently underconstruction: (a) Piedra del Aguila, hydro, 1,400 MW, currently in the finalphase of construction and to be commissioned in 1992-1993; (b) Yacyret&, hydro,930 MW, to be commissioned in the period 1994-1995, is the basis of the proposedproject, as detailed in Chapter 2 (its final installed capacity of 3,100 MW isplanned to be reached in 1998); its total output will be delivered to the NIS;(c) Pichi-Picun-Leufu, hydro, 250 MW, whose construction is progressingsatisfactorily and, is expected to be commissioned in 1996; and Atucha II,nuclear, 745 MW, a project which has progressed slowly becauise of financialdifficulties and whose earliest date of commissioning, were the financingavailable, would be 1997.

1.22 The current expansion plan constitutes the initial part of the leastcost sequence to meet the estimated demand growth for the period 1992-2000, vnderthe High Demand scenario. The NIS generation optimization, prepared by the SE,under the High Demand scenario, shows that the implementation of the aboveprojects would supply adequately the demand until 1999, except for some potentialin the years 1992 and 1993 (para. 1.26). This plan also shows that the bestalternative for expanding generation beyond 1999 would be gas fueled combinedcycle plants (554 MW in 2000).

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

Et YacyreU and Atuche only, as Piedra dol Aguila is nearly completed and Pichi-Picun-Leufu is a smallplant with earmarked finencing.

(a) Under the High-Deman scenario, completion of Yacyret6 in the years1994-1998, of Pichi-Picun-Leufu in 1996, and of Atucha II in 1997 arerequired to supply the demand with adequate reliability; and

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

1.24 From an economic perspective, however, as discussed in para. 2.52delaying the full completion of Yacyreta would be more costly than its completionas planned because the economic generation cost of the project would be muchlower than the NIS marginal thermal cost. With regard to Atucha II, no immediatedecision on reprogramming is advisable on the grounds of a low demand scenario.Given that the SE follows up on the market evolution as part of its welldischarged responsibilities, and in case the current low demand scenariorepresents the most probable trend, it will analyze the convenience of suchreprogramming in the light of the status of the civil works and equipmentmanufacturing, and possible contract penalties. Notwithstanding this, to ensurethat public funds are given the proper priority, during negotiations, agreementwas reached with the Government that it would not assign public funds to financethe completion of Atucha II unless the appropriate funding for completion ofYacyreta is secured [para. 3.01 (b)].

1.25 Transmission Expansion. Piedra del Aguila, Pichi-Picun-Leufu, andAtucha XI will not require expansion of the 500 kV system. The final Yacyretitransmission ssheme comprises 1,600 km of 500 kV lines; initially it willconnect the plant to the NIS in Resistencia through a 270 km line and later tothe Salto Grande plant through two 570 km lines running south via the site of thefuture Garabi hydroplant, complemented by a 220 km line connection from ColoniaElia to Buenos Aires.

1.26 SUOl1V Prostects. Short term supply is expected to be precarious dueto the low availability of some of the thermal plants. Energy balances showthat, even with the commissioning of Piedra del Aguila (1992-1993), energyrestrictions are likely to occur in 1992 and 1993. The reliability of thethermal plants is expected to improve as result of rehabilitation by privateowners and this has been considered in the planning process. Energy balancesprepared for the period 1992-2000 (Annex 1.4) show that:

(a) Under the High Demand scenario the hydro to thermal generation ratio(including nuclear) is expected to increase from 30/70 in 1991 to42/58 by 1995 and to 53/47 by 2000. Peak reserve margins are expectedto be in the range of 38-44% in the period 1992-1996, when the highlevel of installed capacity of Piedra del Aguila and Yacyret& comesinto the system. They will decrease to the more normal range of 27-35% in the period 1997-2000; and

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

-9-

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

Sector Investment and Finances

1.27 Investment. Under the reshaped sector structure, responsibility forinvestments will be shared by the Federal Government, the Provincial governmentsand private investors. The corresponding shares of these investments depend onthe Sector's ability to attract private capital and their exact amounts are stillto be defined. Because of these uncertainties, it is not warranted to presenta typical sector financial plan.W Investment needs are: (a) rehabilitation ofgeneration plants (formerly or still owned by SEGBA and Ay8); (b) completion ofgeneration works (under execution by HIDRONOR, EBY and CNEA); (c) distributionexpansion (in the SEGRA's original concession area and by the provincialutilities) and (d) general plant (all the utilities). The 1992-1995 sectorinvestment program has an estimated cost of about US$4.8 billion as sumnarizedbelow:

- - ,~~922',99S .Rfito: Thetoffit(iA constant VS$ iilllon at 7zuwary1q992 pric..)ZA :

Arls of Resporsibility as 1992 1993 1994 1995 Totalof _ec.1991

AyE 102.5 66.0 36.0 182.5

SE6A 179.1 323.0 178.6 177.6 858.3

HIORONOR 361.9 163.2 103.1 41.0 669.2

COE 360.6 263.6 215.1 91.5 930.8

EBY 371.5 369.2 343.3 178.8 1262.8

YalLyreti Truiuinissicy 17.5 141.7 157.6 125.5 442.3

Provincial UtiLities 100.0 106.0 112.0 118.0 436.0

Total Sector 1493.1 1410.7 1145.7 732.4 4781.9

In the above table, the investments are grouped under the utilities which havebeen in charge of the projects before the privatization process. Generationinvestments, of whic.i 401 correspond to the Yacyreta hydro project, account for65* of the total. Transmission investments, of which 781 correspond to theYacyreti transmission system, amount to 11 of the total investment.Distribution represents about 201 of the total investment, while investments forgeneral plant account for the remaining 4%. Investments decline sharply toward

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

L/ Includes physical contingencies.

Di The proposed project covers some 25X of this investment; it is to be implemented by an executingunit especially created for this purpose uider the SE. while the remainder will be aessigned toprivate investors.

- 10 -

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

1.28 Electricity Pricing. The Government policy on electricity pricingis in line with the overall country policy of letting market prices establishprices of goods and services. The bulk sales market is composed of a freemarket, in which producers and distributors are entitled to agree on bulk saleprices, and a spot market, in which the energy not committed in the free marketis sold at the economic cost, including a margin for non-served energy(Annex 1.2). In this case, a reference price to be paid by the distributioncompanies is determined each semester by the Dispatch Center, on the basis of amethodology established by the SE and centered on the short term marginal cost.Currently, producers are selling energy to distributors at about US04.5/kWh9/,which also coincides with the average long term marginal cost at transmissionlevel. The prices to the final consumer will be set by the regulatory agency inthe case of SEGBA (and its successors) and the provincial utilities which adhereto the centralized regulatory system. Provinces that do not adhere to thecentralized regulatory system will retain their ability to set prices to thefinal consumers. The average value added by distribution is estimated in therange of USC4.0-4.5/kWh. Thus, the price to the final consumer at thedistribution level, that would reflect long term marginal cost, isUSC8.5-9.0/kWh.

1.29 Special Funds. Two special funds are contemplated in the newelectricity law. The first one is intended to give the SE a better handle on thefunds of the national utilities and CINA. The national utilities and CNEAformally sell to the distributors at the established supply price (spot market),but they will only recover their operating and maintenance costs, while thebinational utilities will be paid according to the existing contracts. Thedifference between supply price and the cost of production of the nationalutilities and CNEA, and the contracted price of the binational entities will gointo a unified fund to be administered by the SE. This fund will beredistributed for earmarked investments and debt service of the nationalutilities and EBY. The second fund will be administered by the CFE. It isformed by a surcharge of US$3/MWh over the basic prices paid by distributors andlarge industrial customers. Sixty percent of this fund will be used as acompensation pricing mechanism for the provinces which adhere to the centrallyregulated system and 40* to finance investments of the national utilities. Thesurcharge amount is small enough not to cause any tariff distortion; however, the

2/ Upon comissioning of Piedra del Aguila, the short term marginal cost is expected to lower by someUSC0.5/kWh. The sale price of Yacyret w"ill be US03/kWh (Deceffber 1991 price level) at the plantoutlet. This is roughly equivalent to US03.5/kWh at the grid Level. The sale price of Yacyretdreflects mainly the debt of EBY, recenti? restructured by the Governments of Argentina and Pareguay,and the Argentine Government's desire to keep it below the short and long term marginal costs. Thiscauses no distortion, as distributors wilt pay according to the system supply price; as in thecurrent case of CTSMG, differences between the supply price and the sales rate of EBY will becollected by the SE (para. 1.29).

fund for compensating tariffs will have a reasonable size (some US$ 75 millionannually) so as to represent a strong incentive to the provinces' adhesion to thecentrally regulated system.

1.30 Past Performance. The financial performance of the national utilities(Ayg, HIDRONOR and SBOBA) has deteriorated considerably in the last 10 years.The main reasons are: (a) electricity prices have not been adjusted to keep upwith inflation; (b) without an adequate capital market, utilities have relied onloans due to reduced government contributions (unfortunately much of it shortterm); and (c) high interest rates. During the last decade, the averageelectricity tariff to the final customer including taxes fell from USC¢O/kWh in1980 to about US¢5/kWh in 1982-1984, and then increased up to USO8/kWh in 1990.This represented a reduction of revenues of over US$10 billion to the nationalutilities. In the past, electrical and energy funds were a major source ofinvestment financing. These funds were generated through surcharges levied onelectricity, fuel and gas consumption, and taxes on oil processing. In the late1980s, these funds were reduced by tax reforms and partially apportioned by theTreamury. This represents an estimated annual income reduction of US$0.8 billionfor the sector. Additionally, a tax reform set up in 1990 obliged the powerutilities to pay taxes on operating assets, which represent some US$280 millionper year. Because of such losses, the Government had to transfer about US$1.9billion to the national utilities to cover barely operational expenses andinvestments, in addition to full foreign debt service, during the last fouryears. Annex 1.5 gives a detailed description of the finances of the nationalutilities.

1.31 The changing economic policies of the late 1980s resulted in adeterioration of financial discipline among public sector utilities. Theaforementioned reasons caused problems for sector investment and debt service.As of December 31, 1991, total indeotedness of the national utilities amountedto US$5 billion. Utilities also owed about US$3.4 billion in arrears tocontractors and local suppliers.

1.32 Future Prog2ects. The privatization of the national utilities wouldreduce the burden of the sector on public finances. The Government would receiveabout US$2.4 billion for the sale of assets of the national utilities.Additionally, as the national utilities would be transformed into profitablepower companies, the Government will be able to increase its collection of incometaxes.

1.33 Government cartiCI2atin in financing the sector investment needs(outlined in para. 1.27) would be directed to the national utilities, CNEA andEBY, concentrating mainly on the completion of Piedra del Aguila, YacyretS(including part of the transmission) and Atucha II; this participation wouldamount to roughly US$1.5 billion during the period 1992-1995. The 1992 nationalbudget includes US$0.9 billion to cover the financial gap of the nationalutilities, in addition to US$0.8 billion for CNBA and EBY to cover investment anddebt service. Additionally, during the period 1993-1995, the Government wouldservice the debt of the national utilities estimated at US$2.1 billion, inaddition to lending US$0.8 billion to 8BY for debt ser,ice.-l One of the

jQ/ Data for CNEAl depends on the ftm ncg plan for cmpletton of Atucha 11 to be fInalized by year-end.

- 12 -

benefits of the propozed project is to enhance the allocation of Argentina'sscarce financial rec-ource.s hy facilitating the completion of the two largestongoing projects: Yacyrat&, ;iy direct financing, and Piedra del Aguila, by useof freed Treasury resources originally shared with Yacyretg.

Sector Strate_q

1.34 Taking this body of experience into account, the Argentines haveconcluded that the required long-term sector improvements and lessening of publicfinance support will not readily come about from intensified internal sectorefficiency measures, attempts at tightening Government controls and the like.Instead, the authorities have fundamentally recast Argentina' s strategy for poweroperations, which the Bank staff considers appropriate to the situation.

1.35 The decision to enlist private capital and introduce privateenterprise management (para. 1.12) is constructive, especially in view of theneed for greater entrepreneurship and efficiency in sector activities. Theinitiation of the new regulatoxy framework (para. 1.6) helps to provide animportant distinction between the Government's oversight role and its policymaking, management and operational functions, which have been blurred. Thedecision to confine upcoming investments to completion of ongoing works reflectsa prudent appreciation of Argentina's limited development resources andunderstanding of the limited prospects for any quick improvement in internalresource mobilization. 'she decentralization of power distribution to theprovinces is consistent with the increasing local autonomy and nationalobjectives as effective running of the dispatch center. Moreover, the emergingstrategy is more embedded in macroeconomic policies than before. The new sectorguidelines particularly reflect the Government's expenditure levels and the wayit mobilizes revenues. The strategy also is governed by new national policiesaimed at fostering the growth of the private sector. Substantial Governmentcontributions are needed to put the sector on a sounder financial basis, but thedevelopments outlined in paras. 1.32 and 1.33 shc .ld provide many of the elementsrequired for that achievement.

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

1.36 The Bank has made nine loans to Argentina's power sector, totallingnearly US$1.2 billion. Five loans (US$ 601 million) have helped finance SEGBA'sexpansion of the thermal generation, as rwell as the transmission, subtransmissionand distribution systems. Loan 577-AR (US$ 82 million) financea the constructionof HIDRONOR's 1200 MW El Choc6n hydro plant. The construction of the Yacyretahydro project was supported with two loans: 1761-AR, US$250 million in 1979; and2998-AR, US$252 million in 1988, out of which US$250 million was for Yacyreta.The latter (Power Sector Loan) also financed a technical assistance program tostrengthen the SE. In 1987, Loan 2751-AR helped finance the Power EngineeringProject which provided the basis for improving the efficiency and economy ofdistribution expansion country-wide. Loan 2854-AR (US$ 276 million, 1988) whichfinances the SEGBA V Project, has helped to finance the technical assistancerequired for the sector reform (paras. 1.12 and 1.13). Discussions with theGovernment have led to an agreement on using US$100 million out of the US$165

- 13 -

million outstanding balance of the SEGRA V loan to accelerate the completion ofYacyreta (para. 2.12), recomiendations on which will be submitted to the Boardshortly. The allocation of the remaining US$65 million of the loan's balance isbeing worked out with the Government.

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

1.38 The SEGNA IV experience, typical in Argentina's power sector historyin recent years, must be judged in the light of the recurrent hyperinflation,civil disturbances, deep recession and other destabilizing events that caused thecountry's secular economic decline. In this environment, sector planning andoperations became increasingly complex and mired in uncertainties, severelyweakening management of pricing, power demand, investment authorizations,financial controls, etc. More specifically, Government policies did not providethe required stable framework for the sound operation of a sector whose actionshave very long-range implications.

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

1.40 Moreover, due to the prolonged recession, there has been lower thanexpected growth in demand, complicated by rigidity in the generation expansionprogram. This led, in conjunction with an unduly low cost of capital assumption,to the development of large, long-gestation, capital-intensive projects. Inaddition, expansion planning, distorted by an unrealistic low value assigned tothe opportunity cost of capital, brought about a high reliance on hydro andnuclear-based generat-ion.

1.41 A third general deficiency has been the Government's pattern, moreoften than not, of appointing managers with less than satisfactoryqualifications, who were replaced after a brief period. The rate of turnover ofkey officers has been undesirably high. Also, managers have not had the mandateto carry out the required changes, been unable to lead their staff, and not hadpolitical support to negotiate adequately with employee unions. Operationalefficiency improvements could not materialize under these circumstances, and goodmaintenance practices, comany leadership and staff morale deterioratedaccordingly.

- 14 -

1.42 Experience with the initial resettlement of some 1,700 families (about8,500 people) from the vicinity of the new international bridge linking Posadasand Encarnaci6n, constructed as part of the later phases of the resettlementoperation, provides a number of lessons for improvement of later phases of theresettlement operation. Housing, which initially did not meet the needs ofresettled families for affordable, low maintenance dwellings, will in the futurebe built by the resettled families. EBY will restrict its assistance toprovision of serviced houseplots (tubed water, electricity, drainage and wastedisposal systems) together with building materials and technical assistance.While an earlier attempt was made to charge resettled families for improvementsmade in housing, in the new resettlement program (para. 2.42) all housing costswill be paid by EBY, and legal fees associated with issuance of titles toreplacement land and houses will a.so be paid by EBY. Some families affected byloss of employment, but not housing, were initially not covered, but the newAction Plan provides economic development assistance to re-establish affectedsources of employment. It was also discovered that special attention is neededto ensure that female-headed households are provided title to replacement housingand houseplots. Implementation of the resettlement operation, which wasexcessively centralized within EBY, will be decentralized from EBY to relevantinstitutions of local provincial and municipal government, as well as to theprivate sector and non-governmental organizations.

1.43 Assistance Stratecv. As indicated in para. 1.36, up through the1970s, the Bank concentrated its assistance in power sector lending to individualutilities, mainly SEGRA, and was also instrumental in helping Argentina preparea national expansion program based or. least-cost criteria. In parallel, the IDBconcentrated its efforts on other companies, stemming in part from thefragmentation of the sector organization and limited national control.Subsequently, as the economic environment and conduct of the power programdeteriorated, the Bank shifted its focus to an overall sector, approach in order-to deal more directly with the aforementioned generic issues. Implicit in thisapproach was the concept of concentrating more on selected short-term targetswithin a broader framework. In addition, added importance was attached toobtaining up front actions by the Government and the sector before Boardconsideration of proposed new lending operations.

1.44 The initial agenda for action in support of major remedial initiativesincluded: (a) optimizing financial resource allocation; (b) increasing theutilities' contributions to investment; and (c) streamlining and improving sectororganization. The first power sector loan (2998-AR) therefore stressed theseobjectives while its proceeds were directed to the continuation of Yacyreti, themost important operation underway. In concert with this approach, the IDB hassupported similar policy objectives within its power lending which also haslargely been employed for Yacyret&'s progress.

1.45 Loan 2998's last disbursement occurred in October 1991: some of itsendeavors were successful albeit to a somewhat limited externt. One of the mostexemplary accomplishments was the Government's progress in putting the powerinvestment program on a more balanced basis. Applying the methodology andassumptions agreed with the Bank to govern new generation investments, the

- 15 -

authorities successfully confined the latter to the least cost program(paras. 1.21-1.24'. A particularly notable feature in addition was, for thefirst time, the application of the same criteria to the nuclear program. Second,an effective start was made in rationalizing the sector organization, culminatinginitially in the new electricity law, and plans for separating Government'sregulatory and managerial responsibilities (paras. 1.05-1.07). Third, theupgrading and more rigorous application of environmental safeguards governinghydro and thermal plants are commendable.

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

1.47 The country strategy calls for structural reform of public financesas the key to Argentina's macroeconomic stability, and fo: the Bank to matchsustained policy improvements with significant lending. Much more needs to bedone, especially accelerating the process of privatization and other changes toreduce the fiscal deficit, foster investment, and improve the quality ofservices. Eliminating the financial deficit in the power sector is central tothese objectives. Accordingly, the administration's dramatic changes to delimitGovernment's role in the sector, replacing the past effort to improve mattersinternally, warrants the support requested to help resolve these problems. TheBank is already providing technical assistance for SEGRA's privatization ofdistribution, and coordinating the effort of the sector transformation with IDB,that will provide technical assistance financing to AyE and HIDRONOR(para. 1.13).

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

1.49 At the project level, the Bank's experience indicates severalsignificant requirements. As elaborated in Chapter 2, Yacyreta has suffered frominstability in the management of the project entity, lapses in technicaldirection, constant uncertainties of assurance and levels of future funding,excessive Board interference, strains between the owners and in their dealingswith the international contractors, and a not fully satisfactory design of theresettlement and environment protection plan, as well as its slow implementation.On these accounts, the design of the proposed loan reflects the application ofcorrective measures for the key past problems. These include more rigorousassurances on the availability of Government funding and its timely possessionby EBY through advanced budget allocation and the establishment of a projectaccount; improved higher level management and technical staffing; transfer of allstaff to the project site, except for a few key financial positions; EBY'sretention of an independent engineering expert who will inform the Bank directly

- 16 -

of project progress; safeguards against the renewed accumulation of paymentarrears to civil works contractors; and a new program for Resettlement andEnvironmental Management.

1.50 Rationale for Bank Involvement. In connection with the nacroeconomicand sectoral interests presented above, Yacyret4 is essential to Argentinaw economic recovery and subsequent growth, because of the large amount of energy(40k of present consumption when fully completed) that can be made availablewithin a short time (3 years for tne first fourth of the total output as per theproposed project) at a completion cost with an ERR of 17k and equivalent to two-thirds the long-term marginal cost. The Bank's presence in the proposed projectwould be crucial for overcoming the past "stop and go" pattern of projectexecution and achieving the 1994 commissioning goal. Already, in connection withpreparation of this proposed project, the authorities have begun to resolve themany problems which have plagued Yacyret&, such as inadequate Governmentcontributions, inefficient organization, and unsatisfactory management, withpromising signs of resolution. An appropriate financing plan and the acquisitionof new commercial credits for the remaining electrical equipment are unlikelywithout the Bank's involvement and continuing supervision. That role isconsidered necessary moreover for effecting the planned sector privatization andcreating opportunities for additional private sector investment, including theYacyreti transmission system. In addition, considering the large debt overhang,EBY' s lack of earnings capacity until 1994 and access to medium term finance makethe financial support from the Bank and the IDB essential. The proposed loan ismoreover justified on the grounds that the project is still economicallyjustified notwithstanding the higher costs (paras. 2.57-2.56); the project cannotbe further reduced to fit the available resources (para. 2.8); and the Governmentalone cannot finance the additional costs, which are due to exceptionalcircumstances (paras. 2.2 and 2.14).

2. MH PROJeCT

A. Backaround

Project Oriain and Status of Prevaration

2.1 Background. The Yacyreta hydroelectric scheme, for which the Bankapproved in 1979 a US$210 million loan (Loan 1761-AR), along with an IDB loan ofequal amount, is an Argentine-Paraguayan joint venture being developed under theInternational Treaty of Yacyreta, ratified by both Governments in 1973 (Annex2.1). Yacyreta is a complex, US$5.5 billion investment endeavor, consisting ofa large earth dam, a power house with an ultimate capacity of 3,100 MW, anavigation lock, fish passage and other support facilities as well as a largeprogram of infrastructure relocation, population resettlement and environmentalimpact alleviation (See Annex 2.2 for a project description). Despite itsequally shared co-ownership with Paraguay, Argentina agreed in the Treaty tosecure total financing for Yacyreta, driven by the then optimistic prospects ofeconomic development and availability of international credit.

- 17 -

2.2 The project has suffered significant implementation problems whichhave resulted in about 8 years delay in completion and a sizeable financial gap.The implementation problems began with a protracted dispute between theGovernment and the Bank c-rer procurement procedures, and was not resolved untilthe end of 1982. Later, works stopped because of the South Atlantic War. Thecountry's economic recession and high inflation during 1983-1984 worsened thesector financial situation and reduced its capability to support the constructionworks. In 1984, upon taking office, the new civilian Government reassessed theproject to determine whether or not it should be continued. It decided to do so.The Government made important changes in project design, appointed a newmanagement, renegotiated contracts with construction and engineering firms,rescheduled execution and presented what appeared to be a feasible financingplan. It provided the basis for new loans in November 1988 from the Bank (Loan2998-AR of US$252 million) and IDB (US$250 million)1-1 1 to finance the civilworks and the engineering contracts.

2.3 Financial problems however subsequently worsened as macroeconomicinstability mounted and sector policies were affected by political expediency.Discontinuity in Ministry of Economy oversight of the project and sectorfinances, recurrent difficulties with contractors over payment arrears,inadequate management of the project complex and d,'fferences between theArgeutine and Paraguayan owners over changes to the prcaect design required toreduce costs, have combined to form an enormous financing burden. About US$3.4billion had already been invested in Yacyret6, with US$2.1 billion more requiredto reach its ultimate capacity, excluding financing charges and tranemissionsystem costs (Annex 2.2, Attachment 5). The new Government therefore carried outa new reassessment of the project in 1991, which concluded that it would be muchmore expensive to cancel the project than to complete it. The authoritiesdecided to press ahead with the project for this reason, as well as to ensureadequate electric supply in the mid 1990s and to obtain revenues from energysales early on. At the same time, it has sought to contain further buildup offinancing charges.

2.4 The above changes and actions gave renewed impetus to the projectimplementation, but financial difficulties further compounded because of thesector failure to contribute to the earmarked energy funds which were supposedto provide counterpart funds and arrears built up. The scarce funding availablewas mostly directed to the major civil works, whose contractor accepted partialpayments to avoid suspension of activities. Despite the above difficulties,construction of the project is well advanced, and progress is as follows: (a)civil works are 80* completed; (b) assembly of the first four turbines isunderway; (c) electrical equipment acquisition is being finalized; and(d) resettlement and environment programs are 60W completed with respect to therequirements defined by the reservoir operation level under the proposed project(paras. 2.5 and 2.8).

2.5 The Reduced Reservoir Level Scheme. Completion of Yacyret& has becomean important piece of the overall power sector strategy being implemented by theGovernment, which the Bank has agreed to support. Given the serious difficultiesin obtaining additional financing for the completion of the undertaking, the

II/ IDB made another USS250 million Loan in Decenber 1989 for the same purposes.

- 18 -

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

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

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

Proiect Obiectives and Descrintion

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

3a/ Elevations refer to meters above sea level. The maximum elevation at the power house under normaloperating conditions Is 82m, the corresponding head is 21.3m, and the normal Level at the turbinedischarge is 60.7m. ELevations along the reservoir vary with location and streamfLows; forrelocation/resettlement purposes a safety margin is added to the normal reservoir elevation tcprovide for wind wave effect (para. 2.37).

- 19 -

to the output of the Piedra del Aguila hydroplant (para. 1.21). The proposedproject would yield approximately one fourth of the output of the fully completedYacyreta scheme.

2.9 Obiectives. The project is designed to: (a) help provide anefficient supply of energy in the mid 1990s by ensuring operation of Yacyretfisfirst six units with an adequate transmission system; (b) bring about tighterenvironmental protection and appropriatc handling of social aspects in Yacyreta;and (c) encourage private capital participation in EBY.

2.10 Description. The proposed project consists of: (a) completion ofYacyreta s basic permanent structures; (b) installation of Yacyret&'s first sixgenerating units; (c) implementation of the 500 kV Yacyreta-Resistenciatransmission link; (d) implementation of Yacyret&'s Resettlement andEnvironmental Management Programs (REMP) required for reservoir operation at 78mand assessment of the impact of such operation and of the possible rise of thereservoir above 78m; and (e) assessment of the possible private capitalparticipation in EBY. The proposed loan would finance civil works and relatedengineering for (a) and (b), and the technical assistance for (c), (d), and (e).The project is delimited by the number of units (six) that can be transmittedthrough the Yacyret&-Resistencia transmission link. While the basic investmentsof the proposed project would be completed by September 1995, the technicalassistcnce for the REMP would extend beyond this date in order to facilitate acritical review of the reservoir operations at levels 76m and 78m and theimplementation of required corrective measures, as well as to support EBY actionsfor a possible raising of the reservoir to elevation 83m and allow Bank'sassessment of the reasonableness of such preparatory activities (para. 2.11).Therefore, the project would be completed in its entirety by June 1998.

2.11 As noted above, the proposed project does not call for the completionof the full Yacyret6 undertakings. This would mainly consist of the installationof units 7 to 20, bringing the installed capacity to 3,100 NW, operation of thereservoir at elevation 83m, and installation of the associated transmissionsystem. In this connection, although there would be no Bank financialparticipation to help ensure the accomplishment of these tasks, the Bank isconcerned that they be achieved satisfactorily. It is particularly importantthat the resettlement and environment mitigation measures needed to protect theaffected population be executed prior to the reservoir rise, and in compliancewith defined standards. It would be appropriate to determine whether these havebeen accomplished in the first semester of 1994 when the Bank would conduct withEBY a mid-term review of the project (para. 2.40). Consequently, the Bank plansto monitor carefully EBY's performance in this area before the level is raisedto 76m, and again to 78m. EBY's record in meeting these requirements would alsobe considered in the determination of further raising the reservoir above 78m,for which during negotiations agreement was reached with EBY and the Governmentsof Argentina and Paraguay that such reservoir rise would require prior Bankapproval (para. 3.01 (c)l. If the decision to proceed beyond the limits of theproposed project is made during 1994 and execution of the REMP is satisfactory,the raising of reservoir elevation to 83m could be achieved by June 1998, atabout the same time as the installation of the 20th and last generating unit.Other significant considerations to this decision relate to: (a) firming up ofthe plant financing plan for works extending beyond those covered by the proposed

- 20

project; (b) the mobilization of an estimated US$400 million private investmentfor, and completion of contractual arrangements governing, the transmissionsystem; and (c) locking up comparable private sector participation in the entitywhich will ultimately operate the Yacyreta hydroplant.

2.12 In this connection, the Bank management intends to submit for futureBoard consideration, the reallocation of US$100 million of the SEGBA V loan(Zn. 2854-AR) (para. 1.36) for further supporting the orderly completion ofYacyreta, by strengthening the financial plan for the execution of the REMPrequired for operation of the reservoir beyond 78m (para. 2.11) and helping theGovernment mobilize the sizable funds needed for the proposed project investmentand clearing of EBY's arrears (paras. 2.15 and 2.28). This would deploy theavailable proceeds of Loan 2854-AR to higher priority requirements in view ofSEGBA's privatization. The REMP has been designed under the criterion of minimuminvestment required by operation at predefined levels and consistent withstandards satisfactory to the Bank. However, this additional financing wouldmake it possible to accelerate the execution of some components that wouldusefully accompany the impact of reservoir operation at 78m on the populationaffected. Some US$40 million of additional Bank financing would be used forearly completion of the water supply and sewerage systems for the cities ofPosadas and Encarnaci6n, coastal treatment for selected uirban areas and diverseinfrastructure works in the rural areas. The remaining US$60 million of theenvisaged SEGBA V reallocation would be directed to the further financing of thecivil works and related engineering, which would allow Government channeling ofthe resulting reduction in its requirements for investment financing into aprompter payment of IBY's arrears (para. 2.28). This would considerablystrengthen EBY's position vis-a-vis contractors and suppliers.

Estimated Cost and Financina Plan

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

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

- 21 -

PROJXCT INVEBSTiNT COST ESTZKATE(for the Period 1992 - 1995) A/

(US$ million)

Local Cost Forefgn Cost Total

Puier Plat

Major Civil Works 166.4 205.1 371.5

Arroyos Protection Works 4.5 7.0 11.5

Generating Equipment 59.9 277.5 337.4

ELectromechanicaL Equipment 49.6 211.0 260.6

Land Acquisition & Indemnification 30.8 30.9 61.7

ResettLement, Environment & Infrastructure 25.9 25.9 51.8

Direct Costs - Subtotal: 337.1 757.4 1094.5

Engineering and Administration 64.9 55.6 120.5

Total Base Costs: b 402.0 813.0 1215.0

.trawuulssflon

Civil Works/Assembling 23.2 24.2 47.4

Equipment/Materials 25.3 27.1 52.4

EngineerIng 6.0 6.0

Total Baoe Casts: b/ 54.5 51.3 105.8

Total Project Investment - . _

Total Project Base Cost gy 456.5 864.3 1320.8

Physical Contingencies 29.0 31.4 60.4

Price Contingencies 29.0 78.1 107.1

TOTAL PRWECT IMNESTENT COST: Al 514.5 973.8 1488.3

p/ Does not i.-lude USS1.5 million for the Bank-financed technical assistance for the

Resettlement and Environmental Management Programs to be spent after this period.

gy January 1992 price level.

2.15 Financina Plan. The 1992-1995 financing plan is predicated on:(a) sizeable Government contributions for investment (US$503 million); (b) newexport and supplier credits of US$241 million for electrical equipment yet to becontracted (see Annex 2.4); (c) EBY's internally generated funds of US$95 millionbased on a sale rate of USC3/kWh at the December 1991 price level, as agreedbetween Argentina and Paraguay; and (d) an IDB loan of US$80 million likely tobe approved by the end of 1992, US$32 million of which is expected to bedisbursed during the period. This plan also covers the EBY debt service duringthe period; this debt service is unusually high because of the project's longexecution. Total financing requirements amount to US$2.6 billion, out of whichsome 58* are for investment and the remaining 42t (about US$1.1 billion) for debtservicing.

22

r1992-1995 FINANCING PLAN a/(in current US$ million)

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

S1 tC.minIw TO Be k_ _ _~~. ....... _ . : s_

Inveubuet _____ 1488.3

Hydroahnt 297.5 31 318.9 241.3 94.8 377.9 1361.9

Transmio 1.0 _ 125.4 126.4

Debt See , 1097.5

interets Other Chrue _ 658.4 oS8.4

Amordzatin 442.9 442.9

Totd 298.5 31.5 318.9 241.3 94.8 1604.6 2589.6

a/ Does not include US$1.5 million for the Bank-financed technical assistance for the Resettlementand Environmental Management Programs to be spent after this period.

b/ Possible loans during this period to clear prior arrears with contractors (pare. 2.28) are not included.

S' It could be reduced by USS60 million, if reallocation of loan 2854-AR is approved (para. 2.12).

2.16 To ensure that the availability of the multiple sources of financing,including Government's counterpart, is judiciously reflected in the financingplan, during negotiations agreement with the Government and EBY was reached that:(a) by February 28, 1993 and every four months thereafter they will jointlyupdate the project financing plan (para. 3.01(d)]; (b) the Government will coverany insufficiency of funds identified in such reviews of the financing plan(para. 3.01(e)]; and (c) the required Government's contributions to EBYinvestment and debt service, and to URSTY investment, in the period 1992-1995will be included in the Government's proposals for the national budget forinvestment [para. 3.01(f)). Additionally, to ensure that EBY will have timelyaccess to the Government's contribution for investment, during negotiatione, theGovernment agreed to: (a) maintain project accounts in a local bank under thenames of EBY and UBSTY with a level of deposit equivalent to 1/6 of the amountassigned to these entities in the corresponding yearly national budget forinvestment [para. 3.01(g)1; and (b) engage the services of independent auditorsacceptable to the Bank and present, in accordance with terms of referenceacceptable to the Bank, audits of the project accounts quarterly and within fourmonths of the close of the fiscal year [para. 3. 01(h)1. Given the underlyingimportance of satisfactorily completing the Resettlement and EnvironmentalManagement programs required for different reservoir operation levels, duringnegotiations HBY agreed to establish by November 1, 1994, and, thereafter,maintain an Environmental Trust Fund on terms and conditions satisfactory to theBank by depositing therein the amounts necessary to finance in a timely mannerall activities under these programs and for the Arroyos protection works, suchamounts to be derived from the sales of electricity or any other source and beat least US$18.3 million in 1995, US$60.9 million in 1996, US$101.6 million in

- 23

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

B. ExecutionLegal Arrangements

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

The Beneficiarv

2.18 EBY was constituted on December 3, 1973 under a Treaty betweenArgentina and Paraguay (Annex 2.1), with the main objective of constructing andeventually operating the Yacyreta hydroelectric plant. EBY was formallyestablished on September 6, 1974 with headquarters in Buenos Aires and Asunci6nand capital of US$100 million equally shared between AyE of Argentina and ANDEof Paraguay.

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

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

2.21 EBY's organization, which was set up by the Treaty, aimed at sharingresponsibilities between the two owners in the implementation of Yacyreta and ledto a cumbersome administration and overstaffing. The Board of Directors hasinterfered in matters that should be under total responsibility of the Executive

- 24 -

Director. In part, this was due to a progressive reduction of the ExecutiveCommittee's autonomy to approve payments under existing contracts and procurematerials and equipment. The sharing of responsibility between the ExecutiveCommittee and the Board of Directors was perhaps justifiable in the past underunstable political conditions and the recurrent allegations of corruption.Moreover, the high turnover of the Argentine Executive Directors and theappointment of the Argentine members of the Board of Directors on mainlypolitical considerations have appreciably contributed to the slow decisionsconcerning resettlement, procurement of electromechanical equipment andcontractor claims.

2.22 In addition, current mid-level organization and cumbersome proceduresdo not provide for an efficient administration of the entity nor for a smoothexecution process of the project. The number of functional units is excessiveand internal procedures required for decision-making are complex. To ensuresustained efficiency in the implementation of the Project, EBY presented to theBank a plan of action to improve administrative and managerial efficiency, basedon the recommendation of international consultants who carried out a managementaudit under terms of reference satisfactory to the Bank. During negotiationsEBY agreed to (a) execute this plan of action in a timely manner (para. 3.01(j)];and (b) hire consultants, satisfactory to the Bank, by March 31st, 1993 forstudying the feasibility of private capital participation in EBY (managementcontract ^r ownership) and by August 31, 1993 present to the Bank therecommendations of this study for comments. Additionally, Argentina and Paraguayagreed to exchange views with the Bank on the recommendations of this privatecapital participation study by October 31, 1993 and take all actions necessaryto enable EBY to carry out a plan of action emerging from such an exchange. EBYagreed to furnish this plan of action to the Bank, Argentina, and Paraguay byNovember 30, 1993 and promptly thereafter execute it in a timely manner [para.3.01(k)]. Despite the problem with EBY' s structure, the new management teamwhich took over in October 1991 has been performing satisfactorily; moreover, ithas developed a very constructive dialogue with the Bank towards the actionsnecessary to improve the execution of the project.

2.23 Staffing. EBY staff has now reached a satisfactory size, as a resultof cutting personnel to half early this year, following agreement between theGovernments of Argentina and Paraguay in January 9, 1992 (Annex 2.1). As ofMarch 31, 1992, the total number of employees was 374, 74% of whom were locatedat the construction site, 16* in Buenos Aires, and 10% in Asunci6n. By thattime, the three executive departments (Technical, Resettlement and Environment,and Financial) completed their moving to the construction site, except for a fewpositions of the latter that are deemed essential in headquarters. With its newhuman resource policy and staffing, EBY is seeking to improve productivity andreduce costs. The reduction of the Technical department's size ha 3 been possibleby coordinating better the efforts of the existing consultant for projectsupervision and EBY's own staff. The management audit to be carried out beforenegotiations will include a review of the impact of the new human resource policyand staff reduction on EBY's operations. The following table gives a summary ofpersonnel for each major organizational unit:

- 25 -

ElY' Persowiel SummrOrguizationat Unit December Decefabe ________ As of Nirch 31, 1992

1990 1991 Site B. Aires Astmcion Total

DirectionL&' 165 130 37 22 20 79

Technical 96 74 49 49

Administration 290 218 78 13 13 104

Finance 107 85 27 20 5 52

Environment and 195 117 42 42Resettlement

Security and Other 143 114 46 1 1 48

TOTAL 996 738 279 56 39 374

2.24 Financial Planning. Accounting and Auditina. The FinancialDirectorate is responsible for planning and executing financial operations, andrecording accounting transactions. The entity's accounting is adequate for aninstitution like EBY, and it is properly computerized. Transactions areadequately recorded and can be easily monitored. While the annual budget systemis adequate, the entity's financial planning system is weak and needs to bestrengthened. For this reason, EBY engaged an expert in financial planning andengineering whose qualifications are satisfactory to the Bank.

2.25 Auditing and Internal Control need to be substantially improved. Theauditing process at EBY is carried out internally, by its shareholders andexternally by independent auditors. The Internal Auditing Unit reports to theExecutive Committee. Audit procedures which have mainly dealt with theaccounting system and administrative procedures, require broadening to monitorperformance targets for the economic, financial, administrative and constructionareas. Internal control needs to be strengthened as some areas still requireadjustments. The strengthening of these activities would be included in the planof action of the management audit (para. 2.22).

2.26 As required by Argentine law for all Government-owned companies, EBYhas its financial statements audited by the Public Enterprises Comptroller(Sindicatura General de Empresas Publicas/SIGEP) which the Bank has found toperform effectively.I4J In the case of Paraguay, at present the auditing firmis Auditores y Consultores Asociados (AYCA), an independent audit firm acceptableto the Bank. Audit reports have been issued during the last few years withoutmajor observations and quarterly audit reports have been issued sinceSeptember 1991. During project execution, EBY would continue to engage theservices of independent auditors acceptable to the Bank and would present, inaccordance with terms of reference acceptable to the Bank, quarterly and withinfour months of the close of the fiscal year: (a) duly audited financialstatements; and (b) audits of the Environmental Trust Fund defined in para. 2.16[para. 3.01(1)].

13/ Includes coLmseling, general secretariat, public relations, and internal auditing.

JA/ SIGEP will become La Sindicatura General de ta Nacldn, in accordance to a proposed law, currentlyuider discussion in the Argentine Congress.

- 26 -

2.27 The insurance policy of the entity is based on a study performed byindependent consultants engaged under IDB Loan 346/90-RG. EBY has an insurancepolicy to cover all construction and erection risks for the main works up to amaximum of US$3 billion. Supplementary works are insured by the civil workscontractors until they are transferred to EBY. After the plant is commissioned,the insurance coverage will be modified accordingly.

2.28 Vast Financial Performance. Annex 2.6 provides a more detailedanalysis of EBY's finances. EBY has mainly financed its investments (US$3.4billion until December 31, 1991,) with loans from multilateral agencies (35W),foreign and local credits (23*), and Argentine Government loans (32%). Theremainder corresponds to arrears to contractors, consultants and suppliers (8*)and equity contributions from the Argentine Government (2%). Of the US$284million in arrears, US$194 million was owed to ERIDAY, the civil workscontractor, US$10 million to CIDY, the engineering consultant, and US$80 millionto suppliers. Part of the arrears to ERIDAY, CIDY, and the suppliers have beenpaid during the current year.L W Government made available to EBY some US$100million in addition to th0 1992 budgeted contribution. Given the importance ofbeing current on payments for a sound management, during negotiations theGovernment and EBY presented to the Bank a satisfactory agreement with EBY'smajor creditors to clear the arrears during the period 1992-1994 and agreed thatEBY would take all necessary measures to comply with such actions[para. 3.01(m)].

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

2.30 Future Financial Performance. The Government and EBY have taken somefinancial measures to secure the completion of the project and to lower the heavydebt service burden, such as: (a) the establishment of a flexible arrangement onrepayment of the Argentine Government loans: (b) the inclusion of part of theEBY's financial debt in the rescheduling of Government debt; (c) the waiver ofEBY's interest payments on existing Argentine Government loans (see Annex 2.1);(d) the continuation of the Government's servicing of the foreign and local debt;and (e) amortization of existing and new Government loans would be contingentupon EBY's availability of resources for this purpose, after commissioning of theplant. These measures have entailed significant relief to EBY's finances, thusallowing financing to be concentrated on the construction of the project.Additionally, the Government is committed to include its contributions forinvestment in the national budget proposals (para. 2.16).

2.31 EBY is financially sustainable in the long term. During the period1998-2011, net cash generation, after covering the decreasing service of the

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

- 27 -

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

Implementation and Monitoring

2.32 Imnlementation of the Yacyret& hydroplant is being done by EBY.Construction works of the power plant are being executed by the internationalconsortium ERIDAY, led by Impregilo-Dumez. The corresponding detailedengineering and supervision is done by CIDY, an international consortium led byHarza. Based upon recommendations of individual consultants engaged under termsof reference satisfactory to the Bank, EBY is adjusting the organization and workprogram of CIDY in order to improve project execution. EBY is also assisted bya group of international experts for the assessment of the overall technicaldevelopment of the project. The implementation of the transmission systemcomponent (Annex 2.3) will be handled by UNSTY (para. 2.7) which will be equippedwith a small grouip of experienced technical and financial staff. The design ofthe transmission system and the related bidding documents have been transferredfrom AyE to this unit. During negotiations, agreement was reached with theGovernment that the following targets will be achieved: (a) by November 30,1992, all contracts related to the acquisition of equipment, materials andconstruction/assembly services necessary for the construction of the Yacyret&-Resistencia transmission link will have been signed; and (b) by October 31, 1993,40t of this link will have been executed [para. 3.01(n)].

2.33 Infrastructure Renlacoment and ImPrqvement Works. The Treaty containsprovisions for which several infrastructure works for electricity, coastaltreatment, roads, railroads, ports, and an airport (to be partially or totallyaffected by the impounding of the reservoir) would be relocated or upgraded. Theoriginal feasibility study of the project contained a rather loose definition ofthese works, and because of the emphasis put lately on the design andconstruction of the main civil works contract, EBY has not produced detaileddesign and cost estimates, nor detailed schedules for their execution.Additionally, some of these works fa'll into provincial jurisdiction and requirethe signing of agreements with the provinces for their execution. EBY presenteda plan, satisfactory to the Bank, ensuring that the infrastructure works will beexecuted in a timely manner and at the least possible cost.

2.34 Some of the infrastructure works envisaged in the Treaty representmore than the equivalent replacement of the damage caused by the project, as isthe case for part of the railroads, ports, and the airport. Their inclusion inthe Treaty were concessions by the Argentine Government to Paraguay in theframework of the political negotiations which preceded the Treaty signing. TheAmendment Letter of January 9, 1992 set the basis for reviewing the inclusion ofsuch works under the responsibilities of EBY. During negotiations, Argentina andParaguay agreed that they will take all necessary actions, including the exchangeof Amendment Letters if appropriate, in order to ensure that EBY will only carryout and be financially responsible for the works derived directly from theinundation caused by the construction of Yacyret&. [para. 3.01(o)].

28 -

2.35 The Arrovos Protection Works. The power plant design includes alateral earth dam which would save about 40,000 ha of land in the Aguapey river(Arroyo Aguapey) valley, part of which could be potentially developed foragricultural use. The cost effectiveness of the design of this dam has beenquestioned both by the Bank and by the Panel of Independent Consultants. CIDYis currently reviewing the design with a view to reducing its cost. As theseworks (currently estimated to cost around US$120 million, see Annex 2.6) have animpact on the cost of completion of the full Yacyreta scheme, EBY agreed topresent to the Bank a satisfactory report with the conclusions of such study byJune 30, 1993 [para. 3.01(p)].

2.36 Electromechanical Ecuioment SunplV and Suoervisicn. The acquisition,manufacturing, installation and tests of about 15 packages of electromechanicalequipment makes che project completion schedule vulnerable to delays in any ofthe individual timetables for each of the packages. Acquisition andmanufacturing of transformers and, SF6 substation equipment, which have beendelayed because of lack of financing and definitions by the Government and EBY,are now in the critical path for the September 1994 target for plant start-up.EBY awarded the contract for the SF6 equipment by early August and expects toaward the transformer contract by early September. The timely execution of theseelements of the project requires careful supervision from CIDY. The reportprepared by individual consultants (para. 2.32) includes recommendationssatisfactory to the Bank to ensure that the supervision of the project by CIDYwould be done properly and in accordance with the project schedule.

2.37 Flooding Areas. The reservoir levels mentioned in paras. 2.5 and 2.8correspond to relocation levels in the areas of Encarnaci6n and Posadas, the mostheavily populated resettlement areas. Relocation levels are expected, normalwater levels at the area, plus 0.3m to 1.Om safety overheads to- cover for normalwind induced waves, which would ensure adequate safeguards for the affectedpopulation. The Parana river flow in the Posadas/Encart-i6n area, whichaverages 12,000 m3/s, may reach 44,000 m3/s with a probabil..t7- of occurrence ofonce in 50 years. Reservoir operation procedures would k.ep ievels at the damsite adequately depressed with respect to the Posadas/Encarr._c.6n levels, so asto ensure that the head draft provides for complete evacuation of water throughthe turbines and spillways, while the water levels at the Posadas/Encarnaci6narea would remain at all times not higher than the "natural" height for thecorresponding flow (the level reached by the river in the absence of the dam).The population is currently affected by flooding risks, because water levelshigher than 76m can occur during severe flooding conditions; in fact suchflooding may occur (and has occurred in the past) independently of theconstruction of the dam. To avoid the possible public perception that floodingsare attributable to dam construction, during negotiations, EBY agreed to: (a)not later than November 30, 1992, present to the Bank a satisfactory outline ofa media campaign to inform the public that severe floods due to natural riverconditions are not attributable to the dam construction and that during damoperation all measures will be taken to avoid flooding to the maximum possibleextent,using the controlling ability of the dam; and (b) put. this media campaigninto effect not later than March 31, 1993 (para. 3.01(q)].

- 29 -

2.38 Sedimentation Studies. Feasibility studies prepared in 1977 for thedam showed that solid discharge would be moderate and that silting of thereservoir would be very slow. Sediments in suspension and the bed loadaltogether were estimated at 20-30 million tons per year, while silting of thedam was estimated to occur not earlier than 50 years. However, thecharacteristics of the basin have changed lately because of deforestation,especially on the Brazilian side upstream of the Itaipu dam, and there areindications that sediment suspension in the river has increased substantially.Though most of the sediment brought by the Parana river is currently beingtrapped by Itaipu, the Bank believes that, to be on the safer side, suspensionsediment measurements and bed load estimates must be updated. For this reason,EBY presented satisfactory terms of reference for the updating of studies onsedimentation and estimate of the useful life of the reservoir and duringnegotiations, agreed to present to the Bank not later than April 30, 1993 aninterim report on the preliminary conclusions of the above study, and the finalresults of the study by January 31,'1994 [para. 3.01(r)].

2.39 Monitoring. The Bank will supervise the project execution, carryingout field missions at approximate 4 month intervals. In addition, it has beenagreed at negotiations that during the whole execution of the project, EBY willretain a consultant satisfactory to the Bank, to keep the Bank and EBY'sinternational creditors independently informed of the progress of the project andon any technical, financial, administrative or managerial problem, which couldaffect project implementation [para. 3.01(s)]. The progress reports will alsocover relevant physical aspects of the hydroplant, resettlement and environmentprotection operations, and transmission; spot potential problems; andrecommendations to address them. In addition, during appraisal, it was agreedthat EBY will contract an independent scientific research institution acceptableto the Bank to carry out an annual evaluation of the progress in theimplementation of the Action Plan for Resettlement and Environment Management byOctober 31, 1992 (see Annex 2.7, Attachment 3). The UNDP project on Argentineprivatization, for which the Bank is the executing agency, would meanwhilemonitor segments of sector transformation targets.

2.40 Notwithstanding the frequent supervision missions (para. 2.39), a mid-term review will be conducted by the Bank with EBY, URSTY, and the ArgentineGovernment aimed at a comprehensive assessment of the progress in carrying outthe project and of the performance of their respective obligations assumed underthe proposed loan and possible remedial actions to ensure the efficient executionof the project. During negotiations, it was agreed with Argentina and EBY toconduct such a mW term review not later than June 30, 1994, for which they wouldsubmit a report to the Bank at least one month prior to the review, containinga description of the activities carried out, compliance with the legal agreementsand, if by then Argentina and Paraguay have decided to raise the reservoir beyondlevel 78m (paras. 2.11 and 2.46), the proposed actions to implement it, includinga feasible financial plan and the revision of the Resettlement and EnvironmentalManagement programs [para. 3.01(t)].

2.41 Dam Safety and Insoection. EBY has taken adequate steps to ensurethat the dam,s safety aspects are duly considered. It has appointed a panel ofexperts, satisfactory to the Bank, which has reviewed the design of the dam, withparticular emphasis on safety aspects, and has included enough instrumentation

- 30

to ensure that the dam behavior is properly monitored. A monitoring programduring construction is being satisfactorily handled by CIDY. To ensure thatthese considerations continue to be properly taken care of, EBY presented to theBank a satisfactory program for assuming the direct responsibility for theinstrument monitoring of the dam, including staff training needs, and duringnegotiations agreed to continue seeking advice from the panel of experts and havethe dam inspected regularly by experts acceptable to the Bank during its usefullife in accordance with a program to be submitted to the Bank by January 1, 1993(para. 3.01(u)].

Resettlement and Environmental Management Programs

2.42 Resettlement. The reservoir created under the proposed project, whenit is impounded to elevation 78 m, will displace about 3,400 families (16,000persons) mainly in the cities of Posadas, Argentina and Encarnaci6n, Paraguay.Some 1,700 families (about 8,500 persons) have already been resettled. A revisedResettlement Program has been prepared by EBY, in collaboration with institutionsof the respective local governments and local nongovernmental organizations; ittakes into account lessons learned during the implementation of the initial plan(para. 1.42). To avoid premature disruption of people's lives, the resettlementoperation will be carried out so that people are required to move only six monthsprior to inundation. When and if the reservoir is eventually filled to itsdesign level of 83m another 5,600 families (about 26,000 persons) will beresettled.

2.43 Annex 2.7, Attachment 1 describes the Resettlement Program. Duringappraisal, its implementation schedule was carefully reviewed and the Banktechnical assistance for the design and preparatory work required for theimplei.,entation of the program was agreed upon. This technical assistance willsupport: strengthening the EBY's Department of Resettlement and Environment;strengthening local government institutions that are responsible for aspects ofthe program; detailed soil studies in rural resettlement; design studies for therelocation of ceramics factories; and training local government and nongovernmentpersonnel working on the resettlement program. The Resettlement Program is basedon the following major features:

(a) the affected population is defined as all persons who lose their home,means of livelihood or both as a result of the construction of theYac-ret& civil works, whether or not they are owners of the home orland expropriated by the project, and who were identified as affectedin the resettlement census conducted by the project in 1989-1990;

(b) other families taking up residence in the zone to be affected by theYacyreta civil works after the resettlement census of 1989-1990 arenot covered under the Action Plan for Resettlement, but will beresettled by their respective local government with assistance fromEBY in a form acceptable to the Bank;

- 31 -

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

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

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

During nt-3otiations, EBY agreed to implement the Resettlement Program (Annex2.7, Attachment 1) according to the execution timetable indicated in Annex 2.7,Attachment 3 in a manner satisfactory to the Bank [para. 3.01(v)].

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

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

WJ The EA Sumary was circulated to the EDs on May 21, 1992.

- 32 -

wildlands (natural grasslands, freshwater marshes and other wetlands, andriverine forest). Approximately 38,000 ha are in Paraguay and 14,000 are inArgentina. During appraisal, Bank support for the implementation of the EMP wasagreed. The Bank will support detailed design studies for the manageme.\t of theprotected areas created under the project, detailed design studies for watersupply, sewerage and sanitation systems for the cities of Posadas andEncarnaci6n, detailed design studies for reservoir water release management,monitoring of disease vectors, and studies of fish adaptation to new aquaticconditions. During negotiations, EBY agreed to implement the EnvironmentManagement Program (Annex 2.7, Attachment 2) according to the execution timetableindicated in Annex 2.7, Attachment 3, in a manner satisfactory to the Bank(para. 3.01(v)]. At full de'velopment, the reservoir may be raised to EL 83mbeyond the timeframe of the proposed project. At that point, the reservoir willbe roughly 250 km long, with a surface area of approximately 165,000 ha (1,650km2), out of which 107,600 ha will correspond to land to be inundated. Of thetotal flooded area, about 78,200 ha will be in Paraguay and 29,400 ha wi.ll be inArgentina. The great majority of the area to be inundated is sparsely-populatedwildlands.

2.46 If, by the first semester of 1994, the Governments of Argentina andParaguay have made the decision to operate the reservoir above elevation 78m, theREMP will be revised accordingly with EBY during the mid-term review (para.2.40), or later (depending on the timing of such a decision) during thesupervision of the project. Whatever the timing, a satisfactory revision of theREMP and an adequate financing plan to carry it out are conditions for the Bank'sendorsement of the docision to raise the reservoir above elevation 78m [para.3.01(t)]. Bank's approval of the actual rise of the reservoir will be subjectto a fully satisfactory completion of the revised REMP. Deposits into theEnvironmental Trust Fund (para. 2.16) would be maintained as necessary to ensurefull financing of the revised REMP.

Procurement and Disbursement

2.47 Procurement. Proceeds from the loan would be applied to finance: (a)ongoing contracts for the execution of the Yacyret& project procured underLoan 1761-AR, as follows: (i) the major civil works contract which was awardedthrough ICS procedures in accordance with Bank procurement guidelines; and(ii) the contract for engineering services which was awarded in accordance withBank guidelines for the use of consultants; and (b) contracts which will beawarded in accordance with Bank guidelines for consulting services for the:(i) implementation of the transmission system; (ii) implementation of Yacyreta'sResettlement and Environmental Management programs; and (iii) feasibility studyof the private capital participation in EBY. The Bank will require priorapproval of contra:ts for consulting services. Procurement of goods and servicesnot financed with proceeds from the loan would be procured through a variety ofprocurement methods, depending on the origin of the corresponding financing. Thefollowing table summarizes procurement arrangements for the project:

- 33 -

Procurement Method a/(Million of current US Dollars)

Project Elements ICB b/ OTHER c/ NBF d/ TOTAL COST

1. Works

1.1 Major Civil Works for the Hydroplant 418.9 418.9(252.5) (252.5)

1.2 Civil Works for the Arroyos Protection 15.3 1S.3. .. . ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~.) _-

1.3 Installation and Assembty of the 56.6 56.6Transmission System (-) (-)

1.4 Infrastructure Relocation 53.8 53.8

2. Goods

2.1 Electromechanical Equipment for the 661.6 661.6Hydroplant _ _) C-)

2.2 Equipment and Materials for the 62.6 62.6Transmission System _ t-) t-)

3. Consultancies

3.1 Engineering for the Hydroplant 45.1 45.1(37.0) (37.0)

3.2 Engineering for the Transmission System 1.0 °.0____ ____ ____ ____ ___ ____ ____ ____ ____ ___ ___ ____ ____ _ ( .0 ) __ _ _ _ _ _ _( 1.0 )

3.3 Technical Assistance for:

a) Resettlement and Environmental 9.0 9.0Management Program (9.0) (9.0)

b) Privatization Study 0.5 o.r l(0.5) (0.5)

TOTAL 41d.8 55.6 848.9 1324.4(232.5) (47.5) (-) (300.0)e/

IV Figures in parentheses are amounts finarced by the Bank loan.kI ICS: International Coqmetitive Bidding; this contract is already under execution.g/ According to the Bank guidelines for use of consultants in the case of Bank financing; contract for

hydroplant engineering is already under execution.gy NBF = Not Bank Financed; includes international shopping, direct contracting and acquisition under

international bidding with financing from suppliers or specific countries offering bilateral financing.p/ Total project cost exceeds the total cost of procured elements by the sun of: (a) cost of EBY's own

administration and supervision expenditures (US$89.0 million); and (b) land acquisition andindemnificat½on (US$74.9 million).

- 34 -

2.48 Disbursement. The bulk of the proposed loan is expected to bedisbursed over a period of three years; however, the technical assistancecomponent would take three additional years to be fully disbursed (seeAnnex 2.8). The disbursement schedule does not follow the Bank's standardprofile as it reflects completion of the execution of an ongoing project. Theproceeds would be applied to finance:

(a) 100W of expenditures on the major civil works contract for theYacyreta hydroplant, up to a cumulative withdrawal of US$130 millionand 57% thereafter up to US$252.5 million;

(b) 100% of %.he expenditures on the engineering contract for the Yacyretahydroplant (up to US$37 million); and

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

2.49 The remaining expenditures on the contract of item (a) above would befinanced with Government loans. IDB has agreed to finance a portion of theResettlement and Environment Management programs (paras. 2.42-2.46). The closingdate would be December 31, 1998.

2.50 In order to improve the timeliness of disbursements and theavailability of funds for the project, the Bank would make an advance paymentfrom the loan account into a Special Account, to be opened and maintained by theGovernment in US dollars in a bank acceptable to the Bank. The funds would beused to reimburse EBY and UNSTY for the Bank's share of the project cost, as wellas to reflect direct payments in foreign currencies. The total amount in theSpecial Account (about US$20.0 million equivalent) would not exceed an amountthat is about four months of estimated average disbursements for the project.Replenishment of the Special Account would be made in accordance with standardBank procedures. Documentation would be retained by the Borrower and would bemade available for periodic inspection by Bank staff. Statements of Expenditurewould be used for all eligible expenditures made for the technical assistanceunder contracts not exceeding US$30,000. During negotiations, the Governmentagreed to engage the services of independent auditors acceptable to the Bank andpresent, in accordance with terms of reference acceptable to the Bank, audits ofthe bpecial account quarterly and within fout- months of the close of the fiscalyear (3.01(h)].

2.51 The Government has requested, and the Bank agreed to accept, thatexpenditures made by EBY for execution of civil works and engineering servicesunder their approved contracts due for payment from January 1st, 1992 untilsigning of the proposed loan be eligible for financing with proceeds from theproposed loan, provided: (a) no payments will have been made in respect to suchexpenditures at the time the respective disbursements under the proposed loan are

- 35 -

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

C. Economic Justification

2.52 Position of Yacvreta in the Least Cost Exnansion. The proposedproject is part of the least cost power generation expansion program for theperiod 1992 to 2000 (para. 1.22). Completion of Yacyret& e.s now envisaged withinitial reservoir operation at reduced elevation (para. 2.5) represents the leastcost solution under both the High and Low Demand scenarios (Annex 2.9). Thedefinition of reservoir levels 76m and 78m for the project was made on the basisof an economic optimization which considered trade-offs of foregone energyproduction versus delaying of relocation costs. The study conducted by CIDY(Annex 2.2, Attachment 6) also showed that ultimate raising of the reservoirlevel to 83m was more economical than permanent operation at levels 76m or 78m,or any intermediate level between 78m and 83m.

2.53 Economic Rate of Return (Annex 2.9). Because the high proportion ofinvestments already made in Yacyreta are considered sunk costs in its economicevaluation, the ERRs under a wide set of assumptions are sufficiently high toensure that Yacyret& is economically feasible, even under very unfavorablecircumstances. The severe assumption reflected by the project definition is thatYacyreta would be limited to only six units operating at the maximum reservoirlevel of 78m. The rate of return of the proposed project was estimated as thediscount rate which equalizes the present value of economic net cost and benefitstreams associated with the project. Two different approaches were used toestimate costs and benefits, as follows:

(a) SUoolV at the Grid Level. The project contribution to the NIS wasconsidered. The economic net cost includes the capital investment ingeneration for the completion of the project and in the transmissionexpansion to avail its energy to the grid under satisfactoryreliability conditions. Operation and maintenance costs during theuseful life of the project are also considered; investments since thestart of the Yacyreta plant construction until 1991 are treated assunk costs. Costs for resettlement and infrastructure relocation aswell as for environmental mitigation measures are internalized in theproject investments. The benefits are estimated as the energygeneration provided to the grid at the estimated LRMC of US$45/MWh.The resulting ERR for this base case is 13*.

(b) Final User. The project contribution at distribution level was alsoevaluated. The economic net cost includes, in addition to the costsmentioned in (a), those of the distribution facilities, %itich wouldmake possible the sales of the project energy production. Benefitsfor this case were assumed to be the revenues from energy salesexpected from the project at the estimated avterage rate to the finalconsumer of US$ 85/MWh. These revenues can be considered a lowerbound for the consumer's willingness to pay. The resulting rate ofreturn for this base case is 17W.

- 36

The project energy is totally absorbed by both High and Low Demand scenarios(Annex 1.4) as they are made available to the grid. Therefore there will be nochanges in the ERR's indicated above in the case of the Low Demand scenario.

2.54 The Ultimate Yacvreta Configuration. For the purpose of economicanalysis, the proposed project should also be examined under the broader approachof full completion of the Yacyreta scheme, as this is the most likely case. Thismeans installation of units 14 to 20 and operation of the reservoir at elevation83m (para. 2.11). As shown in Annex 2.9 the ERRs would be the following: (a)supply at the grid level: 24W; and (b) final user: 28*.

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

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

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

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

D. Risk.

2.57 The major risks facing the Project would be (a) unavailability ofsufficient funds or supply of electromechanical equipment at the time requiredfor proper execution of the works, mainly due to: (i) untimely contribution fromGovernment for payment of the contractors; and (ii) delays in the negotiationwith suppliers (or export credit agencies) for financing of electrical equipmentthat remains to be contracted out; (b) failure to implement satisfactorily theResettlement and Environmental Management programs; and (c) failure to implement

i/ Investment cost of US$700/kW, 30 year useful life, 12% discount rate, fueL cost or USS2.50/millionBTU, 45% global efficiency and 70% ptant factor.

JO/ i.e. The present value of fuel cost for additional thermal generation due to one year delay ofYacyreta would be US$347 million (12% OCC and US#2.50/million BTU for natural gas) as compared withUS$157 million represented by the benefits of postponing investments (no economic penalties havebeen considered for consWruction changes).

- 37 -

the transmission system in a timely manner. To help minimize these risks, theBank has: (a) reached agreement with Government for providing EBY with a regularflow of money for its continuation of the civil works and other essentialactivities; (b) linked loan disbursement to achievement of physical project goalsand financial measures; (c) obtained assurance of competent management in EBY;(d) assured EBY of technical assistance for all preparatory work required for aproper implementation of the Resettlement and Environmental Management programs,including design work and training; and (e) assured UESTY of managerial technicalassistance for execution of the transmission system.

3. AGREEMENTS REACHBD AND RECOMMENDATION

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

(a) the Borrower will only authorize or undertake the construction ofmajor public power generation or transmission projects that meet theleast-cost expansion criteria and have adequate financing (para.1.17);

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

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

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

(e) the Borrower will cover any insufficiency of funds identified in thereviews of the financing plans of the Project (para. 2.16);

(f) the Borrower will include the required Borrower' s contributions to EBYinvestment and debt service, and to UESTY investment in the period1992-1995 in the Bor:ower's proposals for the national budget (para.2.16);

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

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

-38-

(i) by November 1, 1994, EBY will establish and, thereafter, maintain anEnvironmental Trust Fund, on terms and conditions satisfactory to theBank, by depossiting therein the amounts necessary to finance in atimely manner all activities under the Resettlement and EnvironmentalManagement Programs (REBP) and for the Arroyos protection works, suchamounts to be derived from the sale of electricity or any other sourceand be at least US$18.3 million in 1995, US$60.9 million in 1996,US$101.6 million in 1997, and US$20.7 million 1998; withdrawals fromsuch account would be made exclusively to finance these activities(para. 2.16);

(j) EBY will take in a timely manner all necessary actions to improve itsadministrative and managerial efficiency; such actions to be based onthe recommendations of the management audit study carried out by EBY(para. 2.22);

(k) EBY will: (i) by March 31st, 1993, hire consultants satisfactory tothe Bank for studying the feasibility of private capital participationin EBY (management contract or ownership); (ii) by August 31, 1993furnish to the Bank the recommendations of the study for comments;(iii) by November 30, 1993 furnish to the Borrower, Paraguay and theBank a plan of action for carrying out the recommendations agreed uponby these parties, and (iv) promptly thereafter, start the carrying outof this plan of action in a timely manner. The Borrower and Paraguaywill: (v) by October 31, 1993, exchange views with the Bank on thestudy recommendations referred to in (ii); and (vi) promptly take allactions necessary to enable EBY to carry out the plan of actionreferred to in (iii) (para. 2.22).

(1) EBY will continue hiring independent auditors acceptable to the Bank,in accordance with terms of reference acceptable to the Bank, whichwould present quarterly and within four months of the close of thefiscal year: (i) duly audited financial statements; and (ii) auditsof the Environmental Trust Fund (para. 2.26);

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

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

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

- 39- 4

that EBY will only carry out and be financially responsible for theworks derived directly from the inu-idation caused by the constructionof Yacyreta (para. 2.34);

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

(q) by November 30, 1992, EBY should present to the Bank a satisfactoryoutline of a media campaign to inform the public that severe floodsdue to natural river conditions are not attributable to the damconstruction and that during dam operation all measures will be takento avoid flooding to the maximum possible extent, using thecontrolling ability of the dam; and such media campaign should be ineffect not later than March 31, 1993 (para. 2.37);

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

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

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

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

(v) EBY will implement the Resettlement and Environmental ManagementPrograms according to the execution timetable shown in Annex 2.7;Attachment 3, in a manner satisfactory to the Bank (paras. 2.43 and2.45); and

- 40 -

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

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

3.2 As a condition of effectiveness, a subsidiary loan agreement betweenEBY and the Borrower for the transfer of US$299 million, and an arrangementbetween the Borrower, represented by the SE, and UBSTY for the use of theremaining US$1 million of the loan, satisfactory to the Bank, should have beenexecuted (para. 2.24).

3.3 With the above agreements the project would constitute a suitablebasis for a Bank loan to the Argentine Republic of US$300 million equivalent,under applicable terms and conditions for Argentina.

31U1/V66T '9 'q,j........................................................................................................................

S1NJ3NNUO9 N9IIMic

hnSnJfl

0? pnOa*ueSa7

I .....................................................................................................................

AN3UHE3009 IV3Iholno

V83S3 )383

III UUJ jIUAJ !I1O1 O uI@lU?A@

,qpo Ao

WHOM IUNOUVN

hUB oIu o I to^Ja IUu^Ja Io^

VIL

I~~~~S111h I Imi on}Ol

S@~ol. WOvA s@lu I I GI

. ............I. L.......... ...* ................. ...........Lto lE I;woumn

_______ IiOmaIIOUIAHVWV

0X

4 ''7 ,n jo I .0.s SIZ191; t,H I IO|l}, IN 117 L7;:i L

tO8U~ ~ ~~SI NDMU UO}X ADM *.

II XZNN Mia,m i I

Page 1 of 4

ARGENTIN

YACYRUTA II PROJECT

The New Recrulatorv Framework

Backaround

1. A new regulatory framework is defined by the law #24065, "Generation,Transmission and Distribution of Electricity Law", enacted on January 3, 1992,and by the Resolution #038 issued by the SE in July 13, 1991, which is fullycompatible with the law. Law #24065 aims at:

(a) setting the rules of the game for the Government, power utilities,and customers in the power sector, including pricing policies andparticipation of private investors in sector; and

(b) creating a regulatory body to control the compliance with theregulations.

2. The main objectives of the law are to:

(a) protect the rights of the customers;(b) promote competitiveness of the generation market by allowing free

entry and encourage new investments to ensure power supply in thelong-term;

(c) regulate the operation and ensure fair access to generation,transmission, and distribution power facilities;

(d) ensure that electricity rates are reasonably set and provide signalsto consumers that are based on minimum cost criteria;

(e) foster participation of private investor in the generation,transmission, and distribution activities ensuring thecompetitiveness of the market, where possible.

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

(a) set the physical organization of the bulk sale power market;(b) define the operational rules of the power utilities that sell energy

to the National Dispatch Center (DC) through the NationalInterconnected System (NIS); and

(c) set the methodology to calculate electricity prices among producers,transmitters and distributors.

The Power Market

4. The power market is composed of: (a) the bulk sale marketparticipating producers (generation companies), transmitters (transmissioncompanies) and distributors of electricity (buyers). In this market would alsoparticipate industrial or individual customers with a minimum demand to beregulated by the regulatory body; and (b) final customer market composed bydistributors (sellers) and their final customers. Producers may freely negotiatesupply contracts with distributors and large industrial customers. Thedistributors are entitled to seek the means to satisfy the power demand in their

Page 2 of 4

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

Reaulatorv Body

5. The Board of the Regulatory Body will have five members: a President,a Vice president, and three directors. They will be appointed by the Government(based on proposals made by the CFE for two of them and by the SE for the

remaining three) with the agreement of a Special Congress Commission (SCC). Themembers will be nominated for a five-year term, subject to renewal and should befully dedicated to their functions. These members can not be ousted by theGovernment without a strong justification to be endorsed by the SCC. The Boardwill report to the SE for administrative purpose.

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

(a) supervise and Lontrol the compliance with the law, with itsregulation and with the concession agreement by the power utilities;

(b) avoid monopoly actions among producers, transmitters,distributors and customers;

(c) define service responsibilities and enact power sector rulesregarding: technical standards, safety operation of the powersystem, procedures for consumption measuring and billing, connectionand re-connection of supply, and quality of service;

(d) issue the general principles to be included in the contracts betweentransmitters and distributors to ensure the free entry to themarket;

(e) set the bases for the calculation of electricity price to beincluded in the contract between transmitters and distributors;

(f) set the bases for granting concession for the private sector withdefined service responsibilities and cancellation provisions by poorservice or other violation of the law and regulations; and

(g) supervise the compliance with environmental and safety policies inthe construction and operation of power generation, transmission anddistribution systems.

7. A supervisory and control rate will be charged to producers,transmitter and distributors to finance the annual budget of the Regulatory Body.The Board should prepare an annual budget, after consultation with thetransmitters and distributors, for inclusion in the Government' s budget proposalto the Congress.

The National Disnatch Center (DC)

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

Page 3 of 4

(a) allowing the execution of freely negotiated contracts betweenproducers, bulk customers and distributors, except for thebinational utilities;

(b) dispatching the required energy stated in the contracts, inaccordance to Resolution #038 which sets rules of economic dispatchof energy and demand transactions based on the minimum economic costfor the power system, including the cost of non-served energy.

Electricity Prices

9. The Government policy on electricity pricing is in line with theoverall country policy of letting market forces establish prices of goods andservices. Resolution #038 established a new methodology to set commercializationprices o' the bulk sales market, managed by the DC, which has been confirmed bythe new law. The bulk sales market is composed of: a free market, in whichprivate producers and major consumers (distributors and large industrialcustomers) can freely negotiate the price of supply, and a spot market, in whichthe energy not committed in the free marker is sold at the short-term marginalcost including a margin for the estimated non-served energy. This methodologyentails independence from political decision-makers, and fosters theparticipation of private investors in the power sector. The concession contractto transmitters and distributors will include an electricity price agreement thatwill be revised and adjusted each five (5) years. A reference price to be paidby the distributors will be dete_mined each semester.

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

Unigied Power Enerov Fucd

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

National Power Enerav Fund

12. A surcharge of three pesos (about US$3) per Nwh over the basic pricepaid by distributors and large industrial customers will go into a national powerenergy fund, 60t of which will be used as compensation pricing mechanism toregional final customers, while the remaining 40 will fund investment programsof the national utilities. This fund will be administered by the CFE. The SEis entitled to adjust the surcharge up to a maximum of 20V following the economic

Page 4 of 4

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

The Functions of the SE

13. In line with the power sector reform, the SE should concentrate onindicative power planning, grant of hydro concession, coordination of the DC, andsetting of the overall country power energy policies. A plan for adjusting theSE to the roles defined in the recently approved regulatory framework is underexecution. SE is preparing a new organization scheme, staffing, and jobdescription of its activities.

The Functions of the CFE

14. The Federal Electricity Council (CFE) is composed by representativesof the SE, the national utilities and provincial authorities. The CFE isresponsible for:

(a) advising the National and provincial governments on all subjectsrelated to the power sector, including investment priorities,concessions and electricity prices;

(b) coordinating power sector planning and submitting it to governmentIsapproval;

(c) proposing modification to the Electricity Law; and(d) administering the National Power Energy Fund.

selated Laws

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

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

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

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

(d) Presidential Decree #634. issued on Asril 12. 1991: Its provisionsaim at carrying out a privatization program for AyE's and SEGBA'sthermal generation.

(e) MB Resolution #1185. enacted in 1983: Governs those provincialutilities not directly connected with the NIS and the cooperativessupplied by AyE.

Page 1 of 3

ARGBXNUNYACYRETA II PROJECT

Demand Projections

Backciround

1. The national electricity demand is distributed unevenly among the nineelectrical regions: Northwest, Northeast, Central, Coast, Cuyo, Buenos AiresMetropolitan area, Buenos Aires Province, Comahue and Patagonia. The BuenosAires metropolitan area and the Buenos Aires province, being the most activeareas of the country economically, concentrate most of the demand, though afew electricity intensive industries elsewhere account for 231 of the publicservice industrial consumption or 101 of the total public service consumption.The Buenos Aires metropolitan area accounts for 351 of the national populationand'36V of the electricity consumption. The Coast and the Buenos AiresProvince areas represent another 261 of the population and also 261 ofconsumption. The national per capita electricity consumption reached 1,290kWh in 1991 and the electricity coverage (percentage of population with accessto electricity) reached 94* in urban areas and 441 in rural areas for anational average of 871. Per capita consumption is expected to raise in theperiod 1992-2000, e.g. per household residential consumption which was about1500 kWh/year in 1991, is expected to increase to about 1800 kWh/year in 2000.

Historical Consumotion

2. Electricity demand is supplied by public service and auto producers,whose participation in the total country consumption has decreased from 251 in1970 to 81 in 1991. Attachment 1 shows historic consumption by class ofconsumers. It can be noted that consumption growth has been uneven in thelast twenty years, reflecting the economic difficulties experienced by thecountry: 6.11 p.a. for 1970-1980; 1.81 p.a. for 1980-1985 and 2.41 p.a. for1985-1990. A reasonably high growth of 4.11 took place in 1990 due to theeconomic reactivation. Participation of the different classes of consumers inthe total consumption has steadily changed since 1970; e.g. industrialconsumption, which accounted for 36* of public consumption in 1970 reached 491in 1991. Conversely, residential consumption participation has decreased from361 to 29* in the same period.

Demand Projection Procedures and Methodoloaies

3. Electricity demand projections have been under the responsibility of theSE. They are prepared by an ad-hoc group with representation of the nationalutilities. Statistical data is provided by the utilities. Economic historicdata and forecast are provided by the ME. Demand projections are estimated onthe basis of a constant income elasticity econometric model, with sub-modelsfor the residential, commercial, and industrial sectors. Each submodelincludes sectoral income and an autonomous parameter as explanatory variables.Industrial consumption is forecast by considering the general industrialcompensation which is correlated to industrial income, and the large

Page 2 of 3

electro-intensive industries --such as aluminum smeltus-- whose consumption isdetermined on the basis of their individual expansion programs. Consistencychecks are made by correlation between the total consumption growth dnd theGDP growth.

4. Although the growth rates of the economy and electricity sales havefollowed similar trends, the spread between the electricity sales growth rateand the GDP growth rate was 5.2W p.a. in the 1970s and 3.8% p.a. in the 1980s.Implicit income elasticity to electric consumption in the model (2.55) ishigher than the observed in other LAC countries (Brasil: 1.70; Colombia: 1.71;Chile 1.27; Mexico: 1.50; Uruguay: 1.60). To evaluate the consistency of themodel the SE investigated the causes of such discrepancies by an analysis ofthe GDP as measured by the BCRA (Banco Central de la Republica Argentina) andthe informal GDP as estimated by an independent economist'. Results show thatthe income (official plus parallel) elasticity to total electric consumptionwould be 1.75, a reasonable value.

S. Different attempts have been made to include price elasticity in themodel, but inferences regarding price elasticity have laci statisticalsignificance mainly because electricity has been underpriced for long periodsof time and the distortion to the price signal introduced by high inflationperiods. Despite the above, this Annex presents estimates of the possibleeffect of tariff adjustments still to be made on the residential consumptionbased on the appraisal mission's assumptions. For this purpose, priceelasticity was assumed to vary between -0.15 and -0.20, on the basis offoreign experience. A detailed description of the model is available in theProject File.

1992-2000 Demand Prolections

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

(a) The High Deman scenario is based on the SE current projection,which assumes an average GDP growth of 3.6* p.a. in the period 1992-2000, but corrected to include the appraisal mission's estimate for thereduction of residential consumption due to price increase. The priceelasticity assumed for this scenario was -0.15, while a 15% priceincrease in real terms was considered in the period 1992-1995.(Residential tariffs currently amount to about 87% of LRMC on average)No price elasticity correction was applied to other classes of consumersas extrapolating price elasticity to productive consumption isquestionable and also because their current prices are already close toLRNC.

Guissarri, A, "La Argentina Informal", EMECE Editions, 1989.

Page 3 of 3

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

7. National energy demand projections (public service plus auto producers)under both scenarios are shown in Attachments 1 and 2. The High Demanscenario results in an average energy demand growth of 6.6* or 3.O0 over theGDP growth. The ow Demand scenario results in an average energy growth of5.40 p.a. or 2.9* over the GDP growth. The residential consumption is shownin the tables with and without the correction made by the appraisal mission toreflect assumed response from the consumer to price adjustments.

VACISETAI PFT

OEMAD PRAJECTOlM)AND ROWa HW RESTOTAL CCUNIRY CONSUMPTIIO- IG DEMAD SCENAIW

Amwl I Aslddh (3 j Ciurc | | dso Tal PuiI Suds() upI mmti Totl |

Y Vail doalall I PAldTa ali I UoImaII dkTdSai I obtn I diaubl Iid3 NI& *uII ITCoa I om QmMl om Pa I wv4 ca IPWO. I GTv6 I'm Ivw Ia'mI IotINaWh )t zw m CTW c- flb (Gwh[!m C- &-,A Iz Gem Il 4IPTWOL ft"'m co IGV,h-t* f

1970 4985 27.0 4995 2.0 1832 9.9 4833 26.7 2038 11.0 13799 74.7 4678 25.3 184771975 68S1 26.5 5. ml 20 5.6 2232 89 4.0 8885 35.6 125 2680 10.7 5.6 20416 01.8 82 4552 18.2 4.5 24970 62 2.91980 UB 26.6 6.0 a862 266 6.0 3150 9.4 7.1 13054 41.6 9.3 3587 10. 6.0 29453 88.4 7.6 38 11.6 4.1 33336 5.9 2.31981 6959 27.5 1.1 359 27.5 1.1 3242 9 .9 13277 40.7 *4.2 3638 11.2 1.4 29117 89.3 -1.1 3478 10.7 -10.4 32595 22 461982 86s3 26.0 -3.6 6638 26.0 -3.6 3091 93 4.7 14189 4Z7 09 3748 11.3 ao 29666 69.3 1.9 3567 10.7 26 33233 20 4.91983 9020 25.5 4.4 9020 25.5 4.4 330 9.3 7.0 15277 432 7.7 3943 11.1 52 31546 89.1 6.3 386 10.9 7.8 35392 65 a01984 9578 25.8 6.2 9578 25.0 62 3568 9.6 7.9 15838 42.7 3.7 4112 11.1 4.3 33093 89.3 4.9 3976 10.7 34 37071 4.7 z21985 9732 267 1.6 9732 2.7 1.8 3538 9.7 -0.8 15476 42.4 -z3 4095 11.2 4.4 32841 9.0 -0.8 3667 10.0 .7.8 36S50 -1.5 -4.31986 1054J 26.7 .3 10540 26.7 .3 3665 9.3 36 16985 43. 9.8 4450 11.3 8.7 35640 90.4 5 3a79 9.6 34 39431 8.0 5.6196? 11771 28.1 11.7 11771 201t 11.7 3754 8.9 Z4 18174 433 7.0 4697 11.2 5.6 38396 91.5 7.7 3557 8.5 .2 41953 6.4 2.21908 11130 26.5 *5.4 11130 26.5 -. 4 3506 84 46 18916 45.1 4.1 4039 11.5 3.0 38391 91.5 -0.0 3575 8.5 0.5 41966 0.0 -271989 105t7 26.3 50 10579 26.3 50 3280 82 44 17643 439 46.7 4650 11.6 .37 36160 E9.9 -4.6 4071 10.1 13S 40231 4.1 4.6199 10656 26.3 0.7 10656 26.3 0.7 3303 82 0.7 17743 43.8 0.6 4693 11.6 0.8 36397 89.9 0.7 4084 10. 03 40481 0.6 -1.31981 11338 26.9 6.4 11338 26.9 64 3515 83 6.4 1899 44.9 6.6 4992 11.8 6.4 38754 20 6.5 3383 8.0 -172 42137 4.1 SD

1992 1i161 25.9 4.6 11761 26.7 37 W767 85 7.2 20123 45.6 6.4 5008 11.4 0.3 40659 92.2 4.9 3449 7.8 Zo 44108 4.7 261993 12471 2a4 5.1 12271 260 4.3 4098 6. 8.8 21883 46.4 67 5268 11.2 .2 43518 92.3 7.0 3636 7.7 5.4 47154 69 3o1994 13087 25.8 4.9 12837 25.3 4.6 4441 8a .4 24001 47.1 9.7 5526 10.9 4.9 460 92.4 7.6 3839 7.6 5.6 50644 7.4 3.51995 13723 25.4 k.9 13423 24.8 4.0 4801 69 8. 26035 48.1 5 5s79 10.7 4.9 50054 s2.5 6.9 4063 7.5 5.6 54117 6.9 371996 14384 24.9 4.8 14034 24.3 4.6 5 79 9.0 7.9 28232 46s 84 6074 10.5 4.8 53519 9z6 6.9 4302 7.4 5.9 5762 6.8 31997 15073 24.4 4.8 14673 23.7 4.6 5578 9.0 7.7 30691 49.6 87 6365 10.3 4.8 57307 92.6 7.1 4563 7.4 6. 61870 7.0 3.a1998 15725 239 4* 15275 232 4.1 5973 9.1 7.1 33140 50.3 8o 6640 10.1 4.3 61028 92.6 6.5 4845 7.4 62 65873 6.5 391999 16403 234 4.3 15903 22.7 4.1 6390 9.1 7.0 35788 51.0 0o 6927 9.9 4.3 65008 92.7 .5 5151 7.3 63 70159 6.S 4.0200 171t7 22.9 4.3 16557 22 4.1 6825 9.1 (.6 38626 51.7 7.9 7224 9.7 4.3 6922 92.7 6.5 5478 7.3 6.3 74710 6.5 4.0

190IMi Adad Dw. I99=oo Pa4sdhd(1) VA8otd Pd. Ad e OhM

" WM nr l Ebd o

0W..~~~~~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ PM.

J3) CauIdulng Puloe B IlS, tar ldR I Canuwmm

Fuu DEM40OKW(

ft 1n-

ARBEHYACYIETA 1 PROJECT

OEMAND PROJECTION AND GROWIH RATESTOTAL COUNTfY CONSUMPTON -LOW DEMAD SCENARIO

- sidential ) | RI side Xn_i Comnunciu duisral CUier Total Pubic S5i e3) Auto Producets Totl Co I GOPcans . | Perc. Irm I _ I PercI G*hi Pn I <3t h I Con. I Pa GN1 CowT. I Peam Gtln. Penc.T GfoI olTo C etc Glaowlh II h GllWthLOW?~~~o TOW ofTOWo ? of?OW TOW? O T of? TOW(GWh) I CS) I pw%) I t% I (aft) 1__ fl6 (GM-) I M) 1b (GMb) I (IN fM I (af) Ils N I (G-Wh) I% m I m (GWh) I1 ^

1970 4995 27.0 4995 27.0 1832 9.9 4933 26.7 2039 11.0 13799 74.7 4678 25.3 184771975 6621 26.5 s8 o62t 26.5 5.8 2232 6.9 4.0 68 35.6 12.5 2680 10.7 5.6 20418 81.8 8.2 4552 18.2 40.5 24970 6.2 z91980 6662 26.6 6. O862 26.6 6o 3150 94 7.1 13854 41.6 9.3 3567 10.8 6.0 29453 88.4 7.6 3883 11.6 43.1 33336 5.9 2.31961 0959 27.5 1.1 8959 27.5 1.1 3242 9.9 2.9 1327? 40.7 -4.2 3839 112 1.4 29117 89.3 -1.1 3478 10.7 -10.4 32595 -2.2 4.61982 N63 26.0 -3. 863 26.0 3.6 3091 9.3 4.7 14189 42.7 6.9 3746 11.3 3.0 29666 89.3 1.9 3567 10.7 Z6 33233 2.0 -4.91983 9020 z5. 4.4 9020 25.5 4.4 3306 9.3 7.0 15277 43.2 7.7 3943 11.1 5.2 31546 69.1 6.3 3846 10.9 7.8 35392 6.5 3.01964 9576 25.8 6.2 9578 25.8 6.2 3566 9.8 7.9 1S836 42.7 3.7 4112 11.1 4.3 33093 69.3 4.9 3978 10.7 3.4 37071 4.7 261985 9732 26.7 1.6 9732 26.7 1.6 3538 9.7 -0.6 15476 42.4 *Z3 4095 11.2 40.4 32841 90.0 0.8 3667 10.0 *7.8 36506 -1s 4.3198 10540 26.7 8.3 10540 26.7 6.3 3665 9.3 36 16985 43.1 9.8 4450 11.3 6.7 35640 90.4 8.5 3791 9.6 3.4 39431 6.0 5.61987 11771 26.1 11.7 11771 26.1 11.7 3754 8.9 24 18174 43.3 7.0 4697 112 5.6 38396 91.5 7.7 3557 6.S *6.2 41953 6.4 Z21986 11130 26.5 -5.4 11130 26.5 4.4 3506 6.4 48. 18916 45.1 4.1 483s 11.5 3.0 38391 91.5 -0.0 3575 8.5 0.5 41966 0.0 -. 7199 10579 26.3 *50 10579 26.3 -s0 3280 8.2 .34 17643 43.9 67 4656 11.6 -3.7 36160 89.9 -5.8 4071 10.1 13.9 40231 4.1 4.61990 10656 28.3 0.7 S0858 26.3 0.7 3303 8.2 0.7 17743 43.8 0.6 4693 11.6 0.8 36397 89.9 0.7 4084 10.1 0.3 40481 0.6 *1.31991 11338 26.9 64 .11338 26.9 6.4 3515 8.3 6.4 18909 44.9 6.6 4992 11.6 6.4 38754 92.0 6.5 3383 8.0 .17.2 42137 4.1 5.0

1992 11861 26.9 4.6 11761 26.7 37 3767 6.5 7.2 20123 45.6 6.4 5008 11.4 03 40659 92.2 4.9 3449 7.8 2.0 44108 4.7 261993 12416 26.7 4.7 12166 26.1 34 4049 8.7 7.5 21506 46.2 6.9 5243 11.3 4.7 42966 92.3 5.7 3561 7.7 3.2 46527 5.5 251994 12964 26.3 4.4 12614 25.6 17 4337 8.8 7.1 23196 47.0 7.8 5474 11.1 4.4 45821 92.5 6.2 3685 7.5 3.5 49306 6.0 2.51995 13522 26.0 4.3 13022 25.1 3.2 4635 8.9 6.9 24725 47.6 6.6 5710 11.0 4.S 48092 92.6 5.4 3821 7.4 3.7 51913 5.3 2.51996 14103 25.7 4.3 13553 24.7 4.1 4945 9.0 6.7 26366 48.1 6.6 5955 10.9 4.3 50819 92.8 5.7 3971 7.2 3.9 54790 5.5 2.51997 14707 25.3 4.3 14107 24.3 4.1 5270 9.1 6.6 28296 48.8 7.3 8210 10.7 4.3 53885 92.9 6.0 4135 7.1 4.1 58020 5.9 2.51998 15272 25.1 3a 14622 24.0 37 5587 9.2 8.0 29950 49.2 5.9 6449 10.6 3.8 56617 92.9 5.1 4314 7.1 4.3 I0931 5.0 2.51999 15659 24.7 3.8 15159 23.6 3.7 5918 9.2 5.9 31842 49.7 6.3 6697 10.4 3.6 59616 93.0 5.3 4509 7.0 4.5 64125 52 Z52008 16471 24.4 3.9 15721 23.3 3.7 6265 9.3 5.9 33858 50.1 6.3 6955 10.3 3.9 62799 93.0 5.3 4720 7.0 4.7 67519 5.3 2.5

1970.1991 Actu lgta: 1992.2000 Proged(1) W aOM Pfce BWld Elet(2) W? Pdia E1Aa ENect(3) c4nsl"uc Puce Bow* icl lot eIentIa Consna

Pe: DE-LOW.WOI

=tft

Page 1 of 3

ARGENTINAYACYRETA II PROJECT

CaacitY and Enercv Balances

National Interconnected System

Power Losses

1. Demand projections at consumption level (sales) for the whole countryunder a high and a low demand scenarios are presented in Annex 1.4. Thedemand forecast requires the regionalization of the global demand in the nineconsumption regions'. Energy requirements are estimated adding distributionlosses to sales (for this purpose distribution losses include sub-transmissionlosses). Distribution losses are high in Argentina due to the poor conditionsof the networks and a high incidence of electricity fraud and theft. Totaldistribution losses reached 19.8% of the energy supplied in 1991. This hasbeen highly influenced by SEGRA, because of its high losses (about 250) andits share of market (40%). Despite loss reduction programs being developed bySEGBA, losses have not actually decreased, however, it is expected that theyprogressively will in the future, as a result of improved commercialpractices brought about by the privatization of its distribution facilities.For purposes of the power and energy balances, the SE and the appraisalmission agreed that distribution losses would be progressively reduced to areasonpble level of 13.8* by year 2000. This level of losses is composed of12% technical losses and 1.8% of residual non-technical losses2. Results ofestimates of distribution losses and their progressive reduction are shown inAttachment 1, which also shows the total energy requirement at high voltagetransmission level for the whole country under both demand scenarios.

NIS Enerav and Power Reauirements

2. As the Yacyreta project (and all other major generating facilities inthe sector expansion plan) will supply its power to the NIS, Attachment 1 alsoshows the energy requirements for the NIS. It can be noted that the NIS hasprogressively absorbed isolated systems and will continue to do so, i.e. theNIS represented 90* of the total country consumption in 1991; that proportionis expected to increase to 93* by 2000.

3. The NIS power requirements are based on a study of the NIS load factor(the ratio between the yearly average power demand and the maximum power

demand that is expected during peak hours). Load factors are estimated forevery month in the period of the study. It has been found that the mostcritical month of the year for purposes of the energy balance is August. To

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

2 The total elimination of non-technical losses are deemed not to be costeffective.

Page 2 of 3

estimate the generation requirements, losses in the transmission system shouldbe added.

NIS Current Installed Caoacitv

4. Attachment 2 presents a summary of the NIS's existing generationfacilities. Total installed capacity amounts to 12,031 MW of which 42% ishydro, 8 nuclear and the remaining 50 thermal. It should be noted that,because of the high hydro component of the NIS, requirement of new additionsto cover increases in demand are defined by the energy balance and not by thecapacity balance, as usually happens in a mostly thermal based system. Forexample, in a dry year (defined as one whose probability of occurrence is onein twenty) the energy generation of all hydro facilities (5,077 MW), would be11,511 GWh. This corresponds to an average 26% plant factor or only theenergy corresponding to 1,314 NW of constant power. This contributes to arather high reserve margin when measured with regard to the total installedcapacity.

Power and Enerav Balances

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

(a) Under the Hiah Demand scenario, completion of Yacyreta in the years1994-1998, of Pichi-Picun-Leufu in 1996, and of Atucha II in 1997 arerequired to supply the demand with adequate reliability. Additionalcapacity would be needed in 2000. Least cost expansion analysis hasshown that these additions would consist in a total of 855 MW of gasfueled Combined Cycle (CC) plants, half of which would be installed inthe Buenos Aires metropolitan area and half in the Northwest area.Under the reformed institutional setup, such generation expansion wouldbe left to private investors. Since the implementation time of CCplants is about six years, including four years for construction, itseems that no decision on their comnitment is necessary before 1994.

(b) Under the Low Demand scenario, completion of Yacyreta could bedelayed by one year and c.mpletion of Atucha II could be delayed until1999. From the economic point of view, however, delaying of Yacyretawould result on a higher NPV, as-the economic average generating cost ofYacyreta (at 12% discount rate) would be lower than the marginal thermalgeneration cost (fuel only; assuming natural gas at an OCC of US$2.0/million BTU). With regard to Atucha II, no reprogramming isadvisable on the grounds of a low demand scenario. The SE will followup on the market evolution and in case the current low demand scenariorepresents the most probable trend, it will analyze the convenience ofsuch reprogramming in the light of the status of the civil works andequipment manufacturing, and possible contract penalties.

Page 3 of 3

System Reliability

6. The application of a stochastic system reliability model developed bythe SE for assessing security of supply indicates that except for the years1992-1993, system reliability indices are adequate. For 1992 and 1993 the lowlevel of availability of the part of the thermal facilities leaves the systemin critical conditions for either demand scenario. Under the High Demandscenario, the probability of energy shortages is high: 1,100 GWh in 1992 and1,000 GWh in 1993 for a lS probability of occurrence; 770 GWh in 1992 and 400GWh in 1993 for a 301 probability of occurrence3. The commissioning of Piedradel Aguila and the first units of Yacyret& is expected to improvesubstantially this situation.

3 Figures would be slightly lower for the Low Demand scenario.

ANNEX 1.4Attachment 1

ARGENTINAYACYRETA II PROJECT

NATIONAL INTERCONNECTED SYSTEMAVAILABLE INSTALLED CAPACITY BY AUGUST 1992 (1)

(MW)

Combined Gas TotalUtility Hydro Nuclear Cycle Steam Turbines Diesel MW %

SEGBA 2132 307 2439 20ESEBA 852 176 23 1051 9EPEC 178 233 274 11 696 6AyE (2) 825 86 1267 535 13 2726 23

- Comahue 20 28 22 70 1-Cuyo 628 86 112 93 919 8- Utoral 846 58 904 8- NEA 40 168 208 2- NOA 177 241 194 13 625 5- Rio Grande 0 0

CNEA 947 947 8HIDRONOR 2833 2833 24CTMSG (3) 1103 1103 9Others 138 60 38 236 2

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

(1) Annual peak demad usuy ocurs In August(2) Does not Include Lulan de Cuyo 3 (125 MW, out of erwvice wit an expbded boier and twe Rlo Grance

pumping sonrage faclm (750 MW) which Is not eted to contuibute to te cwegy balance In net few yews.(3) Only the Argentne component b accounted for (presenly 58.4%)

Fie: CAP.92.WOI

TAMTflCIM II v1 "r.5Enm R.quernwt Cp

COUNTRY AND NATIONAL INTERCONNECTED SYSTEM (NIS

HIGH AND LOW DEMAND SCENARIOS

PuWce Serw _ ~ Obibution andt Sublasmsiobn Loss I Requirements(2Yew Consumpton Technicl | O1r (3) I Total TotI NiS 4

(GWh) I (%) ( I _ GWh) % (GWh) (GWh (%)A B I C-B/H °0 E-Q/H IfB+C G-F/H IH-A+GI I JUl/H

A.- HIGH DEMAND SCENARIO| 1991 1 38754 1 631 13.81 2867 .9 9550 19.81 48304 14330 90.

102- 40659 6824 13.8 2850 5.7 9783 19.4 50442 45659 90.51993 43518 7303 13. z2eo 4.3 9501 18.1 53109 4824 90091W94 48805 7763 13.0 1848 33 9611 17.0 56416 51888 9zo199 50084 8216 13.6 1401 2.3 9617 1.1 59671 55017 92.210N 53819 8696 136 ON 1.4 m0 18.2 63124 88328 9241007 57307 9219 13S 363 0.5 9582 14.3 86889 61834 92.41990 61028 903 13.6 270 0.4 10073 14.2 71101 6s87 9ze1999 65008 10426 13. 166 0.2 10592 14.0 75600 701668 982000 62 11116 13.6 0 0.0 11116 13.8 80348 74710 93.0

S.- LOW DEMAND SCENARIOI 1l01 38754 1 63 13.8 2867 5.91 -9850 19.81 48304l 43530 1 9o.1

1992 40680 6824 13.0 2859 &.7 9783 19.4 50442 48688 90.51W93 42906 7219 13.6 226 4.3 9480 18.1 82446 47710 91.01994 45621 782 13. 1794 33 9376 17.0 54897 S067 9Z1199 48092 7924 13.8 1324 23 4 16.1 57340 83028 sz.1996 50619 8285 13.8 22 1.4 9107 15.2 59926 58519 sz21997 538J 6678 13.6 276 0.4 6956 14.3 62641 58137 sz91996 56617 0120 13.6 162 0.3 9302 14.1 65819 61194 9Sz1999 59616 9587 13.8 78 0.1 96 14.0 69261 64430 93.02000 62799 10038 13.8 0 0.0 10036 13.6 72837 67844 93.1

1991 Actual 0Datr 922000 Proecte(1) Energy Devd to Ow Pubic Seio T N Netwdk (dos not Incltde Hlgh Volt T _enmslon Loe")(2) Oltr Loom we Fraud plus Highor Un NomaI Lose dw to Sysm DetdraloeLack of Invesnett

Technal Los1e Incud a Low Leel of Faud (1.8%) _ I e Elblon would not be Cost-ENecl (3) NIS Eer Requemnl Inude de Gdu Intgrmon of Ioated Systems to Ut NIS

Fle:ENeMNIS.WOI

CA8E: HBOSCE -NOAV VLCON

I S1901} I 1#12 1 IS93 I 1ts90 115 ssai I * I *wg 1 1 1 11996 2000 1Cbl E b~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ EE lqqwa 6 C E q "vc 11F.@ 1 15t "4 1 4 1 0t I Ft I 1 4 I W4 | eq 1 t4 1 Pt4 _~~~~~~~~~~~~~~~~~~PW I &M"V I wm PA4 wh

UN 7 3530 6171 5 am 825 gm Sim Om270 5166 6 55017 10421 5032 11043 6124 i1766 am 12534 70166 13346 0T 540 207 So1 231 s4o 2610 t05 325 *U 34 1504 395 1719 495 2052 496 224 45 2243

OumiGln_t lush 6 44070 0376 46220 a 49119 ss 52942 1tl61 56201 1005 6950 11430 63613 12281 67919 13022 72409 13541 713Bt. SIWPLY

EaflgFadU.sp) 12102 44070 1203 4531S 12005 459 1219 47015 12140 47 12130 44952 11964 42306 11964 4030 "1964 4)442 11423 404234tdm 1Si 13444 s57 1321 5137 1415 6201 1722 50 15s7 50 15170 5066 1516 5o66 15167 6666 15106 5066 Mis9s,t7047 7424 047 7?too 47 7100 47 710 947 7100 047 7100 047 7100 0417 n0 047 0o 0 110COmSOugdc Pq as I2 66 312 143 270 143 206 143 226 143 241 143 220 143 264 143'Sonn Pb 4456 23262 4464 2100B 4423 22449 4423 2347? 4510 24936 4510 22255 4374 19507 4374 17424 4374 1674 3933 11134Gm T_0km 1352 1302 3203 1352 10e6 1412 stE 1412 476 1412 210 1412 192 1412 216 1412 166 1412 196Oh d Cb so0 t5 64 00 0 es 0 6o 0 50 0 41 0 40 0 O0 0 20 0NSwFIC9UU 424 350 3400 1050 4647 l630 635 2742 14960 3496 21305 5290 27783 5200 30966 0145 30524

*Wftd dAgl 424 300 34D9 1o05 5542 14U 5451 1400 5526 14C0 5528 1400 552t 1400 5526 1400 552tYva"111

305 43D 2934 06D 61 Sol 120 11471 294s 16 24 ISM 2s4 104% m.LmAU

252 651 252 1037 252 107 252 1007 252 137-Abx

584 3269 m9 5197 693 5187 693 5197-4mWCC

655 5556C.- SASANdCE

SUPPd IV I2102 44070 12031 45742 12355 49107 13241 61942 13070 SWOI 14572 599 15460 e6353 M 4 67919 1724 7410 11266 7595nOMa d tO 44070 6375 46220 6610 49116 9559 52042 1oi16 5201 l(1005 66B22 11439 63613 12261 69S1 13029 7409 13641 78953Rv 4010 3653 -475 3465 .11 3692 3500 4067 4041 5013 4225 327P " ( 50 _ 44 _ 39 _ 39 37 30 35 _ 41 _ 42 27a- FtLAT UlTIZAoN

- 1991-- 1-92 1903 1e94 1995 1996 1007 1996 1999 2D004"o 30% 31% 3s% 30% 30% 44% 47% 45% 46% 45%11dw 00% e6% e5% e6% as% 6% 7BS Ws 0% tas%cI hdqcdhm 17% 41% 22% 16% 1*% 19% 16% 23% 6e%4b-Sb FPt 44% 55% 56% 61% 63% 56% 51% 45% 40% 53%4[Ga T7.k. 27% s% 4% 4% 2% 2% 2% 2% 2%-C10dP1mbf 0% 0% 0% 0% 0% 0% 0% 0%0%

y;ASM IMtB bt t19. Ephu$u 190 2fr. reSd d9g ColuAL Cmiu In Cwatety acnAi IN kcmpmgn hi Si. NIBda hehlgGonG1 F,U % mNdW fduo d CpclAvaIatjh mth. k.. SWbGiml ond Oft

PUUuAur4dlbkmbwcapm*al

fbMAL4sN.Vl

ftft

tIi

Attachment 4

If IgE O§0Ig I§8- l

Ii ! § "Wf| §l I~~~~~~~~~~~~~~~~~~~~I

;- ~~lig gErSp lES I

; b§§ |!8WIES AN; w

111 llI lg' Ul IIf -N

i *1 g EE§ S W 3{{ ii

If E ;pS 22 1-§§|§§. |

| 1 |8 ;i #X j -i wl t

Iig -J II X } i j f 1Zi llf

YAE7A I PICECT

NATIA sETERrONeNoW SSiTEB - CAPANYAND DOW BAL*CE

CAE: LOW DEMANOSDCENA - NORMVAL HWWIOGOGAL C0M flON

I tlSl I 1992 1 t993 I 1994 I 1995 I NS98 I *967 l ow8 I 1og9 o 2X00CapwcIt Eeg caciy I Enlmg CapacI Enrgy CapaeyI Eng paty I En0g Caity Eerg CapcIt Enewgy C 4aty I wgy Cpacty EIary CWapt E.gNM pw x PM P pwd4 P4 P4 Om IW I t 4k en WmP pwt 4 Wm I2A- OEMAND

Raqrhemeeb Jl76 43530 3171 45650 6m46 47710 970 506S7 9469 53 998 G 555:9 10391 56137 10239 61104 11522 6440 12t34 6Tm,aaIaalinlLaaae.m 260 540 207 561 231 643 260 1054 326 1164 364 1504 50" 7m 495 2W2 465 224 495 2243TctalOuiesdanNaado 6O06 44070 6378 4E220 6777 4Es53 OM50 5172 sE15 54212 10313 57113 107e7 59s01 11434 63240 12017 E6673 t 299 707

Ek SUPPLY

E*9nF*ca w 12102 44070 12031 453l 12005 45144 12191 45674 12140 45627 12130 42153 11904 41661 11964 40666 11964 40902 11423 410574tpbo 5171 13444 5077 1321. 5137 14754 5201 t5722 5066 15096 5066 15170 5066 15t16 506 15187 50os 15166 soss 1t51*Ntcu 947 7424 647 7t00 947 7100 947 7100 047 7106 947 7100 947 7100 947 7160 947 7100 E47 7100CCMthe ds pq so so 126 6S 312 143 262 143 241 143 226 143 312 143 226 U43 311 143 206,Sbm _wAb 131 4456 20 22 4404 21dO6 4423 22192 4423 22453 4510 2203 4510 19464 4374 19152 4374 S6am4 4374 10179 3233 IBM4G" Titbm 1352 1352 3203 1352 7e5 1412 3'7 1412 297 1412 172 1412 146 1412 132 1412 145 1412 1734.odait F1 90 5s 64 60 0 ES 0 60 0 50 0 40 0 40 0 20 0 20 0

Now Fatla 424 350 3409 1080 5647 1820 6265 2742 14960 2942 t1o06 4597 22568 4597 2sn7 5151 2004eadd Agu9a 424 350 3400 1050 5542 1400 5451 1400 5526 1400 5526 1400 5526 1400 55s2 1460 5526Yacrta 305 420 2934 1090 64a1 1290 11471 2945 16021 245 19oe 2045 1920.FI*&IPwlcrm1.mA 252 961 252 1037 252 1037 252 1657 252 1067.AbIm U 554 B325

CG 6ALANCE

TolSup 12102 44070 12031 45743 12355 46553 13241 51721 13970 54212 14672 57113 14926 51997 16561 6i246 16561 66673 16574 70067Tda Deman OM 44070 6378 46220 8m 46553 9D30 51721 965 54212 10313 57113 10787 59616 11434 63246 12017 66673 12629 70087F_ 4 4016 3653 .47 3576 3601 4155 4559 4139 5147 4544 3045R .ema(UI65 50 44 41 42 42 44 38 45 36 31

.- PlANT UTLTULIATION

1Est 1992 1903 1994 1695 106 1997 1996 199 200044yCo 30% 31% 36% 39% 30% 44% 47% 45% 46% 48%-ude an am% aS% an% am 0% E ES 6% E 0% 79%4COmbkedC pohPO t7% 41% 22% 1s% 16% 25% 16% 25% 24%_am PIF1 44% 55% 57% 6%s 56% 49% 50% 47% 47S 55%4- TINUm 27% 7% 3% 2% 1% 1% 1% 1% 1%-Og1nd p1mb 0%- 0% 0% 0% 00%0%- 0% 0%

M1) Atd DVLB Aug* 1t991 f6 1991. ByAugua 1992 kw Si rd d do Coknma Chage i Capaciy attuotr gncapwaeaoln tie NIS ofada4hg Genoeran Fn WUe, and mducUon dCaciwy Avabb ID Agebim tn Sub Ghida W a Eritixbudea &B Thumd Gh uaflon h 1991

(4N NA_ Energy ace. Idcb tam-, Enr m bbbl _ d Synm to &pp Full DOaP WbluRa.psctIDoka d Capacly.IWh llt Iupod to Fmi Ca yl ty F al kw too p i bmw aeflectd hI tIo Coeepwnt WUian Fe

Fb:SL4"W1 1trt0Ft

91

Ftl

D

uSw

-0-^ uqpDww mO1OAjm 14aoWeo Wm m wpPo - al -

SV %Z %a %a %a S W 9 'D%s '66"pl -t%%%s e f sol U WIq sat munsej dsa P stdil

OaGO ML_ Mt Mt # cst aset te stZ n

mz ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~p.0dSwmOAW IO*u piSl 6801p1 .n11

U3s A8966 sW ez @t*

Notuzun iva-,

IC ee iw sC at 68iapstw to aS e bGM vttotu eOm swt lowesin Kw cmg hsu u i l t am N eia SOWS 0'"St lon #sss citt Sl*ops $km MSS ces a" an 191, am WA" gm pt_eoSwsam *tat .8O toot so"e toot tscm we #o znn zzons edcG ObSig gttacz z m Mi mu GlowC amn o 4*ftPpl

sma

ant Gm 40 OM "at Gm 00 au am gm D age l1 1z elit 0i Pm0AWA1Gun golf zoe n m se3neu oDn Z IODI amzew toot 0 vi Om Z"est cm 0_ am Oa o

ozli@ cZ0s0 t 118 liZ z 118 118 11 t i 11SW 111 einqqmjm

O a 0 Ge a w O O 10 0 OSm1 so et as O aos ocM - INI 911 on 1t*% t 16 at atlt t li t _got ¶t1 Om 6an 1w a tn ml 4 plemlet t* le m lte Wm e2 Ctl pow am olo son 090 t m ca Mcc t s 9 "O am Om j AMWNOD as ea at I01 t tI Ict OlI t - o 9 t U _rpu b6 ct t o f ut ml_be ot lt 1A"8 U WuS 1098 S"la AS _I te t

I:: tai SI~ Ise oe Cbo WS90 65 160 1*8 81t cic ami oIs z t usm taz tins 0*89 -}108 .dIP

MP M gm am mez ai gm gm$ s= g sunz mmS cm MO ess AM onu _ e l QVA_

MD lt ce *tl voe .Rt sotw mit gm60 octal -IMP tall sow 0ota 69| am sat mm 0110, mu P0m 01

SIII>oolWJB0-1#01111130FA10li :3SK

U$aml Ot 3S to a t tel os NG am am we amm Sit Omm muam m

No6 6 8A 8 0 6 I k 06 I0 I6 NW I0 IS WA6 0 8 8 ~uUIII 113 I8 = 1 11 = 11 S 1 561 *58=81 g- 686 M- 81*1 106W4 8161t I= 1ma 1 14Unnt= 1aweS I6 ant I met I0 lo1 I* Mt1 I1 *ig sI Mt tat I am I68 68 IeIp

91 1W 0* 16 01 *1 01 *1 60* * 60* *0 61 1 60W660* *0 6*N

668 16 681 689 118 80 K 60 II 0 63 51 618 6 011 61 111 *6 105 1536**61 11 169 166 005 361 619 It 069 18 *8 811 669 Ol 69 688 89 UB 089 111 l8SW

Page 1 of 6

ARGEtNTIN

YACYRETA II PROJECT

Finances of the National Utilities

1. This annex shows the financial results of the reforms launched by theGovernment to improve efficiency and reduce the financial gap of the national powerutilities (AyE, SEGRA, and HIDRONOR).

Key Data

Key Market and Operational Data(a. of December 31, 1991) l

Description AyE HIDRONOR SBEGkA

Effective Installed Capacity (MW)Hydro 1/ 2,113 2,883 lThermal 1/ 2,705 2,439Annual generation Gwh 16,365 5,911 10,488500 kV line km 2,887 3,769 218

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

1 AyE iflaude infPed capacity in isolate systems.

Institutional Framework

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

(a) &wE.

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

(ii) transfer of the remaining irrigation services to the followingprovinces of La Rioja, Chubut and Santiago del Estero (starting July1, 1992);

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

(iv) transfer of service to final customers to the provinces (starting July1, 1992), except in the isolated Patagonia system;

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

Page 2 of 6

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

large thermal plants:

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

large hvdro plants:

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

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

(vii) transfer of all the remaining thermal plants to the provinces y July1, 1992, except the Patagonia system;

(b) SBGB:

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

(1) EDENOR, sold to a consortium formed by ASTRA, Argentina (40%);Electricite de France, France (20%); Empresa NacionalHidroel6ctrica del Ribagozana, Spain (20*); ENDESA, Spain (10*);and Societe d'Amenagement Urbain et Rural, France (10%), onAugust 31, 1992;

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

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

(ii) sale of the following large thermal plants:

(1) 60* of the generation company Puerto comprising Nuevo Puerto (420MW) and Puerto Nuevo (589 MW), sold to a consortium formed byCHILGENER, Chile (82.5*) and CHILQUINTA, Chile (17.5%), on March19, 1992;

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

Page 3 of 6

(3) Dock Sud, Dique and Pedro de Mendoza (397 MW) starting September1, 1992;

(c) HIDRONOR:

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

(ii) sale of the khydro plants assets (2833 MW in operaticn and 1650 MW underconstruction) by December 1, 1992.

Electricity Prices

3. The Government policy on electricity pricing, which is in line with theoverall country policy of letting market forces establish prices of goods andservices, is described in Annex 1.2. Since August 1, 1991, a new methodology isin force to set energy prices at high voltage level based on short-run marginalcosts, which is compatible with the new electricity law of December 1991. Bulkelectricity prices for the national utilities sales are, on average, around US cent4.5 per kWh, which is also in line with the estimated average long run marginalcost.

4. SEGBA's electricity tariff tofinal consumers includes a rate base SEGBA Electricity Tariff and Costplus VAT (16%) and province (9%) andnational (1.2%) taxes. SEGBA's average 1

rate base is estimated to bp about 12* .... ..lower than standard cost. As shown inthe attached figure, rates of 9

residential consumers are lower by about ..- ... ..24* as compared to standard costs, while .irates of commercial consumers are 4*

slightly higher than standard costs by -

6%, and rates of industrial consumersare about 5* to 11* lower than standard aOr LV i,urtrU lnd ,r W

costs. The difference between theaverage rate and the standard cost could _ wuwff EMeakmb rcom

be addressed, for instance, bycorrecting the residential and HV industrial categories with a rate increase ofabout 15* SEGRA rates are far from covering the actual costs because of SEGBA'soverall inefficiency and, in particular, the high degree of fraud and theft ofenergy (over 25%). Rate levels do not seem to be a hurdle to the privatization ofSEGBA's distribution. A streamlined organization, an efficient management withminimum turnover, a 10% average rate adjustment, and a sound debt equity structurewould be the key steps for a profitable distribution utility.

5. There are significant differences among provinice utilities as similarconsumers pay prices which are considerably scattered and without relation to theircorresponding estimated economic cost (Attachment 1). This has been caused in partby the difficulties associated with the management of the utilities prices in ahigh inflation environment and the autonomy of the provinces to set their ownrates. This issue is addressed in the recent IDS loan for the reform of thenational utilities, which provides as condition for disbursement of the secondtranche the preparation of a strategy to solve the proolem, and as condition forthe third tranche, a satisfactory implementation of the proposed strategy.

Past Financial Performance

6. The financial performance of the national utilities has shown considerabledeterioration in the last 10 years. The main reasons for this deterioration are:(a) electricity prices (which were adequate during the seventies) have not beenadjusted as required to keep up with inflation; (b) power utilities had to rely onlong and short term debts due to the gradual reduction of Government contributions;and (c) high level of interest rates. Electrical and energy funds, a major sourceof investment financing, were reduced by tax reform and partially apportioned bythe Treasury. A tax reform set up in 1990 obliged the power utilities to pay taxeson operating fixed assets. The changing economic policies in the late 1980sresulted in a deterioration of financial discipline among public sector entities.These reasone caused problems to the execution of the sector's investment programand debt serv..ce.

7. During the last four years, the Government has transferred to the nationalutilities about US$1.9 billion to cover the operational and capital gaps, asfollows:

Government Contribution to National Utilities(in US$ million)

Utility 1988 1989 1990 1991 TOTAL

AyE 259.0 143.1 168.0 60.3 630.4

HIDRONOR 257.6 53.6 178.5 476.4 966.1

SEGBA 82.0 66.1 13.0 149.0 310.1

TOTAL 598.6 262.8 359.5 685.7 1906.6

Note: It includes electical finds

8. Poor performance of Ay' Is management led to progressive deterioration of thefinancial situation, as reflected by the poor collection period (2.3 years ofbilling). AyE's total revenue amounted to US$630.4 million in 1991, while thetotal operating cost amounted to US$877.1 million, thus resulting in an operatingshortfall of US$246.7 million (Attachmernt 2). Internal funds were insufficient tocover debt service payments, which were supported with Government funds.

9. HIDRONOR's total revenue amounted to US$183.9 million in 1991, while thetotal operating cost amounted to US$101.8 million, thus resulting in an operatingsurplus of US$82.1 million. Internal funds were insufficient to cover the heavyburden of the debt service and the sizable investment program, thus requiringGovernment contributions.

10. SEGRA's total revenue amounted to US$1492.0 million in 1991, while the totaloperating cost amounted to US$1821.0 million, thus resulting in an operatingshortfall of US$329.0 million (Attachment 2). SEGRA's equity was negative due tothe accumulated heavy financial losses because of successive poor operatingresults. Internal funds were inaufficient to cover debt service payments andinvestment, which were financed with Government funds. The level of investment hasbeen extremely reduced, because of lack of counter-part funds to match the

Page 5 of 6

financing available through the SEGBA V Project (Loan 2854-AR) for the acquisitionof equipment and materials

11. Tne total indebtedness of the national utilities amounted to US$5.5 billionby December 31, 1991 (Attachment 3). They owed about US$ 1 billion in arrears tothe external financial institutions, and about US$1.4 billion to contractors andsuppliers. Currently, the Government is negotiating the rescheduling of theforeign debt with commercial banks. A consolidation law was enacted in October1991, to clear commercial debts among Government aq'ncies through consolidationbonds (16 year amortization, 6 year grace, and interest capitalized during thegrace period); the interest rate and conditions of payments are established in thecorresponding regulation issued at the end of 1991.

Future Financial Performancs

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

13. The Government would transfer the assets of the national utilities to privateinvestors as follows: 60* to private operators under international bidding (51 ina few cases); 10% to employees in accordance with a program to be established inthe near future; and 30% to the general public through the sale of shares in thenational capital market. The property of the national u:ilities should betransferred to private investors in accordance with the schedule described inparagraph 2.

14. The privatization of the national utilities would reduce the burden of thesector on public finances. It is estimated that the Government would receive aboutUS$4.0 billion for the sale of assets of the national utilities according to thefollowing scheme:

Busina Unit Operator I Enmployee's c Capital TOTALParticipation Market

SEGBA

Puerto Nuevo and Nuevo Puetohermal plant 92.0 17.0 66.0 | ,5.0

Coanern Thermal Plant 99.0 19.0 76.0 194.0

Dock Sud n.a. n.a. n.c.

Dique and Pedro de Mendoza nerrml Plants 23.6 3.8 I!.2 38.6

SEOBA's Disbtribution North and South 939.0 180.0 720.0 1839.0

A yE_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

LujendeCuyolhermal Pant 9.0 1.5 6.5 17.0

Guemea Tbermal Plant 47.0 9.5 36.0 92.5

Sorrento Thermal Plant 2.5 .5 2.0 5.0

San Nicol, Thermal Pl nt 37.0 7.0 28.0 72.0

Page 6 of 6

Alto Valle Thennal Plant n.a. n.a. n.a.

Futaleufu Hydro Plnt 64.0 10.7 32.2 106.9

Transmission ystem 48.5 9.5 37.0 95.0

Small Therm' Plat n.a. n.a. n.a.

Nihuiles and Small Hydro plants 98.5 19.0 75.0 192.5

HNDRONOR

Hydro-Generating Plants 452.0 88.5 345.0 885.5

Tranamnision System 125.0 24.0 95.0 244.0

TOTAL 2037.1 390.0 1529.9 3957.0n.a. = not yet available/ It does not include liability of the business unit.

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

Debt Service of the National Utilities(In USS million)

1992 1993 1994 1995 TOTALAmortization

AyE 47.0 42.9 78.1 112.2 280.2HIDRONOR 104.5 141.6 135.5 165.7 547.3SEGBA 66.8 64.6 67.9 64.9 264.2

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

Total Debt Setvice 590.8 659.2 724.8 713.8 2668.6

16. One of the SEGRA's and AyE's main operational issues, overstaffing, would beaddressed by an adequate retirement and compensation plan. Such a plan, which wouldhave a cost of US$108 million for SEGBA end US$49 million for AyE will be directlysupported by the Government through funding from the recent IDB loan for thenational utilities reform program.

ARGENTINAYACYRETA HYDROELECTRIC PROJECT II

SEGBA AND NAllONAL UTILITESELECTRICITY TARUFF 11

(UScenl")

Residential (120 kWhlmes) Commercial (400 kWhlmes)Utility Area with taxes 2V I lo taxes with taxes 2/ wlo taxesUScent % UScert % UScent % UScent %

SEGEA Greater Buenos Aires 11.17 100 8.58 100 13.25 100 10.91 100ESEBA Buenos Aires Province 15.61 140 11.99 140 31.81 240 24.71 226EPEC Cordoba Province 20.47 63 15.58 182 29.21 220 26.24 241EPESF Santa Fe Province 12.85 115 10.76 125 27.33 206 27.01 248EPEER Entre Rios Province 12.38 111 7.46 87 25.77 195 18.32 188EPEN Neuquen Province 10.71 96 8.15 95 23.62 178 21.22 195SESSE San Juan Province 17.40 156 14.57 170 38.17 288 30.17 277

Industrial LV (166 kWhfmes) Industrial MV (830 kWh(mes) Industrial HV (576 kWh/mes)Utiliy Area with taxes 21 wlo taxes with taxes 21 w/o taxes with taxes 21 wlo taxesUScent % UScent % UScent % UScent % UScent %I UScent %SEGBA Greater Buenos Aires 14.27 100 11.75 100 7.93 100 6.53 100 5.04 100 4.15 100ESEBA BuenosAires Province 2/ 19.08 134 16.17 138 11.32 143 ._3 147 8.89 176 7.53 181EPEC Cordoba Province 16.46 115 13.55 115 11.03 139 9.08 139 9.05 180 7.45 180EPESF Sarta Fe Province 17.13 120 16.93 144 10.38 131 10.26 157 7.19 143 7.1 171EPEER Entre Rios Province 14.22 100 12.01 102 9.38 118 7.92 121EPEN Neuquen Province 14.99 105 14.81 126 8.02 101 7.92 121 5.84 116 5.77 139SESSE SanJuanProvince 17.21 121 17.01 145 11.37 143 11.24 1721

I/ Taiffs ae referred to the typical consumption shown in cach column. ANX15ATI2V Taxer Tariffs include national taxes (12%) and provincial taxes accorditg to the detail shown below.Residential tariffs also include VAT(18%)ESEBA tariffs also include municipal taxes (6%) for commerdal and industrial customers

Provicial Taxes (%)Residential Cmmercial Industrial

ciSEGBA 9 20 20 oESEBA 9 20 10

EPEC 10 10 20ePESFEPEER 39 39 17

EPEN 10 10SESSE 25

ARGENTINAYACYRETA HYDROELECTRIC PROJECT II

Combined Income and Sources and Application of Fund Statementsof the National Utilities

for 1991 and 1992

1991 199221-Ua"-W AyE HIDRONOR SEGBA TOTAL AyE HIDRONOR SEGBA TOTAL

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

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

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

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

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

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

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

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

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

Borrowings 1.7 139.9 93.0 234.6 15.0 158.6 0.0 173.6

TOTAL SOURCES -100.7 489.6 -83.0 325.9 -37.6 473.4 -77.9 357.9

Investments 46.3 1582 77.0 281.5 67.4 353.2 35.4 456.0

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

TOTAL APPLICAlIONS -100.7 489.6 -63.0 325.9 -37.6 473.4 -77.9 357.9No It ANX1SA72

Attachment 3

ARGENTINAYACYRETA HYDROELECTRIC PROJECT II

Balance Sheets of The Natonal Utilitiesfor 1991 and 1992

1991 1992AyE HIDRONOR SEGBA AyE HIDRONOR SEGBA

21 May-92 J_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Assota 1 58.5.8 509. 3139. 9635.9 4843.8 6

Fixed assets 4843.5 4897.7 2462.0 1962.0 4769.2 140.0Plant In Operation 5671.0 2325.0 4053.0 1329.6 1825.0 245.0Accumulated depreciatlon 1723.1 89.7 1727.0 266.0 83.4 134.0Net plant in operation 3947.9 2235.3 2326.0 1063.6 1741.6 111.0Work In progress v v 895.6 2662.4 1S6.0 898.4 3027.6 29.0

Current AsseIQ 1826.4 143.9 605.0 1503.3 37.2 457.0Cash and Bank 20.0 6.5 48.0 8.0 1.7 6.0Accounts receivable 290.0 92.0 283.0 66.8 33.2 132.0Inventories V 24.4 0.0 11.0 21.5 0.0 7.0Other 41 1492.0 45.4 263.0 1407.0 2.3 312.0

Other assets 165.4 37.4 72.0 170.6 37.4 72.0

Huan A ablte 835 T39 365 43 669.0

Equity 959.3 3304.3 343.0 1182.0 3220.5 382.0Capital 3350.7 3128.1 2649.0 727.0 3010.7 538.0Revaluation reserve 0.0 483.0 194.0 0.0 486.0 194.0Retained earnings -2391.4 -309.8 -2959.' e683.0 -276.2 -3236.0Capitalized Debt S 0.0 0.0 459.0 3138.0 0.0 2886.0

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

Current Uabilities 2580.0 627.5 1966.0 2453.9 395.7 162.0Current portion of L-T debt 81.0 97.2 59.0 43.0 70.2 q2.0Accounts payable 187.0 28.4 1317.0 56.0 19.9 0Other liabilites 4/ 2312.0 501.9 590.0 2354.9 305.6 .

Other liabilities 0.0 8.0 125.0 0.0 8.0 125.0|NOW ANXISAT3I/ AySbduiu hip smS taistueaadpmwojssaaIr.yemjisd.ThLSwudusbu.Vf HIONOR W IPWd delA sd P M-Pim-lhyo pri./ HURONORaveasy indu in fpat in oam

4/ Ay kE awpo6Wnvewlthhad hfrmpbatereadd

5l rl hue hst hq-sedsM cLAyS .dSEOBA wmibemiiii 19.

Page 1 of 5

ARGBNTINYACYR=TA RYDROZLZCTRzC PROJECT It

The Treaty of Yacvretd

1. The Yacyreta project was launched by the Argentine-Paraguayan Protocolsigned in Washington D.C. on February 1, 1926, in connection with the useof the Apipe falls. The agreement between Paraguay and Argentina settingup the "Mixed Technical Commission of Argentina and Paraguay"l! was singedon January 23, 1958. The Ccmmission was in charge of the hydroelectric andirrigation study for harnessing the Parana River in the neighborhood of theYacyret& and Apipe islands.

2. The Treaty of Yacyret& was signed between Argentina and Paraguay onDecember 3, 1973. Since then, the Treaty has been expanded throughamendment letters agreed to by both countries. The amendment letters werestarted in 1973 and, many others were added to the Treaty in the followingyears until now.

Purs ee of the Treatv

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

Construction and Operation of the Hvdrodlectric CQolex

4. For the construction and operation of the hydroelectric complex, the Treatyprovided for the creation of EBYa, a binational entity formed by AyBY ofArgentina and AMDER of Paraguay, having equal rights and duties, as well asfull legal, financial, administrative and technical capacity. The Treatyestablished EBY's capital, administrative bodies and other provisionsnecessary to carry on EBY's activities. The capital was originally fixedat US$100 million, to be supplied in equal parts by both AyB and ANDB andsubject to adjustment according to pre-established indexes. The mainactivities relating to EBY's upper management are concentrated in theBuenos Aires and Asunci6n ofiices, while activities at large are centeredon Yacyreta island. There are also offices at Ituzaing6 and Ayolas.

J/ Comid6n Mita Tnica Arnina Paguy

aJ EBY: Entidad Diad do Yacy t

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

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

uties

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

6. The following are exempted form all taxes, rates or levies: (a) EBY andany electricity services provided thereby; (b) any materials and equipmentacquired in Argentina or Paraguay or from any third country, for use inYacyret&'s works and installations; (c) transactions relating to suchmaterials and equipment; (d) EBY installations or payments and remittancesmade by the Entity or any other persons, provided that EBY is legallyresponsible therefore. No restriction or taxation will be imposed on EBY'smovements of funds nor will there be any restrictions on the traffic orstorage of materials and equipment intended for the construction andoperation of the hydroelectric complex.

7. The power produced will belong to both countries in equal parts and eachcountry will have the preferential right to acquire the portion left unusedby the other country, and the Parties undertake to fully acquire theinstalled power. The power assigned by one country to the other will besubject to a valuable consideration payable by the recipient.

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

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

maYIs Management

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

KEY's Management

10. The business and affairs of EBY will be managed by a Management Councilconsisting of four members, appointed by each country for a period of fouryears. The duties of the Management Council are: (a) to perform, andenforce performance of, the Treaty; (b) to adopt key management directives;(c) to adopt the by-laws of the institution; (d) to decide on obligationsand loans at the proposal of the Executive Committee; (e) to approve theannual budget and subsequent reuisions; (f) to authorize all acts involvingchanges in EBY's equity, with the prior opinion of AyS and ANDB; (g) todetermine the conditions of all services to be rendered by the works andinstallations.

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

Influence on Power Generat40n

12. The Treaty describes the installations required to produce electric powerand enhance navigation conditions, as well as the supplementary worksassociated with the development of the Paran6 River.

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

(a) Supply conditions: this refers to the division of the power generatedin equal parts, according to the installed capacity at the powerplant. Each company (AyB and ANDE and the companies indicated bythem) will enter into eight year contracts with EBY for shares of thexnstalled capacity, according to a given utilization schedule. Eachschedule will be provided two years before the date scheduled forstart-up of the first generator unit and two years before the end ofthe first and subsequent eight year contracts. The companies mayutilize the power produced by the installed capacity up to the limitestablished by EBY. Failure to utilize the portion of the power orcapacity contracted for within the fixed limit will make entitiesauthorize KBY to assign their portion to other entities;

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

(i) 12k return on EBY's revalued capital;(ii) annual debt aad interest services on loans received;

(iii) compensation to AyE and ANDE, in equal parts, for expensesassociated with EBY, assessed as of the date of the Treaty are166 US$/GWh, as generated and measured at the power plant;

P&ge 4 of 5

(iv) compensatory payment to both couniries for flooded territory,to be estimated according to an equation which includes thepower generated throughout the year and the unit cost of the"theoretical economic" service. The latter is defined as thedirect operating expenses plus a fixed allowance amortizing thetotal plant investment in the complex, including interest,divided by the power likely to be generated in the meanhydrology year. Such compensation is distributed on a 7OV-30Obasis for Paraguay and Argentina, respectively, depending on thearea of the flooded territories;

(v) compensation for power assignment, established to be at2998 US$/GWh as of the date of the Treaty. The resulting summay not be lower than US$9 million;

(vi) operating expenses;(vii) balance (positive or negative) of the operating account for the

previous period;

(c) Revaluation of original monetary values. The Treaty establishes arevaluation forimla to be applied to the revenues, compensations andalso, in accordance with amendment letter of January 9, 1992, to thetariff level;

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

Amendment Letters

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

(a) The letter relating to the supplementary rules for paying up EBY'scapital (April 22, 1977). The rules govern AyE's and ANDE's capitalcontributions and the capital revaluations to be made by applying theTreaty's adjustment coefficient. In addition, EBY recognizes, infavor of AyB and ANDE, compensation for the cash advances made duringthe construction period. From the month following each cash advanceuntil the start of operations the annual interest rate v,ill be 6* onthe adjusted value of the cash advances. If, at the time operationsbegin, the integral contributions do not cover the required capitalthe compensation earned will be considered as additional capitalcontributions. If the cash contributions have exceeded the amountsrequired the excess will be returned by EBY 25 years following thestart of operations payable in 25 annual quotas plus 6% annualinterest on the balance;

(b) Accounting currency (September 15, 1983). The US dollar isestablished as the accounting currency to replace the Special DrawingRights (SDR). This leaves without effect the letter of July 27, 1976establishing the SDR as the accounting currency.

Page 5 of 5

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

(a) The tariff to be paid to EBY for the power was fixed at 0.03 US$/kWh(at prices of December 1991, to be readjusted by the Treaty index).Besides, Paraguay will receive as a partial payment 0.00175 USS/kWhwith respect to the annual compensation established in the Treaty.This partial payment will take effect from the beginning of the powergeneration and will be in force for a 10 year period. The unpaid partof compensation will be accumulated and after a period of grace of 15years will be repaid by EBY to Paraguay in eight annual quotas withoutany interest. On the other hand, Argentina gives up the right to earnfuture interest on the debt incurred by EBY with the ArgentineTreasury effective the date of the amendment letter;

(b) Most of EBY's activities will be concentrated in the site, and amanagement control sector will be included in the EBY's organizationalstructure. By February 29, 1992, EBY's employment will be reduced toa maximum of 360 persons.

(c) The period to start power generation is established as between Marchand September 1994. Power generation will be carried out at a reducedscale, namely from a dam level of 76 m in the first year, 78 m duringthe three following years and thereafter at 84 m, which is the full-scale operating level of the project.

Influence on the Leaal Pramework

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

(a) The Labor and Social Welfare Protocol establishes a single legalsystem applicable to the labor relations and social welfare ofemployees, including work and service contractors and subcontractors.

(b) Accorting to the Additional Tax and Customs Protocol, the Partiesregulase the tax exemptions affecting the operations, labor, servicesor elements involved. Such tax exemptions exclude taxes, rates andcontributions levied on the capital of contractork-, subcontractors andsuppliers even though they might have a certain bearing on the works.

(c) According to the Surveillance and Security Protocol, the Partiesestablish a law enforcement and security system which includes theprotection and safeguard of persons, and EBY's assets and interests,contractors and subcontractors for works and services,a nd theParties. Surveillance and security activities will be exercisedwithin the areas defined by Protocol and will comprise constructionstages and simultaneous operation of the undertaking.

Page 1 of 5

ARGBNTINA

YACYRETA HYDROELECTRIC PROJECT II

The Yacvrete Hydroelectric Scheme

Background

1. The Yacyret& hydroelectric project has its origin in studiescarried out since the beginning of this century, initially with the mainobjective of improving navigation on the Paran& River, at the rapids of Apip6.In 1958, the Governments of Argentina and Paraguay formed the "Comisi6n MixtaTecnica Paraguayo-Argentina" (CMT) with the purpose of studying the river'shydroelectric potential at these rapids and improvements in navigation. Apre-feasibility study was completed in 1964, and in 1971, an internationalconsortium of consultants, formed by Harza Engineering Co. (USA), LahmeyerInternational GNMH (Germany), A.D.B., S.A. (Argentina), Yacyret& S.A.(Paraguay) and Cuyum, S.A. (Argentina) was hired to prepare a feasibilitystudy for the hydroelectric/navigation project. This study was completed inDecember 1973, and its conclusions provided the basis for the preparation ofthe Treaty of Yacyret& (Annex 2.1) which was ratified in that same month byboth Governments.

2. The Treaty contains agreements related to:

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

(b) the co-ownership of the works to be constructed;

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

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

3. A further step in the preparation of the project was taken in 1974,when Yacyret& hired the consortium formed by Harza, Lahmeyer and theirArgentine and Paraguayan associates to prepare the final design for theproject which was completed during the period 1974-1978. On the basis ofthese studies, the Bank appraised (July 1978) and approved (October 1979) aUS$210 million loan to the Government of Argentina for the construction of theproject. Further financial support in the amount of US$250.0 million wasprovided by the EBectric Power Sector Project, approved in November 1988 (Loan2998-AR).

Project Description

4. The project is located on the Parana River, the internationalboundary between Argentina and Paraguay, about 80 km downstream from thecities of Posadas (Argentina) and Encarnaci6n (Paraguay). The main objectiveof the project is to provide base-load hydroelectric energy for Argentina'spower sector. Other objectives are to improve navigation on the Parana riverby eliminating the rapid. of the Apip6 and to provide irrigation for bothArgentina and Paraguay in the provinces of Misiones and Corrientes, and theDepartment of Itaipu, respectively.

5. In its final stage, the project comprises:

(a) an earth dam, approximately 65 km long (including power house,spillways and navigation lock), with a uniform elevation above sea-level of 86 m, and a maximum height of 42 m, creating a reservoirwith an area of about 1,065 knm and a total storage capacity of21,000 million cubic meters;

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

(c) a conventional covered power house with 20 Kaplan turbinels' of155 MW, operating at 71.4 rpm; 20 generators of 172.5 MVA, with apower factor of 0.9, operating at 50 HZ, 13.2 kv, which willproduce an average of 19,206 GWh/year under normal hydrologicalconditions and tranoformers, control equipment, etc.;

(d) fish passage facilities to preserve the fishery resources of theParan6 river;

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

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

(g) the "Arroyos" works: (i) the Aguapey dike, with the same elevationas the main dam, to avoid flooding of lands in Paraguay, includingdischarge channels to transfer the water to downstreams of thereservoir; and (ii) the Tacuary coastal dike to avoid flooding ofurban areas of the Camen del Parant city in Paraguay;

(h) permanent villages to house supervisory personnel duringconstruction and, afterwards, the personnel in charge of theproject operation;

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

Page 3 of S

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

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

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

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

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

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

ProleCt NxeCution

6. Enaineerin. A two-stage implementation of the project has beendevised as a way to overcome its financial difficulties. In the first stage,the project would be completed at a reduced elevation, thus permitting thepostponement of construction works such as the "Arroyos" and most of therelocation &ad resettlement works. The second stage consists in thecompletion of the postponed works so as to finish the project in its originalconception. The selection of the reduced elevation for the first stage wasmade on the basis of an economic optimization performed by the Consultants, inwhich the benefits were considered to be the economic value of postponinginvestments while the cost was the foregone value of the decremental energygeneration. This study showed that the optimum elevation for the first stageis 76m -- as compared with 83m, the definite elevation.

7. For the technical supervision of the execution of the project, EBYretained the services of the Harza gng. Co. (USA) together with LahmeyerInternational (Germany) and their Argentine and Paraguayan associates, whichformod a consortium called Consultores Internacionales de Yacyreti (CIDY).EBY controls the activity of its consultant at the project site through a

superintendent of works with a small group of qualified professionals. Giventhe exceptional size of the project, EBY has also retained a panel of well-known international experts in different disciplines (geology, dam design,hydraulics, etc), to conduct periodic reviews of the dam and structures duringconstruction. After an interruption of about two years, the panel met inDecember of 1991. EBY has also agreed to submit to the dank for review nolater than one year before the expected completion of the dam, a reportshowing appropriate arrangements tc inspect periodically the dam and relatedstructures during the operation of the project.

Page 4 of

8. Construction Works. The main civil works are being executed by aninternational consortium (SRIDAY) composed of Impregilo S.P.A. (Italy?, DumezS.A., (France) and several contractors from Germany, Italy, Argentina andParaguay, under a contract signed in October 1983. The bidding process forexecuting the civil works began in 1979 through a pre-qualification ofcontractors. The proposals presented by the contractors were opened in June,1980, but the contract was signed only in October, 1983, due to a protractedprocurement disagreement between EBY and the Bank. mae works began in 1984 ata low pace because of the economic problems faced by the country, the low rateof collection of the electrical funds and the difficulties encountered by theGover.nment in securing external financing. By mid-1986, EBY, under newmanagement, reviewed the design and implementation schedule of the project,and negotiated with the contractor a rescheduling of works which resulted in atwo-year delay in relation to the original schedule. Execution of the workhas been, since then, technically satisfactory. However, further financialdifficulties impeded a normal project implementation. As the funds forfinancing the civil works dried up, the contractor has undertakenresponsibilities for seeking commercial financing and has threatened severaltimes with suspension of the works. By the end of the first quarter of 1992,the global progress of the execution of the main civil works contract wasestimated at 80%. The status of the uifferent elements of the plant is asfollows: (i) the navigation lock structure and the navigation channel iscomplete; (ii) progress of the dam reaches 90%, (iii) the spillways arecomplete and; (iv) construction of the power house has reached 901.

9. gauipment. (Attachment 1) The electromechanical equipment wasprocured through several tenders (turbines, generators, cranes, fish passagefacilities, gates, transformers, bus bars, SF6 substation equipment, controlequipment, and navigation lock equipment). The manufacturing of thisequipment is now proceeding satisfactorily, after the current EBY's managementsucceeded in clearing arrears and ascertaining that supplies are consistentwith the new plant commissioning schedule. The key to this normalization wasthe renegotiation of the Argentine Government with its internationalcreditors, thus allowing the U.S. Eximbank to resume disbursement of itsUS$400 million line of credit for the financing of the turbines beingmanufactured by VOITH. Three contracts for the electrical equipment have notbeen awarded yet, including the one for transformers which is now in thecritical path of the project implementation Schedule. It is expected that thetransformer contract be awarded by the end of August. The SF6 substationequipment which is also in the critical path, had its contract awarded at theend of July 1992.

10. Current Imolementation Schedule. Together with the two stageconstruction approach, a revised implementat'on schedule has been prepared.(Attachment 2). Milestones are: (i) completion of dams; reservoir filling at

elevation 76 m and starting of first generation unit, September 1994;(ii) operation of the reservoir at elevation 78 m, September 1995;(iii) operation of the reservoir at elevation 83 m, June 1998; and(iv) installation of unit number 20, June 1998.

Page 5 of 5

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

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

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

Page 1 of 4

AROBTMIN

YACYR$TA HYDROELECTRIC PROJECT IX

CONTRACTS FOR SUPPLYING OP ELRCTRO=ECHANICAL sQUIPxENT

Status of B&Legution

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

QMtraCtor: VOITH-DEW-COMETARSARstimated Amount: USS 210 millionFinancinal': Eximbank (USA), 9 turbines

EDC (Canada), 4 turbinesStatus: Under manufacturing, rate of progress 44%. EBY has paid -he 10%

down payment plus 40W of the works.Comments: The EXINMANK and EDC credits are operative again. No manufacturersupplies complete turbines. EBY, which has not yet reached a full agreementwith COM3TARSA, has recently agreed with VOITH on the possibility ofdelivering complete turbinei for units 1-5 and in accordance with the revisedplant commissioning schedule.

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

Contractor: METANACEstimated Amount: US$ 117 millionFinancAn: Eximbank (USA)Sd-tatug: Under manufacturing, rate of progress 8%. EBY has paid the 18%

down payment plus 6O of the works.Comments: The EXIMBANK credit is operative. The reaching of an agreementbetween HBY and the manufacturers is required to: (i) settle pending claims,(ii) reschedule the delivery of turbines in accordance with the overallproject schedule.

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

Contraetor: Japan ConsortiumEstimated Amount: US$ 100 millionFinanciBg: E xim1ak (Japan)Status: ander manufacturing, rate of progress 6O. EBY has paid the 12%

down payment plus 3% of the works.Ccnments: No pending problems with the execution of this contract.

F Financing to be complemented by EBY. This is footnote valid for allcontracts.

Contract Y-31 (0). 10 Generators. Second Group

Contracto: Siemuens-GI1Estimated Amount: US$ 100 millionFinancina: Not secured yet.S$;atus: Manufacturing has not started yet.Cerments: Though not in the critical path, securing financing for thiscontract will become imperative by year end.

Contract Y-S2 (PO). Crane.s First PartContractor: COMTARSA-P&HEstimated Amount: US$ 6.3 millionFinancing: Eximbank (USA)

Status: Under manufacturing, rate of progress 69%. EBY has paid the 4%down payment, plus 68% of the works.

Comments: No pending problems with the execution of this contract, EBY isexpecting a rescheduling of delivery from the Contractor.

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

Contractor: IMPSA-KONeBstimated Amount: USS 7 millionFinancin: NoneStatus: Under manufacturing, rate of progress 37%. EBY has paid the 9%

down payment plus 28% of the works.Coments: No pending problems with the execution of this contract, EBY isexpecting a rescheduling of delivery from the Contractor.

Contract Y-B4. Fish NiaratLon Zacilities

Contractor: RIVA-CalzoniEstimated Amount: US$ 3.1 millionFinancina: AImTOStatus: Under manufacturing, rate of progress 91%. EBY has paid the 6*

down payment plus 58% of the works.Comments: Negotiations under way to: (i) settle pending claims, and (ii)rescheduling of delivery from the Contractor.

Contract Y-35. Oaten and Stocloas

CEntractor METANAC-SINEEtimatea Amoun: US$ 124 millionFinancing: INIStatus: Under manufacturing, rate of progress 751. EBY has paid the 4*

down payment, plus 701 of the works.Comments: Negotiations under way to: (i) settle pending claims, (ii)establish payment calendar, and (iii) reschedule delivery proposed by theContractor.

Contraet Y-S15. Navication Loak Xlactromachanical Hauloment

Cntractor: CAMTEstimated Amount: US$ 30.1 millionFinancina: IMIStatue: Under manufacturing, rate of progress 921. E3" has p ,' the 2%

down payment plus 83% of the works.Cmments: Negotiations well advanced to: (i) settle pending claims, ae.d(ii) reschedule delivery proposed by the Contractor.

Contraet Y-R9. Transformers

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

Contract Y-1. SL Substation

Cotactor: JAPAN Consortiumt4mAtedl Amount: US$ 17h.7 million

Financina: Eximbank Japan (851) and suppliers (15).Status Contract to be signed shortly.Coments: This contract is in the critical path.

Page 4 of 4

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

Contragtor: Busses: EMA (Argentina)Auxiliary Services: (Siemens (Argentina)

Estimated Amount: US$ 28.6 millionFinancina: EXIMBANK (US$5 million) and supplier credits (US$19.0 million).Status: Contracts to be signed by August 31, 1992.Cimments: This contract is close to the critical path; only a one monthmargin remains.

Contract Y-E13, Control and Protection Services

Contractor: To be awardedEstimated Amount: US$20 mill.ionFinaning: Not yet secured. Bidders were requested to provide financing.Status: Fresh prices requested from bidders. Award expected by the end of

August.Comments: This contract is not in the critical path.

Contract Y-X14. Coamuter Rauioment

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

ARGENTINA - YACYRETA PROJECTEXECUTION SCHEDULE

Year 1990 1991 1992 1993 1994 1995Trimester 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

CML WORKSDamslrrigon Intakes = = =Navigation Lack-

Powerhw _-___t _____ Reservoir FUn __ ELECTROMECHANICAL EQUIPMENT - _Fish Migron FaciitiesCranes - - - - - -Genration Urnt CommissioEnIng-Unkt 1 -Unit 5----- -Utnit10

-- - - - - - - - - - 2nd.Quarterl996-Unit 15 - - - - - -_=. Quaer 19i-Uni 20 - - - - -=_. Quaer IMTransformers-BIddgProccess -= _ _ _ -= = _M~amdfactuig - - _- _ _ _ _- -Instalatlon/TestsSubStatns In SF6-Bidding Proccess _ - _-Manwufatun - - - - -- -

-lnstalatonjestsAwdladry Setvmes - - - - - - - - -… -Protecton and Cont"l Equlpment - - _ _ _ = = = _ = _ - _ _ _ _Compsfler Systerms

ARGENTIMNAYACYRETA HYDROELECTRIC PROJECT II

EsUmated Cost of th Hydro Project Component.____ i(1tnuadd1 l 992)

1992 1993 1994 1995 PERIOD 1992-1995LC FC TOTAL LC FC TOTAL LC FC TOTAL LC FC TOTAL LC FC TOTALDirct Project Cost 103019 212721 315740 101737 220889 322626 88967 213752 302719 43401 110000 1534C1 337124 757362 1094486Maor CAvi works 54661 60928 115589 52735 59954 112689 41569 53156 94725 15887 16904 32791 184852 190942 355794Conructlonequiment 520 4318 4838 460 4480 4940 552 5373 5925 0 0 0 1532 14171 15703ArroyosPot.ctonWorkm 0 0 0 0 0 0 786 1230 2016 3669 5739 9408 4455 6969 11424Generating equipment

-Turbines 21231 52353 73584 15930 41391 57321 10531 27223 37754 3979 8532 12511 51671 129499 181170-Generalrs 1784 46538 48322 2320 45476 47796 2687 31355 34042 1429 24641 26070 8220 148010 1 i6230Electromechanlal equipment 21994 45758 67750 13227 52523 65750 9679 72252 81931 4716 40463 45179 49616 210994 260610Lan adquieltlon and Indemrdlcatlon 1303 1303 2606 8756 8756 17512 13102 13102 26204 7692 7692 15384 30853 30853 61706EnvIonment 427 427 854 2145 2145 4290 2919 2919 5838 1633 1633 3266 7124 7124 14248ReseUlmwsnt 821 820 1641 5170 5170 10340 5920 5920 11840 3804 3804 7608 15715 15714 31429Infrasstructure Works 278 278 55S 994 994 1988 1222 1222 2444 592 592 1184 3086 3086 6172Enginwerng and Administrdon 23564 20964 44528 17218 14970 32188 14340 11754 26094 9793 7946 17739 64915 55634 120549Engining 9310 6660 15970 6409 3961 10370 5752 3166 8918 4294 2447 6741 25765 18234 41999Adminibtration 14229 14229 28458 10709 10709 21418 8588 8588 17176 5499 5499 10998 39025 39025 78050Prlwtatlon Study 25 75 100 100 300 400. 0 0 0 0 0 0 125 375 500TOTAL DIRECT COST . it: 122656 23685 860269116 8956:285850 54814 108307 225506 328813 :S319041179Ui 171140 402039 81299 1215035

Physlcallonrdngenls 21 5318 5888 11206 6851 7507 14356 6683 7803 14486 364 4047 7691 22496 25245 47741I PrIc. Contngendes v 1833 4983 6816 6019 17471 23490 9757 30053 39810 7426 21562 28988 25035 74069 99104ITaTALHYDRO COMPONET COS 1SS734244.378290 111625 260837 392662 119747 263362:383109 64264 143555 207819 449570 912310 1381880U hnv, 1992prtebwL2V USa N bhgId l klb and lZ%tf*rbld=qbd* d 0d..lkno ad m*mm.t31 b&UM=f b9umbWd6Muu3mts.*EUwUz4.7% P4

f.quiadnb, 193Z * 2.8%: 193F * 3.ff: 29W. * .9%;antd l9ff a. - 38%

'9

(z

ARGENTnNAYACYIETA HYDROELECTRIC PROJECT II

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

t - Ws A

1992 1993 1994 .995 TOTAL PERIOD1992-199

14-At-U LC FC TOTAL LC FC TOTAL LC FC TOTAL LC FC TOTAL LC FC TOTAL

VOTALMHDRa COMPONENT COST- 1337S4 244557- .378291F 131825. 260836392861 119747 263363-3831107 644:.143554:207818 44950W9121 W1361660

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

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

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

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

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

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

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

OIhrsources 2000 2000 4000 0 0 0 0 0 0 0 0 0 2000 2000 40001, /inueutlwseddks _m1dbyWSuUmdwslMu3mnl_ff, fbmhm285-AR(SBG BOAV)Ir ispmoctba d TAN002A4 4

1W I lgpa*mddlab(USLl5Um)Id _ _te _ I eatatbWe NM dwrlq1Uum"dt7.

IY l1b vm ndp madhhlat (IW8S )bvupmd tlob dIII dub c pcdi 299-lL

ARGENTINA

YACYRETA HYDROELECTRIC PROJECT II

COST VARIATIONS OF THE YACYRETA HYDROPLANT SINCE THE PROJECrs INCEPTION(UNs mimo)

1979 EsImate I/ 19"6 EtImate 21 Current EsImateLocal Foreign Total Local Forsbin Total Local Foreign Total

05-h--92Direct Construction Cost 1206.1 931.8 2137.9 1289.0 2231.0 3520.0 1663.0 2799.2 4462.2

Preliminary Works 103.8 103.8 163.0 178.0 336.0 160.4 177.0 337.4Operators Village 133.0 123.0 256.0 133.8 122.7 256.5Main Civil Works 516.8 557.7 1074.5 521.0 924.0 1445.0 676.3 941.2 1619.5Arroyos Protection Works 43.8 74.4 118.2Construction Equipment 62.0 188.0 248.0 14.9 249.0 263.9Generation Equipment 12.8 232.4 245.2-Turbines 49.0 262.0 331.0 88.8 261.1 349.9-Generators 7.0 172.0 179.0 11.5 222.2 233.7

Eletro-Mechanical Equipment 66.0 90.3 156.3 94.0 166.0 280.0 123.6 382.7 506.3Navigation Lock 78.8 51.4 130.2Land Acquisition and Indemnilicafton 66.4 66.4 84.0 54.0 138.0 149.9 121.6 271.5Relocation/Resetloement 362.0 362.0 178.0 151.0 327.0 258.0 247.3 505.3

Enginoerlng and AdminltatIon 169.5 53.0 222.5 537.0 536.0 1073.0 545.9 547.4 1093.3

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

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

TOTAL ui 1375.6 984.8 2360.4 1826.0 2767.0 4598.0 2206.9 3346.6 5555.5

Adjustment to convwt to consAnt valuesfor the year of the timat:

- Physical Contingoncy 166.4 128.5 296.9- Price Contingency -29.4 -56.4 -87.6 -81.2 -168 -249.2

TOTAL ADJU S 3154.0 111.3 2857.S 17".6 2706.6 4505..2 212L77 3176.6 50.

ESTIMATE ' ECOST INCREASES

Index of Unit Value of Manufactured Exports 65.5 9.1 105.0Deflator Index (1979-1.0) 1.000 0.609 0.624Adiusted Cost1fr 1979Ivalues. 27 S102.9 3310.1cost increaseinarlnt bon to 197_ , 24.6%8

AWCZ13U DY^i_a1.197~~~~~~~~~~~~~~~~N227

v D r _ @

2/ ORDPoalmaft , & (E-iXX^|t_>

Page 1 of 6

A-RGZNTZXA

YACYRETA HYDRO^SbIZTRIC PROJECT It

REDUCED ELEVATXON OPERATION STUDY

Purnose

1. The Reduced Elevation Option (REO) for Yacyreta corresponds to a phased

implementation of the undertaking under the current severe financialrestrictions. It was devised as an option to the completion of the project

under no financial restrictions --basic option-- and allows the partialcompletic,n and start up of the project while postponing part of theinvestmeants required under the Resettlement and Environmental Mb'agementprograms (R&MNP)1/. The RBO would permit the project to genevate energy atthe earliest date, thus helping EBY earn the funds required to finance theR&EMP and complete the project. The REO is based on recommendations of anoptimization study prepared by EBY with the assistance of its consultant(CIDY) which had been agreed upon between the governments of Argentina andParaguay. This Attachment presents the results of the REO technicalstudies2/ which have been reviewed by the Bank and found satisfactory.

Oriain of the Pronosal

2. The R&EMP includes works required either to replace existinginfrastructure or create new urban areas to resettle population that currentlyoccupy land to be flooded by the reservoir filling. The total R&EMP plus the

Arroyos protection works amount to about US$720 million3/, which is asubstantial part of tne total investment needed to complete the undertaking.However the accumulated required investments varies with reservoir levels;i.e. they amount to US$43 million for level 76m, US$132 million for level 78mand US$478 million for level 80m (See Fig. 1)4/.

3. While gradual elevation of the reservoir allows for delaying part of the

R&EUP investments, it is necessary to define the initial level, and how andwhen the reservoir would be raised to its final level, so as to maximize

benefits. Studies performed by EBY with help from its consultants aimed at

obtaining these definitions.

11 Ilor the purposes of this attachment, the R&EMP coss include irastructure works, and land acquisition and indemnification.

a' f(i) Estudio Coperacifn a Cots Reducida, CIDY, July 1991, (ii) Relocalizaciones vs. Operaci6n RestAngida de Yacyret, CIDY,Jun. 30, 1990, (iii) Programaci6n de Yacyrti, CIDY, January 1990, (iv) Plan y Justificaci6n para Is Terminacidn del ProyectoYacyrea con Minimm nversi6n y Cp,eraci6n a Cote Reducida, CIDY, May 1991.

The REO studies were prepared by EBY by mid 1991 with price level data of Januay 1991. Cost sdmttes have been updatedfor this SAR and may slightly differ from figures indicated in this Attachment. Thes diferences would not change theconclusions of the REO studies.

i/ MTh bove elevations refer to mtne above sa level in the Posadas/Encamaci6n (PE) area, which is the most populated affetedarea. They are relocation levels, which are derived by adding a safety maugin to the normd taservoir elevation in thePosadsllncarnaci6n ar to provide for wind wave effects. Thee margins aFe as follows for the reulting relocation levels:0.3m for 76m; 0.5m for 77m; 0.7m for 78m, and 1 .0m for 79m up to the design level of 84m.

- 2 - Annex 2.2Attachment 6jPage 2 of 6

Studre

4. The economics of the RBO is based on maximizing the present value of thenet benefits stream of the options that would permit the partial postponementof the R&MV investments. Benefits were estimated as the postponement of thecorresponding investments. Costs were evaluated as the foregone benefits fromelectricity sales due to the postponement of the plant generation with regardto the benefits that would have been obtained in the basic option. Netbenefits of the reduced elevation options were estimated for different levels(starting at level 76m) and durations,of reservoir operation at those levels.

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

6. The main assumptions of the study are:

(a) The minimum reservoir level would be 76m. This was definedbecause of the technical characteristics of the turbines which could notoperate at lower heads without unduly risking their physical integrity,

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

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

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

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

Net Benefits of the RIo

7. An illustration of the RBO net benefits is given by Tables 1 and 2.They summarize the results for the different options for two of the severalsensitivity cases reviewed (Table 1: 121 p.a. OCC and US$30/MWh energy cost;Table 2: 17* p.a. OCC and US$30/Mwh energy cost). These options arecharacterized by the number of months the reservoir would be kept at levels76m and 78m. The table also identifies, for each duration of reservoir

ulRobcaion level of U4m ooreqxoda to a au sivoir level of 83m In the Posadaullarndnaa and of 82m in the darn.In rderw to * a revoir levl of 3m In d a am ar de dam muy hAve to be opmatd bow 82n foraieafi-ow above 35,000 taIS.

*3 - Annex 2.2At.tachment 6Page 3 of 6

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

Results

S. The decision on the REO, as presented in this SAR was the result of acareful evaluation of the whole set of options that resulted from the studiessummarized in this Attachment, jointly with the schedules for timelycompletion of R&IMP works that would make the corresponding options feasible.Results of the sensitivity analysis showed the convenience to start thereservoir operation at level 76m, keep it at that level for one or two years,then raise it to 78m and keep it there for about two years, and finallyproceed to a gradual raising to the final level 84m. There was a cleareconomic advantage in ultimately going to the original design level, asopposed to stopping the reservoir filling at any lower level. The pass fromlevel 78m to level 79m was clearly defined in all options as an importantlandmark; this is because, as can be noted in Fig. 1, investments increaseroughly by US$290 million (or 40* of the total) with the raising from level78m to level 79m, while other incremental investments are more gradual.

9. On the basis of the above results, the Governments of Argentina andParaguay agreed on a Treaty amendment letter for the implementation of theproject under the REO, as follows:

(al September 1994: installation of the first generating unit andimpoundment of the reservoir to level 76m;

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

(c) September 1997-June 1998: gradual raising of the reservoir fromlevel 78m to level 83m (turbine number twenty, the last one, to becommissioned by June 1998).

ANNEX 2.2Attachment 6Page 4 of 6

Figure 1

YACYRETA 11 PROJECTR&EMP Plus Arroyos Prot Works

800-

700-

600i-0

~500 - - -

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

Total Incremental hi,crem. to level 76

ARGENTINA - YACYRETA HYDROELECTRIC PROJECT n Tabe 1ECONOMIC EVALUATION OF THE REDUCED ELEVAllON OPTIONCASE: 12% p.a. OCC; US$ 30/MWh Enery Costl1*Ia Level: 76m; Rasn to Level 7m as ndicated

Net Prsent Value d Benefts (JS$ mion)

Number d Months at Level 76mNumber of Months 0 3 6 9 12 15 18 21 24d Both L%wes 3 10.4 11.0(76 mid 78m 6 17.8 18.4 117.7

9 22.5 23.1 2.4 20.6lMaimum Bwenefits I 12 _

15 23.5 24.1 23.5 21.7 187 .

18 20.3 20.9 20.2 184 15.4 11.3 21 14.7 15.3 14.7 129 9.9 '.8 0.7

~o8avBenefits 24 7.0 7.6 6.9 5.1 22 Ea Do

Line Indicates When to Move to level 78nL~~~~~~Levl 78

30333639424548

NOTES:

-. 1ne Indicates When to Move to leve 78m.L-Lower Shaded Area Indicates taht Beneft are Negate.Results Indie that the Maimum Benefts (US$ 25.0 muMon) are Atained wih 3 Months at Level 76m and 9 Months Level 78m.

file:RRBEN12.wql

AAGENflNA -YACYREA IWDOELECTrIC PROJECT U Table2ECONOMIC EVALUATION OF THE EDIUCED ELEVATON OPTONCASE: 17% p.. 0CC; US$ 30/MWh EneW CodInl Laewl: 76nm; Rbsn to Lvl 7&n f hdcade

Nut Posent Valu of Bnfa(UJS$nmMo

Number of Mandhs at Lev 76nNunberw ofbMnch 0 3 6 9 12 15 18 21 24 27 30 33 36 39i BOSaL eS 3 142 15.4(7amd78nl 6 25.5 2. 289

9 34.3 35.5 12 40.5 41 41.9 4115 442 45.4 45.5 44.6 42.8 39.9Ma nea B1eft 1821 45.3 36.6 46.7 45. 43.9 411.0 37.4 24 43.0 442 44.3 43.4 41.5 38.6 35.0 30.627 39.0 402 40.3 39.4 37.5 34.6 31.0 26.8 2Z030 33.7 34.9 35.0 34.1 32.2 29.3 25.7 21.5 16.7 11.733 27.5 28.7 28.8 27.9 28.0 23.1 19.5 15.3 10.5 5.5 0.336 20.4 21.6 21.7 20.8 18.9 16.0 12.4 82 3.439 12.8 14.0 14.1 132 11.3 8.4 4.8 0.8_ Elevatio-n 3*o1'Pos"tv enefits 42 4.8 6.0 6.1 52 3.3 0.5

JLevel 7am4548

NOTES:

-Un Ind cte When to Mov to Eleaton 78m.4LwerShaded han incihda Benefitw Negati.4Remitl Ideht te Mdmu Benfit (US47.1 tIrn r Atined wh 6 Maat Leel 7m and 12 Mont at Leb 78m.For 12 Month Opeation t levd 76m, do Mabnm Benitb AmnoLmtb US$ 44.3 mUon wh 6 Montso at Levl 78m.4Ioer, 12 Month Opation at Level 76m pks 12 Month Cpealon at Lev 78m YIed B i OMSS 41.5 milon) Which Are Not Subtnt Dflun From to Oplhmn

Ue:RROEN17.wql

so rt~

fD 0 t0:

0Q.0

r nt

Oh

Page 1 of 4

ARGENTINAYACYRETA It PROJECT

The Yacvreti Transmission System

Background

1. The construction, operation and ownership of the transmissionsystem associated with the Yacyreta project was assigned by the Government toAyE in the late 71's, when major decisions for financing and ensuring start ofconstruction of the plant's major civil works were being taken. AyE would bethe national utility in charge of all extra high-voltage network expansion,except for those directly associated with the plants to be developed byHIDRONOR. Initial studies carried out by the Secretariat of Energy, withfinancing from Bank Loan 1130-AR to SEGRA, concluded that the expansion of thenational transmission system at the 500 kV level would be the least costsolution.!' In 1987, a working group created by the Secretariat of Energy,led by AyE and integrated by HIDRONOR, ESEBA tthen DEBA), EBY, CTMSG andSEGBA, with technical assistance from the Italian national utility, ENEL,completed a detailed study for the definition of the transmission systemassociated with Yacyreta. This study also took into consideration thatGarabi, a joint Argentine-Brazilian hydroproject could be built a few yearsafter Yacyreta's completion with some 1,800 KW installed capacity. The studynot only confirmed that the basic development of the national grid should bedone in the 500 kV a.c., but also that the Western-Eastern interconnectionshould also be done in this voltage, rather than in ± 400 kV d.c., asinitially planned. The basic system configuration was: (a) two lines runningwestward from Yacyreta to Resistencia and then one to El Bracho; and (b) twolines running southward from Yacyreta to Salto Grandx~e, via Garabi, and thenone line farther south to the Buenos Aires area (Gal. Rodriguez substation).This would correspond to about 2,700 km of 500 kV lines and require thecreation of 3 new substations and expnsion of 7 existing substations.

2. These studies were done with the state-of-the-art methodology. Aset of design criteria for both static and transient behavior was establishedto entail performance standards in accordance with the power industry practicewith assistance of a linear-programming model. Basic alternatives weredeveloped, considering a few generation expansion programs. Detailed powerflow studies were done for both peak and light load conditions to help assessconfiguration evolution, reactive compensation needs, critical operatingconditions and losses. Stability checks were carried out to confirmacceptable transient response to credible disturbances. -Reliabilityevaluation was the next phase where the most promising alternatives weresubmitted to a Monte-Carlo simulation in order to define the expected level ofenergy not delivered by the system. Finally, taking the investments, the

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

Page 2 of 4

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

The Currently Planned Svstem

3. On the basis of the configuration defined in 1987, AyB hasconducted further studies to appraise whether changing assumptions as to thegeneration expansion, load growth and geographical distribution, and cost ofequipment and materials, would bring about modifications to the plannedsystem. In addition, and more recently, given the financial constraints ofthe power sector, some relaxation in the previously high standard criteria wasalso sought. As a result of these considerations, the connection Resistencia-E1 Bracho is no longer justified and only one more line, instead of two, wouldsuffice along the route Yacyreta-Resistencia. Additionally, the connectionSalto Grande-Colonia Elia can be postponed, since under less strict operatingconditions it is not a necessary system reinforcement for transmission ofYacyreta's full capacity. This represents a reduction of about 1,050 km of500 kV lines with respect to previous planning.

4. The current program for Yacyreta's transmission system can besummarized as follows:

ED UnE. .. 1 r IC t Ito 6 07/94 Yayreyt-Rincon, I to m 12 Rincon 4LUIRFu? t Ito 6 07/94

Rincon-Resistncj 269 Redstencia IUJIR

Rincon-Qarabi 127 Rincon IL

Second 7 to 14 I1/9S GGaabi-Salto Grade 442 Garabi 2U1IR

-- A l . Colona Eia-Gal. Rodriguez 221 C.Elia IL

Gal Rodriguez IL

Rincon-Garabi 127 Rincon IL

B ISm 15 to 20 04/97 Garabi-Salto Grande 442 Garabi 2L

Salto Grande IL

TOaWl 1,640 17 LUR

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

I L LAU BayR- ReactrBay

imlementation

5. Given the lack of managerial capacity of AyE, the Governmentassigned the responsibility of execution of the first phase of the Yacyret&transmission system (which is the one considered under the proposed project)to an ad-hoc entity (UESTY) created by Decree 1174.92 of July 10, 1992, andoperated under the control of the Secretariat of Electric Energy. Given thefavorable reaction to the SEGBA's privatization, the Government will call forbids for concession of this 270km link, resting with the winning bidder thefull responsibility for the investment and financing. If the bidding processis not successful, UESTY will call new bids for the construction of the link,the financing then being provided by the Government. These assets would bedivested as soon as the market conditions are favorable. Since the secondphase is to be commissioned some 15 months after the first phase, theGovernment believes that the private sector will respond with good offers forits development and operation under the regime of concession.

6. UESTY is presided by the Executive Director of EBY, in order toensure satisfactory coordination with the plant construction schedule. UESTYwould be in fact a Project Executing Unit (PEU), integrated by five highlyqualified professionals: one general manager, assisted by two managers forengineering and firances, each of these being supported by a seniorprofessional. This scheme is feasible because if the concession bids are notresponsive, the Government has decided that the transmission system will beexecuted under a turn-key contract. The Bank would finance the UESTYmanagement under the proposed loan. The detailed engineering and constructionsupervision would be provided by a private firm constituted by former AyEprofessionals that have worked on the project; Government would fund theseservices as part of its strategy to develop opportunities for engineeringservices in the privatization process of AyE.

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

US thousand

750150 staff months at US$5,000

Special Consultants (120 days * 60US$500/day)

Travel Expenses 100

Sub-Total 910

Contingencies S 10* approx. 90

Total: 1.000

Page 4 of 4

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

Week tn. Month No.

Preparation:

Draft Bidding Documents 1

Bidding Documents Approved 5

Sale of Bidding Documents 7

Bid Opening 15

Award 19

Contract Signing 21 5

Turn-key Execution:

Ready for Generation Testing 24

Commissioning 26

Since draft bidding documents were available on 7uly 1, 1992, it is expectedthat the works would be basically ccmpleted by July 1, 1994, thus allowingtesting of the first generating unit. Commissioning of the first phase of thetransmission system, together with the plant's first unit, would thus happentwo months later, oa. September 1, 1994.

AROENTINATAC"tETA HV OEULeCRIC PROECr a

Yas Tmmbo Sst

YesWsela Tmamsndsm Syatem 'I I 03 OA RO ii-sFY e Phase v . .............

Uneete_ 118 6.5 17.8 30.0 33.7 04.6 22.8 31.2 44.0 65.0 61.4 126.4DOedct otet 0.0 5.7 15.6 26.1 26.4 54.5 18.5 17.2 35.7 54.5 51.3 105.5C works Wnd assembly 4.3 2.7 7.0 11.0 13.4 24.4 7.0 Li 10.0 23.2 24.2 47.4qulp*m" and m bhal 4.7 3o 7.7 12.0 15.0 27.0 ao 0.1 17.7 25.3 27.1 52.4Engpnhewlg and admbdsban 0.0 0.0 3.1 51 2.0 2.0 0.0 0.0Physial Conlbgsndls i* 1.2 0.7 1.0 3.1 3.4 6.5 2.2 2.1 4.3 6.5 0.2 12.7Pile Contgn_s s 0.2 0.1 0.3 1.7 1.0 3. 2.1 1.0 4.0 4.0 3.0 7.0PFhissng 11.3 6.5 17.6 3.0 3.7 04.61 22.6 21.2 44.0S 5.0 61.4 120.4Borrowbings

GoMment lans a 11.1 0.5 17.6 30.5 33.7 64.2 22.4 21.2 43.6 64.0 61.4 125.4Proed IBRD 0.2 0.2 0.4 0.4 0.4 0.4 1.0 1.0

Tasyr.it Tmmsmldo System 1 1 1 1 1 : 1035C100ASecond Phase at . CTTl10 P OA . CTOA't CIT . CTT 10 P TOTUI wte - PART A w 41.2 44.2 65.4 50.4 00.0 117.0 44.4 47.7 92.1 142.0 152.5 204.5Dlvret p oft cost 34.7 37.3 72.0 45.0 49.2 05.0 34.7 37.3 72.0 115.2 123.6 230.0Cbl wals and assembly 14.0 14.7 21.7 168.5 19.C 37.5 14.0 14.7 25.7 46.5 48.7 05.2Equlpme and matbs 10.0 19.3 37.3 23.7 25.5 40.2 18.0 10.3 37.3 59.7 64.1 123.4Egln ng and admniIstraion 2.7 3.3 o.0 3.0 4.4 S.0 2.7 3.3 6.0 9.0 11.0 20.uPhysical CeontingNIus 0z 4.2 4.5 8.7 5.5 5.9 11.4 4.2 4.5 8.7 13.9 14.9 26.6PvleConlngmn 2.3 2.4 4.7 5.1 5.5 10.6 5.5 5.0 11.4 12.9 13.8 26.7iNVESTMENT - PART B_ 5.0 6.4 12.3 24.7 26.5 51.2 256. 27.5 53.1 0.0 0.4 12.4 02.2 05. 129.0DOret proZed cost 4.8 5.2 10.0 10.3 20.7 40.0 19.3 20.7 40.0 4.4 4.6 9.0 47.8 51.2 99.0CbIworks ad assembly 1.0 2.0 3.9 7.8 6.1 15.0 7.6 6.1 15.9 1.8 1.8 3.6 10.3 20.0 30.3Equipmen and mdwis 2.5 2.7 4.2 10.0 10.7 20.7 10.0 10.7 20.7 2.3 2.4 4.7 24.8 20.5 51.3Engb,ewing .nd administration 0.4 0.5 0.9 1.5 1.9 3.4 1.5 1.9 3.4 0.3 0.4 0.7 3.7 4.7 6.4Physical Conlngendes *2* 0.0 0.6 1.2 2.3 2.5 4.6 2.3 2.5 4.8 0.5 0.6 1.1 5.7 6.2 11.9PdceCcnlkioendss _______________ 0.5 0.0 1.1 3.1 3.3 6.4 4.0 4.3 S.J 1.1 1.2 2.3 6.7 9.4 16.1

N3IVATEnhVB~1S g41.2 44.2 65.4 62.3 67.0 126.31 6A. 74.2 143A8 25.6 27.5 58.11 6.0 0.4 12.41 204.2 219.3 743....I/ I, Jmrms.ismsaskV. 0.. Vas , Ytd-31usd. and 269 km. lied.- " Bubtsmb Ssnm.i_tmDums and macbled ui8siaUa.wm.U*sm. ANX23Ar21 CemusmosandOpwadaabytJime plata commkeo.mYI hearn b1 Md V. 56 km Rb1ud - Gara -S e Gead *d 2l km Cdolb Ell - Gnald Road

(loo Afro) oamWm How NW.. amod m.abUmus411 ared It SILl, 569k_ <limd G_a - Sakand. mibem Ie and u.ocbtadoesemclmSX 2993 2.: S9M Ss; 199M .9gg 1995 a= 9S.41 laded.. rS12ml2 . I. .qU1Unh &m NPRONORL

ARGENTINAYACYRETA HYDROELECTRIC PROJECT II

Summary of Estimated Prolect Cost and FinancingPeriod 1992-1995

(b un-Ml-a)

1992 1993 1994 1995 PERIOD 1992-1995n-u.-n Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign TotalBASE COST

Generation 126.6 233.7 360.3 118.9 235.9 354.8 103.3 225.5 328.8 53.2 117.9 171.1 402.0 813.0 1215.0TransmIssion 9.9 5.7 15.6 26.1 28.4 54.5 18.5 172 35.7 54.5 51.3 105.8TOTAL BASE COST 136.5 239A 375.9 145.0 264.3 409.3 121.8 242.7 3645 53.2 117.9 171.1 4=9.5 684.3 1320.8

li'ysicalContingencies 6.5 6.6 13.1 10.0 10.9 20.9 8.9 9.9 18.8 3.6 4.0 7.6 29.0 31.A 60.4PriceContlngences 2.0 5.1 7.1 7.7 19.4 27.1 11.9 32.0 43.9 7.4 21.6 29.0 29.0 78.1 107.1TTLPROJECT.-OST , : , 1,450251.136,1 162, 294.8573126, 284847,-6.-2 14. 207,3, 514,,,9,3.- -48

CINAC OPNVESTM T ,145 ' ','1' 251.' 8.1 1823 '4,8~ 457'.8 :''142.6 ''',284.6 427'2 64' 2 '-,1435 ' 2207 517 973.8' 1488' 3Internal fund generation u 2.0 2.0 4.0 0.0 8.1 8.1 47.0 35.7 82.7 57.1 37.7 94.8Govemment loans 2/. 67.4 28.1 95.5 107.8 95.3 203.1 89.3 97.1 186A 2.6 15.7 18.3 267.1 236.2 503.3Other Borrfwvngs:

Proposed IBRD 4/ 67.7 76.6 144.3 40.3 47.3 87.6 25.4 33.7 59.1 3.5 4.0 7.5 136.9 1t1.6 298.5Proposed IDB 5.1 5.1 10.2 6.5 6.5 13.0 4.2 4.1 8.3 15.8 15.7 31.5ExportAgencies 2.9 104.9 107.8 9.5 145.9 155.4 13.3 145.6 158.9 6.9 80.7 87.6 32.6 477.1 509.7Suppliers' Credits 5.0 39:5 44.5 1.0 1.0 1.7 1.7 3.3 3.3 5.0 45.5 50SDEB SERVICE 19.6 238. 256.2 14.4 233.3 247.7 17.8 275.5 .293.3 : 16.7 285.4 3021 68.71032.6 Ioi.3I

Amortizatn 9.5 100.1 109.6 7.6 80.0 87.6 12.0 104.6 116.6 12.0 117.1 129.1 41.1 401.8 442.9 >Interest 10.3 138.3 148.6 6.8 153.3 160.1 5.8 170.9 176.7 4.7 168.3 173.0 27.6 630.8 658A 6.FINANCING OFPDEBTSERVICE 19.82.4 258.2 14.4 . 2.7 .17.8 275.5. 2933 16.7.. 285.4 302.1 66.7 1032.6 1101.3

Govemment loans 19.8 23MA 256.2 14A 233.3 247.7 17.8 275.5 293.3 16.7 285.4 302.1 68.7 1032.6 1101.3 .AIT6L4 48C9NG.. , . :. 705.0 6 , .50 720.5 8.9 42.I . 509.8 I ;8.2 2006.4 2 9.61/ In 1992, it includes sale of e"et.

ANX24ATIV In 1992, it inludes OPRAC 11 (USS23 million)3/ Starting from 1993, it would be reduced by USS60 milion it trfer from loan 2854-AR (SEGBA V) is approved.4/ The remaining USS1J milion would finance consultant servk*s for the Resettlement and Environment Progam

ARGENTINA

YACYRETA HYDROELECTRIC PROJECT II

Project Financing Plan (1992-1995 period)(la Current USS million)

Requirements SourcesCommitted Non-Committed

Lel Foreign Toal GOernOL Ezpo Supplie' Proposed Propsd Export SuppIicns Goverm. Intenal TOTAL_Loan credit credits IBRD IDB Credits Crdits Loa Funds

14-Aug-92 02:S I) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ / 2/ 3/ToaI.Irwestmet 514.5 978.8 1488 98.0i811.4.: ::7.5: 298.5 81.5 198.8:i 480 4108 94.8 4 488.8Hydro power Plant 449.4 912.5 1361.9 93.0 311.4 7.5 297.5 31.5 190.3 43.0 284.9 94.8 1361.9MajorcivWaos 189.7 229.0 418.7 1 ;.1 252.1 155.5 418.7Affoywsro ectm Worb 5.7 9.6 15.3 15.3 15.3equpmet .1 116.5 545.1 661.6 45.2 311.4 7.5 198.3 43.0 56.2 661.6E _wmmt, Rcseflment &OtberWorbsl 68.9 68.9 137.8 8.4 7.5 31.5 63.9 28.5 137.8EM_ eringandAdministtion 68.6 59.9 128.5 30.3 37.9 9.3 51.0 128.5

Transmission 65.1 61.3 126.4 1.0 125.4 126.4

Debt Service 6,8. 1 . 1101.8 1101.38 : 1101.8

Amortiztions 41.1 401.8 442.9 442.9 442.9bIter and Fnaci alar 27.6 630.8 658.4 658.4 658.4

2/ Thruinliaggu*dosft lMsan(USS4S5ndiUa)Iss-pauI to be id6bured dafta the pulad 1996-1996 ANXC24AT22 n l adu&_

a/ Ceinuucdoo. pdna.nd dseromsclan eqdpus6d lhdu mlad aqdddom saadefisdE.do6a.. .iaeUi.wt

SI1IwdbnusbUS to.faif ots 64A UI )smr,d

VYCcVm HVDROELCCTFC PROJCT= IDY' s Organisatia Chart

ofDIRECTORS

Redations r

| General | § Internal

Secretariat Auditin S

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

] plnndn P PrS;curiteCounseling ans

| Land a

~~~~~~~~~~~~~olI tan4 1|dNinistrative,| R nironment &|

Envirot s| Department

Budget ; iVil. Human Uork_aFndnt Engineering _ROsources _ Inspection

| Intract El EItriechfnicall Goods Stud'e < nX o § t ng neetin F | ~~~~~Services Projects. F

Aoeeounting S ppig A Resettlement |

lo roat-' Sociald Mork

! Environment

Page 1 of 3

YACYRETA HYDROELECTRIC PROJEtT II

ESY: Finances

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

Past Performance

2. EBY's investment, excluding interest during construction amounted toUS$3.4 billion, by December 31, 1991 (Attachment 1). The financing has beenbased mainly on loans from the Argentine Government (321), multilateral agencies- IBRD and IBD - (351), foreign and local credits (231), and equity contributionsfrom the Argentine Government (2t); the remaining 8e is still unpaid (para.4).

3. The above use and source of funds (Attachment 2) have resulted in a balancesheet (Attachment 3) with a k.:edominant proportion of fixed assets(US$6.2 billion or 99* of total assets) ana long term debt (US$5.2 billion). Theassets composition is typical of a hydroelectric utiliv during the constructiorperiod of its sole plant. The heavy debt (Attachment 4) is not particularlyworrisome, since the Argentine Government is the main creditor (651); theremaining portion of the debt owed to foreign and local financial banks andagencies (351) is reasonable for a hydroelectric utility. The ArgentineGovernment is in charge of servicing the latter; for this purpose, a provisionhas been included in the 1992 national budget, and it is assumed that the samewould be done during the period 1993-1995.

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

Future Financial Performance

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

Page 2 of 3

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

1992 1995 1996-1998 1992-1998

Totd Requiremen 2743.0 1939.3 4682.3

InvesmAent 1361.9 785.2 2147.1

Lmina"e 658.4 52C.1 1186.5

Amortization 442.9 S54.8 997.7

Vlorking Capital (includes accouns 279.8 71.2 351.0payable and claims) I __.

6. To lower the heavy debt service burden (Attachments 5 and 6), theGovernment and EBY have taken already some measures, such as: (a) theestablishment of a flexible arrangement on repayments of the Argentine Governmentloans; and (b) the inclusion of part of the EBY's financial debt in therescheduling of Government debt. In accordance with the Amendment Letter #9,EBY's existing financial debt with the Argentine Government is not subjected tointerest payment, and amortization should be made only when EBY has the resourcesavailable for this purpose, after commissioning of the plant. Similarly, theArgentine Government will continue servicing the foreign and local debt until EBYhas the resources available for this pt'rpose (after conmissioning of the plant).

EBY: Finsainu Pln (1992-1998)____________________ a(n million of curret US$)

Period 1/ Period Totd Period_1992-1995 199f-1998 1992-1998

To-al Funding 2743.0 1939.3 4682.3

internal Fund henedraion 108.4 1282.4 1390.8

Equity Contrbution 40.0 40.0

Govenunent LAns for:investment 377.7 377.7paymnt ofarreas 196.3 196.3debt oevioe 11013 420.0 15213

Proposed NMRD lo0n 297.5 1.5 299.0

Propoed DB loan 31.5 48.5 80.0

Export agencies' and supplier' oreditscommitted 389.0 57.1 446.1unconmitted 241.3 89.8 331.1

1/ It correponds to Project implemitaon period, except for technical assisae for the Reuutlement and Environment program to becompleted by December31, 1997.

Page 3 of 3

7. These measures have entailed significant relief to EBY'a finances and haveallowed it to concentrate on the financing of the physical construction of theproject. To tinance its investment during the period 1992.1995, EBY would relyon multilateral agencies' loans (IBRD and IBD, about US$329.2 miliion), exportagencies loans and suppliers' credits (US$629.0 million), and Government loans(US$373.8 million); the financing of the electrical equipment amounting toUS$241.3 million is not yet secured (Attachment 7). To ensure the soundness ofthe financial plan until the commissioning of the first six units, the Governmen.and EBY should agree to:

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

(b) maintain a project account in a local bank to receive Govcrnment fundsas3igned in the national budget for EBY, and have it repler4..jhed by theTreasury until the commissioning of the sixth unit (ectimated by September31, 1995).

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

9. As shown in the followingfigure, EBY is financial sustainable EBY: Financial Sustainabilityin the long term. During the period c1998-2011, the net internal cash '(generation, after covering the sdecreasing service of the foreigndebt, would leave increasing margins sfor servicing the accumulated debt toArgentina (loans) and Paraguay (Treaty 40

compensations) (see Annex 2.1). It isestimated that starting in 2011, EBY would transfer operating surpluses toits owners. U SE 1 2 3 4 5 o 7 3 I 10 11 12 13 15 16 17 1H 19

G 1wku l 1. I &. CaDiI

ARGENTINA

YACYRETA HYDROELECTRIC PROJECT II

EBY: Estmated Cost and Flnh clngof the Hydro Powr Plant Component

(is Cuaa U&$ NtMi)

I nOPOSiD?KOZRCT aTOTALHYDIRO POWERUinihadatbeiD.&31.1i91 ratodW9-99iS I r19ss: PLANTCOST

_________________ ~~LC F T Le Po.. TOTA Lb Fe TMTA LC- d. FO TOTL

INVESTMENT8.. 1448.0.1965.4 S408.4 449.012.8 1361.9 S16.4 469.0 785.4 2209.0 3340.7 S55.-7

Direct Cost 984.6 1493.8 2478.4 381.0 852.9 1238.3 297.5 453.1 750.6 1663.1 2799.2 4462.3PreUmaay Woth 160.4 177.0 337.4 160.4 177.0 337.4Camp 133.8 1227 256.5 133.8 122.7 256.5MajorCivlworks a/ 473.0 688.5 1161.5 189.8 229.0 418.8 15.6 23.7 39.3 678.4 941.2 1819.6Coatmalon equipment 13.3 234.1 247.4 1.6 14.9 16.5 14.9 240.0 263.9Arfoyce Protediao Works 5.8 9.6 15.4 38.0 64.8 102. 43.8 74.4 118.2aOOaft t4Bqu"lpu6t-TllfbitlU 30.4 117.0 147.4 54.2 135.7 189.9 4.2 8.4 12.6 68.8 261.1 349.9-eGneratOr 14.1 14.1 8.8 159.2 168.0 2.7 48.9 51.6 11.5 222.2 233.7BabCrom.caUaml .quipm.ut 61.4 67.1 128.5 52.0 435.1 287.1 10.3 80.7 91.0 123.7 382.9 506.6LAA aacquislaa and Iad4.hlm¶io, 43.2 14.9 58.1 37.5 37.5 75.0 69.2 69.2 138.4 149.9 121.6 271.5Bnvireouaat 0.6 7.8 8.2 86. 8.6 17.2 51.9 51.9 103.6 61.1 68.1 129.2Resettiment 5.4 27.4 32.8 19.0 19.0 38.0 37.6 37.5 75.1 62.0 63.9 145.9lnutrnctuire Works 63.1 23.4 86.5 3.7 3.7 7.4 68.0 68.0 13W.0 134.8 95.1 229.9

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

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

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

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

Equity Contributon 56.7 56.7 40.0 40.0 56.7 40.0 96.7Local Borrowings

Oowtmmeosloa a 855.5 243.5 1099.0 201.7 173.7 375.4 1057.2 417.2 1474.4OPRAC Cmntal Bank 75.4 4.1 79.5 23 2.3 77.7 4.1 81.8

Foreign Loaom- ID8S46/OC-RG 210.0 210.0 210.0 210.0- IDB 3SS/OC-RO 64.3 185.7 2S0.0 64.3 185.7 250.0- IDBR S/OC-R& 131.3 118.3 249.6 131.3 1183 249.6- IBRD 1761-Al 72.5 138.0 208.5 72.5 138.0 208.5

-IBRD299$-AR 57.6 192.4 250.0 57.6 192.4 250.0

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

Othersouren I 118.8 167.1 283.9 2.0 2.0 4.01 118.8 169.1 287.9

U Cme41mwd 56 51380 | UUl inUIst_ 6AN=ATIV/ Itmeeld b.asbt_UU4O mselmg132lWSaai UI4O_dmtse I 1-1101 itnuiba los 104A -bbt appress

2/ podin autdDer SI. £11leoesma.. 6.154. am t-an hdiumIai 0(5 (5540ualae _

ARGENTiNAYACYRETA HYDROELECTRIC PROJECT II

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

1992 1993 1994 1995 1996 1997 1998 1999 2000

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

Average Electricity Rate (UScentkWIt V 3.3 3.4 3.5 3.7 3.8 3.9 4.1

Gross Revenues 10.0 99.5 298.6 419.2 607.8 756.3 785.0

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

Operaffon Income 6.7 66.1 191.5 249.9 392.8 527.0 555.7

Interest Ct"rges 4.1 44.5 138.9 194.0 316.3 478.4 450.0

Treaty Compensation and ofthe charges 0.2 1.7 5.2 7.3 10.6 13.2 13.7

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

Source and Uses of FundsIn Current US$ million.)

__________________________1992 1993 1994 1995 1996 1997 1998 1999 200014-Aug-92

SOURCES 864.4 665.2 691.2 522.2 611.5 867.0 660.7 724.9 753.2

Internal fund generation 4.0 9.3 95.1 289.8 407.1 585.6 724.9 753.2Operation Income 6.7 66.1 191.5 249.9 392.8 527.0 555.7Depreciation 2.8 30.7 103.5 184.5 203.4 211.2 211.2Compensation and others charges 0.2 1.7 5.2 7.3 10.6 13.2 13.7Other Sources 4.0

Equity contributions 40.0

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

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

USES 864.4 665.1 691.2 522.2 611.5 667.0 660.7 724.9 753.2

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

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

Workina Capitl 1v 227.9 24.8 14.8 12.2 23.1 8.0 401 31.8 0.9I Duri"g1992-1995. incudepsymWaIt nemira.

ARGENTINAYACYRETA HYDROELECTRIC PROJECT IIEBY: Actual and Forecast Balance sheots

(Mi wlom of USS)

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

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

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

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

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

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

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

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

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

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

Current Liabilities 570.2 320.3 324.5 323.4 344.9 367.6 440.2 595.3 662.1 816.9Current portion of Long Term Debt 109.6 87.6 116.6 129.1 150.6 168.3 235.9 402.3 484.5 639.3

Government Loans 9.6 7.6 12.0 12.0 10.0 9.8 8.0 145.8 237.3 415.9Foreign Loans 100.1 79.9 104.6 117.1 140.6 156.8 222.5 249.9 235.3 223.4

Accounts payable 283.8 55.9 31.1 17.5 17.5 22.5 27.5 16.2 0.8 0.8Interest payable and others 174.0 174.0 174.0 174.0 174.0 174.0 174.0 174.0 174.0 174.0Other Comercial debts 2.8 2.8 2.8 2.8 2.8 2.8 2.3 2.8 2.8 2.8

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

[TOTAL LIABILITIES AND EQUITY r6111.9 6642.2 7239.1 7871.5 8303.1 8668.8 8974.1 9051.0 8859.4 8652.21ANX2MAT3

Attachment 4

ARGENTINAYACYRErA HYDROELECTRIC PROJECT 11

EBY: LONG-TERM DEBT SCHEDULE

AM. Mss O oA- ovwihg dewLendwr Puose _ _ _ a=

LOANS ALREADY DISBURSED

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

Loan 348/OC-RO adblW.b Wta US 210.00 28 Ma$8 7J0 1M 1791 22.Loan 85OC-RG a Owl mbmg us 250 30 o p4 Vuahb .5 2763Loan 588/C-RA OdWWb&VWWbq 13t 2.0 30 CaWS Vubb 07S 2591

EBdmbnk - USA O.mtama fsqvk=ol U#S 2 (1) 20 UaiBS 910 050 US9

Looa Commeral bankOPRAC (Argena) ObsaB_sdqms us3 42.o 20 1W&4 s5c 42.OPRAC (ArgenIa Umtmmb, elpen Us1 3330 20 I1t01 1240 30.2 3.8Chas Manhattan 02W,q0 _W"a . WI I2.1 (2) U 31 9.00 0.50 19.6 3.8

Fwalgn Commwrcal BanksCreit Ly bo O_ssbinlh.3qas u 5.00 11 FhS7 L1R+134 0.50 73 7.3CACEX (Grail) Eq*a WI 2580 3tou Dwc9 8 33 1.4liduto MobWllare IRhano (IMQ Dqulmt _ U 35.00 20 Mac4 9.5 O05 342ledluto Moblwa Ilano (IMQ oasm A UW 33.00 17 54p9 737 289Sank du Com. ExL de France O"Asu xp&ltaa A tW 28.0 20 Np 92 9.63 0 28.5 IAMorgan Guaranty Trust Co. 1'.h WI 4080 4 Dec49 13s+N 113 113Banco Nazonale del Lavoro camuMhaqum tW 6. 1 oas*7 Pdm41 4.7 4.Mitshul Y_ 1.39 60 050 81 23

Reinanced DebtAno tM87 25 U04 Lbw+ 409.0IMI _asR_s a fl WI 840 (3) S.0 mi2 8.55 .40

GovernmInt LoanS8aWr de Hacnda WI 129 (4) 30 D.r007 on 1252.9Sea8ba do Engia usW 235 (4) 12 D5 600 2144.2

LOANS UNDER DISBURSEMENT

EDO TufdbT cd WA (5) 20 1.1 7.75 O 5WI oas&aIN WI 5 17 K U 7 7.976 mbank - Japan Toin. YM 9541 18 De5 731Bdmbank - USA TuSl. *3-Meq4 WI 317.1 (1) 20 DMb 3I_ 0. 82Semns I G a(LMGS W U"Sq 15 6 Wmbd4 800

emens 11 a S S USk 9.7 19 sow 73CACEX Gm . t 32 6 S3 650Boo L de ao S ae o Pomalo I= L22 s mam Uhe4.AJUTO QammaS WO I 137 20 S1 U5OPRAC _b_atI p. uW 23 is 1 1o

FUTURE LOANS AND CREDIT

Epo Agenlp (6) 17 SSW 750 058UMeler Credits _ 1 I71 10 Muaas 750 -

am ANTA4(1) IMdbWSUsbm.m1.m,Iss.mtb~sI*M ll_Wdn*4WW

(4) b1mmNe~nWWWW0W^ iidiS mm Mad iImw)

p) h_muundauadsr _ b __ S _ Z

Attachment 5

ARGENTINAYACYRETA HYDROELECTRIC PROJECT II

EBY: FORECAST OF DEBT SERVICE - AMORnZATION

Desctpton 1992 1998 1994 1995 1996 1997 1998 1999 2000

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

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

The World Bank 46300 46300 45045 386528 38528 38528 38528 38528 38528IBRD 1761-AR 46300 46300 45045I1RD 2998-AR 38528 38528 38528 38528 38528 38528

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

Foreign Banks 31371 11238 10545 7720 6287 6269 6269 6269 6269Credit Lyonnais (US$) (Supplier) 7346Cacsx (Brasil) 1408 938 938Istltuo Mobillare Itdumo (IMI-1) 3421 3421 3421 3421 3421 3421 3421 3421Banque Franculse do Com. Ext 1424 2848 2848 2848 2848 2848 2848 2848 2848US - Supplir 2826 1717 1024 294 18Morgan Guamrty Trust 11326Banca Nazionale del Lavoro 4727Mitsubishl 2314 2314 2314 1157

Refinanced Debt - 1987 8181 12271 14317 16362 20452 24543 40904

Secretariat of Energy & Treaury 1 259046 259046

Loans under disburemoent 259 259 752 14963 16738 43432 49609 49609

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

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

Proposed IBRD 14148 15244 16420 17691Proposed IDS 5721 5721 5721

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

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

Govemrnment Loins 203797 209297 209297

10 Total 1-, UM5 12 9 15695 16670 f2476 7t8152 70122N -my Aaz*kmpam ins _mMbpm edo.Im knlmb d ANX26ATS

ANNEX 2.6Attachment 6

AENllNAYACYRETA HYDROELECThUC PROJECT 11

FORECAST OF DEBT SERVICE - INTEREST

Dmar tlon 1992 199 1994 1995 199M 19I7 199 199 2000

Loans already dbsbun d . gmS7900 120 0 12 I1I 4 . 101362 .91247 013E9 . 71-

Th Inte raeocanm srn 565k1 57229 55920 51197 46860 42048 $7499 32M99 3153?IDS 34VC/0-RO 13274 11724 10210 8697 7208 5671 4158 2645 1136IDS 555/C0-RO 235S5 23491 23096 21530 20020 16396 16832 15266 13735IDB 58/OC-RG 22062 22014 22014 20970 19444 17977 16500 15064 16S66

ThWorld ,* 31241 27476 23605 20291 17334 14277 11270 6203 5273IBFD 1701-AR 10134 6429 275412D2998-AR 21107 21049 21049 20201 17334 14277 11270 5263 6273

Lal BSanks 10206 6636 6631 4511 3397 2657 205 1295 626OPRAC (Cnrl Ban*) 3415 2314 2197 1966 1739 1503 1272 1040 611OPRAC (Central ia) 3036 2635 2265 1695 1528 1154 76 25 15Chos Manhsan 3815 1600 1180 650 130

Fordgn Sark 16562 5172 ao5 4946 4032 3390 276 2160 1548Crodt Lyonraws (US$) (Suppllr) 42Caeox (Brasi) 363 141 61Istituo Mobllnare llano (IMI-1) 5035 3264 2929 2587 2271 1923 1590 1256 921SanqueFranremodo Com.Ext. 5796 250 2294 2016 1743 1467 1176 901 027US - SupplIer 2307 1673 104 307 16Morgan Guaranty Trust 2544Baner Naeonalm dal LaoroMHuubbFI . 475 326 102 30

Refinaned Dabt - 1987 20936 2099 27160 20417 19015 16999 15108 17004 15576

SerarIt of Erwgy and 7muy u

Laanr under dibburmor nt -9X . 9442: .1020 .1000: 2079 . MW -=2

EXIMBANK - USA 3511 10460 13620 15502 16013 10224 15950 14340 12701EDO 1100 3104 3603 3626 3056 3661 3765 379 2993EXJMDANK - JAPAN 645 32S8 537 6050 M43 0203 4801 3920 3239AIUTO 83 278 481 756 1020 1209 1410 1371 1271IMI 126 3 962 1203 1493 1490 1310 1120 946SIEMENS 44 146 23 3090 00S 67 72 o6 021CACEX 0 61 291 603 1110 1610 166 1540 65BCO. E. DE SAO PAULO 176 516 653 648 679 460 147 0 0OPRAC as 227 201 176 149 123 97 71 45

Fue Loo and Credits `152 .¶9 -- 00 12009 INV_' 1:. 2:, $IK7 E

Proposed IBRD 4319 13761 19629 22641 23027 22615 21724 20623 19230Proposed IDB 0 590 1454 2315 35 S4 5516 6294 53 5376

EXPORT AGENCIES 61 1748 6001 1250 16030 16060 20548 1975 17138Y-E3 0 0 0 0 24 145 270 271 236Y-E9 0 301 1283 2316 296 3334 3564 3406 29064Y-E1l 0 1040 4446 6067 10103 1165 12476 11920 1032Y-E10/12 61 289 3 951 1167 1364 1456 1366 1209Y-E13 0 69 201 as 914 1204 1366 1347 1173Y-E14 0 59 269 o05 914 1204 1366 1347 1173

SUPPUERCREDrM 1211 3229 3220 307 2430 1823 1178 0 36Y-E3 0 0 0 0 16 46 48 46 00Y-ES 216 673 676 644 430 316 201 as 0Y-El1 735 1961 161 1663 1471 1076 606 294 0Y-E10/12 91 244 244 232 160 154 a 37 0Y-E13 a 226 226 214 169 124 79 64 0Y-E14 so 226 226 214 169 124 7.0 4 0

GovernnwrntLomw , 11061 36760 0420 66366 10443 110541 12043 110211 ON6

ITomW IwUWUS.: I'IAKiII n ~ ra~ihLuA4~ U AuIa"W TM AmumimSLAiE. ppvbd ANX3O5MUSI oii n witltIm-u-pb .S'Md --. 1*+i- Et]-f _ri']*trIt-EE+I.

ANNEX 2.6Attachment 7

ARCENTINAYACYRETA HYDROELECTRIC PROJECT IIEBY: Disburement of Loans and Credit

during the Perlod 1992 - 1998(Tholauds of USS)

1992 199 1994 1995 1996 1997 1998 Total

LOANS AND CREDITS-:::---:: 'UNDER-;DISBURSEMENT : 7b458 1010.71201 20 48212650# 23a14. 59

EXIMBANK- USA 85194 34011 26044 607 2096 1977 352 155841EDC 36774 7095 4440 578 77 0 0 49825EXIMBANK- JAPAN 30821 37017 14517 1100 474 0 0 88928AIUTO 12642 8718 16363 14903 15087 12813 2086 82591IMI 4293 6592 3818 3718 849 0 0 19268SIEMENS 1477 1008 1053 3368 1777 1503 345 11130CACEX 0 3309 3119 7598 8149 6921 2490 31586BCO.E. DE SAO PAULO 5919 1402 2249 2645 0 0 0 12215OPRACII 2335 0 0 0 0 0 0 2335

FUTURE LOANS AND CREDIT8. 645404 566577' 624796 86506 253197 .26727 69921 2803130

IBRD proposed 108600 108600 72800 7500 1000 500 0 299000IDB proposed 0 10300 13000 6200 30000 16500 0 80000

EXPORTAGENCIES 2163 56373 89273 50458 41563 32727 14921 287478Y-E3 0 0 0 0 854 2886 0 3720Y-E9 0 10710 17048 8376 8593 4811 2418 49759Y-ElI 0 38990 59527 29457 23303 18385 664 174309Y-E10/12 2163 4499 4726 3437 2670 1843 957 20295Y-E13 0 2087 3980 4593 4071 3511 1450 19697Y-E14 0 2087 3986 4593 4071 3511 1450 19697

SUPPUER CREDITS 43048 0 0 0 634 0 0 43682Y-E3 0 0 0 0 634 0 0 634Y-E9 7640 0 0 0 0 0 0 7840Y-ElI 26145 0 0 0 0 0 0 28145Y-E10/12 3250 0 0 0 0 0 0 3250Y-E13 3007 0 0 0 0 0 0 3007Y-E14 3007 0 0 0 0 0 0 3007

GOVERNMENT LOANS 491593 411304 449723 320350 180000 155000 55000 2092970

I JOTAL DISBUISEMENT- rf- a2 _2 4T, 4691

Page 1 of 13

ARGENTINA

YACYRE'rA HYDROELECTRIC PgOJECT II

The Resettlement Program

Overview

1. The reservoir created by the proposed project will have an elevation(EL) of 78m and will affect about 3,250 families or about 16,250 persons andtheir economic activities in the agricultural, industrial and commercial sectors.It will also affect community facilities such as schools, churches and parks aswell as infrastructure installations such as railways, ports, roads, electricitylines and government buildings. At fu'l development (reservoir EL 83m) a further5,050 families or 25,250 people will be affected (see Box 1: AffectedPopulation).

2. It was expected that the resettlement program would have beencompleted under the Electric Power Sector Project (Loan 2998-AR). Butunforeseer- economic and financial conditions which delayed completion of thecivil works also postponed the need to move ahead with the resettlement andrehabilitation operation. Under the proposed project, implementation of theresettlement will be completed as required by the reservoir operation at EL 78m;further resettlement would be needed if Paraguay and Argentina decide to raisethe reservoir to its ultimate design level (83m) (para. 4). To avoid unnecessarydisruption of the affected people's lives, completion of the resettlement wouldoccur in a phased manner so that people are required to move 6 months prior tothe inundation of their property, which, in turn, requires installation ofnecessary infrastructure and construction of housing over the previous 12 months.

3. It is expected that infrastructure, such as drainage and seweragesystem, electricity delivery system and so forth, for the resettlement areas, aswell as housing for all people affected up to EL 78 construction will becompleted by January of 1994. This will permit the mobilization and transfer ofaffected people to begin immediately thereafter and prior to reservoir fillingto EL 76m beginning June 1994 and reservoir filling to EL 78m beginning June1995. A similar sequence would take place if it is decided to go beyond EL 78m.

4. The complete resettlement program, including an implementationschedule and cost estimate was appraised by the Bank in April 1992. Under theproposed project, the Bank will be supporting technical assistance and detaileddesign preparations for the resettlement operation, inclu tng soils studies forrural resettlement, detailed planning of industrial relocation, strengtheninglocal government agencies responsible for assisting resettlement, strengtheningEBY capabilities for management of the operation, and independent concurrentevaluation of programs in the implementation of the resettlement. The Bank andEBY will conduct a mid-term review of the resettlement program by June 1994, atwhich time EBY will have to present a revised resettlement program for allowingthe raising of the reservoir to EL 83m, should the Governments of Argentina and

Page 2 of 13

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

Resettlement Proaram

5. The resettlement program summarizes and updates previous plans andstudies regarding Yacyret& resettlement conducted by EBY, independentconsultants, local nongovernmental organizations and others to address changedsocial and economic conditions in the region. It also reviews previousexperience and proposes significant changes in resettlement policies andprocedures to improve future performance. The program covers all affectedpopulation and phases of the resettlement operation, beginning in 1992 andcontinuing through 1998, under the assumption outlined in para. 4 for possibleoperation at EL 83m. The Bank mission accepted the proposed program assatisfactory for this stage of project implementation and made reco-mendationsfor further strengthening and finalization to be completed prior to negotiations.

Affected Pogulation in Argentina

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

7. Of the houses affected on the Argentine side, some 18* are units builtfrom discarded materials pieced together into huts. By contrast, S* are made ofadobe brick with slab floors and tile roofs. The majority are wood structureswith straw or zinc roofs and dirt floors. Land tenure studies indicate that 13Vof the affected families own their homes and houseplots, 71 rent their homes, and80* are legally landless. Two-thirds of these own their homes but not theirhouseplots.

8. The rural area flooded in Argentina is in the provinces of Corrientesand Misiones and is characterized chiefly by natural pasture, and, to a lesserextent, by agriculture. Rice fields are irrigated by water pumped from theParana River and adjacent streams. In addition, wheat and soybeans with lowyields are produced. Poor irrigation and drainage conditions as well as lack ofsuitable technologies have historically limited crop output in the area. Withregard to land holding and tenure, the predominant type of holding is theextensive cattle ranch, especially in the Province of Corrientes. Nevertheless,there are 120 farm families in the Province of Misiones that have less than 24ha and operate on a subsistence level employing mainly family labor.

9. The inundation will affect a large number of community services,industrial and commercial establishments. These include ten primary schools, two

churches, twof i r s t - a i d Total Total Families Familiesclinics, police Persons Families Resettled to be

offices, naval Affected Affected to 1992 Resettled

headquarters,nine lumbjer Argentinaindustries, onecold storage Urban 26,640 5,330 1,262 4,068operation, one Rural 955 190 16 174

shipbuildingcompany and 150 Total 24,59S 5,520 1,278 4,242olerfas. Theolerias deserve Paraquaspecial mentionsince they use Urban 18 850 3,770 98 3,672

the clay soil Rural 6,975 1,395 326 1,069

found at certainplaces on the Total 25,825 5,165 424 4,741banks of theParana River as Granone of the raw Total 50,420 10,685 1,702 8,983materials forbrick and tile-_ bricnd Tile Box 1: Affected Populationmaking. Thesetraditionalsources of raw materials will disappear when the dam is completed. The port

installations and railway station at Posadas will be submerged, as will 30 km of

main railroad track, 10 km of roads, the Empresa Electrica de Misiones (EMSA)

thermal power plant, and portions of the electricity, telephone and water supply

networks.

Affected Por,ulation in Paraauay

10. The affected urban population numbers about 18,850 persons (3,770

families) in the cities of Encarnaci6n (about one-third of the city) and Carmen

del Paran&. The remaining 6,975 persons (1,395 families) affected are in the

periurban (aforementioned olerfas on the outskirts of Encarnaci6n) and the rural

areas. The latter are mostly small holders on the large islands of Yacyret& and

Talavera, engaged principally in subsistence agriculture (with little production

of high value crops for the market) and some livestock.

11. Unlike the Argentine side, the affected urban population on the

Paraguayan side is largely (671) from the middle and higher income strata of the

community. For example, some 411 of affected urban housing is built on lots of

more than 700 m2 and 85S on lots greater than 360 i2, indicating the high social

status of owners. About 701 of housing is occupied by owners who also own their

houseplots. About 90* have electric lights and 64* a septic system. In

contrast, the rural population on the Paraguayan side is overwhelmingly (95*)

from the lower income stratum.

Page 4 of 13

12. The inundation of the reservoir will have major implications for theurban dynamics of Encarnaci6n, since it will affect its central area and majorcommercial sector. The total number of commercial establishments flooded willbe 601, of which 500 are located in Encarnaci6n. Indust., .1 enterprises affectednumber 280, most of which are involved in processing farm commodities from theregion (mills, tanners, sawmills, grain silos, oil factories, etc.), with severalhundred 2_1grias which, as noted on the Argentine side, will lose theirtraditional source of raw material.

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

14. The infrastructure that will be flooded on the Paraguayan sideincludes: the major Paraguayan public administration buildings in the Departmentof Itapua, three schools, two churches, military installations, the launch dockand wharves in Encarnaci6n, 106 km of railroad lines, the Encarnaci6n electricpower plant and 701 of the electricity distributicn network, 801 of the telephonelines, the water supply facility and much of the water supply distributionnetwork.

Backwater Flooding

15. The reservoir inundation area and the affected population have beendefined taking into account the backwater and wind-induced wave action effectsof the reservoir. The cities of Posadas and Encarnaci6n are located at the tailend of the reservoir where backwater effects will be moult critical in determiningthe elevation from which population must be resettled to ensure protection fromflooding. Average flow of the Parana River at Posadas and Encarnaci6n is 12,000eY' but reaches 44,000 mel for a flood with a probability of occurrence of onein fifty years. To reduce the magnitude of population displacement, the dam willbe operated to ensure that the water level at Posadas and Encarnaci6n wouldremain relatively constant (at EL 76, 78 and uliAmately 83 respectively) byevacuation of the flood waters through the turbines and spillways in advance ofmajor floods. This requires a Yacyreta river basin flood forecasting systemcomposed of a network of hydrometerological instruments and corresponding designof a basin response model. It also requires an advance warning system to reportreleases from the upstream Itaipd Dam which now reach the Posadas/Encarnaci6narea in about 3 days time.

Progress in the Resettlement Operation

16. h4n international bridge linking Posadas and Encarnaci6n, constructedas part of the overall project design, was completed in 1989. The populationaffected by the bridge construction was the first to be resettled beginning in1984. Some 1,702 families (about 8,500 people) affected by the bridgeconstruction had been resettled as of February 1992. On the Argentine side, some

Page 5 of 13

976 urban families were moved fromAraentina Paraouav the bridge area to a receiving area

(number of Families) named Barrio Yacyreta, withinUrban Posadas, west of the downtown area,Resettled 976 60 and some 60 urban families on the

Paraguay side were resettled to anRural area named Buenavista, 1 kmResettled 15 6X northeast of Encarnaci6n. In the

rural sector, 15 families on theUrban Cash Argentine side and 61 families onComp. 286 38 the Paraguayan side were moved to

new farms. The remainingRural Cash 590 affected families elected toCaw. 1 265 receive cash compensation for

affected property and resettlethemselves. See Box 2 for a summary

Totals 1,278 424 of progress through February 1992.

Grand 17. Affected families whoTotal 1,702 owned property were given a choice

between cash compensation and

Box 2: Families Resettled Through resettlement into one of the EBY-February 1992 constructed resettlement areas.

These are new neighborhoods ofPosadas and Encarnaci6n in which

affected families are entitled to an adobe house with tile roof, concrete floor,tubed water supply, electricity hookuip, septic tank, drainage, and paved accessand internal roads. In addition EBY provides community buildings, schools,recreation centers, and other social infrastructure. Those who do not ownproperty or have very little may only move to one of the resettlement areasconstructed by EBY. Some of the reasons the landowning families electresettlement by EBY are to stay with family members or fears that inflation coulderode the value of cash received before they could make satisfactory resettlementarrangements of their own. On the other hand, some landowning families electcash compensation to invest in larger houses or bigger businesses than could beaccommodated in the EBY resettlement area, to avoid mortgage debts for the newhouse and other new fees for services such as tubed water, sewerage and trashcollection in the EBY resettlement area, and because families that are breakingup (separation or divorce) could more readily divide cash than divide replacementhousing and social infrastructure.

18. In addition to the families already moved, resettlement areas calledVilla Lanus, located south of the downtown area in Posadas. Survey and clearinghave begun for an additional resettlement neighborhood south of the existingBarrio Yacyreta. On the Paraguayan side, the resettlement colony of Buenavistais being expanded and additional resettlement sites named San Pedro and ArroyoPora, have been identified and construction of infrastructure has begun. Thereis little doubt that infrastructure and replacement housing will be ready in timefor the mobilization and transfer of affected families.

Page 6 of 13

Lessons Learned From the Initial Resettlement

19. Experience with the initial resettlement plan design andimplementation strategy provides a number of lessons for improvement of laterphases of the resettlement operation. These lessons have been studied by EBY andthe following conclusions have been reached.

(a) Initial houses and community buildings built by EBY were excessivelyexpensive, inefficiently constructed and failed to meet the needs ofresettled families for affordable, low maintenance structures. Forthe future, EBY is constructing less expensive houses and installingless expensive community buildings but retaining its emphasis uponprovision of high-quality services (tubed water, electricity, drainageand waste disposal systems).

(b) Resettlers who owned property expropriated by EBY were required in thepast to pay the difference between the value of the expropriatedproperty and value of the replacement house and land they wereallocated if the latter were more valuable than the former. Affectedfamilies who did not have ownership title to lands and/or housesexpropriated by EBY were required to accept a subsidized mortgage topay a portion (35I0 of the value of the replacement land and house.Ownership titles were not issued until this was accomplished, oneresult of which is that few titles have been issued to new houses andnone have been issued to the poorest families (e.g. female-headedhouseholds). EBY has revised its housing financing policy, and willin the future pay the entire cost of replacement land and housing forboth property owners and those without title. This policy will beretroactively applied to those already resettled.

(c) For the affected families, legal fees required to secure title to newland and houses are prohibitively expensive (another reason why fewwere issued). In the new resettlement plan EBY will provide titlesat no cost to the affected families, and special measures will ensurethat female-headed households receive titles.

(d) Some families who lost their sources of employment due to the projectwere not considered eligible for assistance in the past. Most ofthese are people living beyond the affected zone, but employed in theceramics factories on the Paraguay side which will be inundated. Thenew resettlement plan provides for re-establishment of these factoriesby a program to rescue and stockpile raw material, relocate thefactories and re-employ the affected workforce.

(e) It was discovered that special attention is required to resolve theparticular problems facing female-headed households and householdscomposed of elderly, single and disabled persons living alone. Thesemeasures are included in the present project.

Page 7 of 13

(f) Management of the resettlement operation was excessively cent..alizedwithin EBY causing inefficiency and delay in resolving problems.Future resettlement opsrations will be decentralized from EBY to

* relevant institutions of local, provincial, and municipal governmentas well as to the private sector, and, within EBY, managementresponiibilities for everything but major policy decisions will bedelegated to the Department of Resettlement and Environment, whichmaintains working offices in Posadas and Encarnaci6n.

Soecial Problems of Indigenous Pe;2e&

20. In 1987, the Bank learned that a group of indigenous Mbya peopleliving on the Yacyreta Island had left the island in 1974, at the time theYacyreta Treaty was being prepared. A field investigation conducted by the§piscopal Conference (PEC) concluded that this indigenous group, composed ofabout 10 families (about 40 people), might have left the island to avoid problemswith the authorities and thus the construction of the project would have been thecause of their displacement. Upon the Bank's request, and following meetingsbetween representatives of the PEC, EBY and the Bank, EBY devised a solutionwhich reunited the affected indigenous people by resettling them to a 370 haproperty purchased by EBY. The relocation area provides adequate agriculturalsupport capability, as well as access to forest, a major highway and nearbymarkets. The Mbya are satisfied with the land allocated to them, and, inparticular, the fact that for the first time in memory they have legal title toland and are protected from colonists.

21. To facilitate adaptation to their new environment and enhanceopportunities for sustainable development of the relocation area, a developmentinvestment program has been generated under the proposed YacyretA I1 project.EBY is committed to providing social, technical, education and health assistanceto this indigenous group during the proposed Yacyreti II loan period. Theindigenous development plans, which were developed with the participation of theMbya families, concentrate upon those components requested by the Mbya themselvesto improve their standard of living. Electrification of the school was requestedto permit adult literacy classes in the evening hours when the adults are homefrom work. A tube well and electric pump were requested to serve the school toreplace the present hand-dug well, because the latter is dry for part of theyear. The Mbya also wish to see ongoing programs (of vaccinations and medicalservice as well as agricultural extension service) continue. With regard tcproduction systems improvement, the Mbya are interested in fruit tree cultivationand milk cow production. These components have been agreed upon with EBY andincorporated into the resettlement plan.

Policy Framework for the Resettlement Proaram

22. Hou-sing. The policy on replacement of housing affected by thereservoir is that all those whose houses are affected, whether or not they ownedthe affected property, are entitled to a new house and houseplot serviced bytubed water, electricity, drainage and waste disposal systems. The houseconsists of walls of adobe, functioning bathroom and a slab or zinc laminated

ANNEX 2.7At.tachment IPage 8 of 13

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

* 23. Replacement housing is better in quality and size than which wasexpropriated, and living conditions are significantly improved through theprovision of infrastructure to meet higher health and living standards than arecommon in the region. This is especially true of the 601 of the Argentine and301 of the Paraguayan affected populations whose living conditions today are verypoor. Legal freehold titles to serviced houseplots and houses will be providedby EBY at the time of resettlement at no cost to tne affected family.

24. Economic Develooment. Regarding re-establishment of economicdevelopment opportunities, the EBY policy is to carry out the resettlementoperation in such a way as to avoid breaking ties with existing patterns of workand places of employment. In Posadas, the resettlement neighborhoods are locatedabout 2 km from the city center, a short ride on public transportation whichalready passes thrdugh resettlement areas to connect existing neighborhoods stillfurther away. In Encarnaci6n, the new neighborhoods are located less than 1 kmfrom the city center, and, in fact, are adjacent to a new commercial district nowdevoloping between the international bridge entrance and the city. Theselocations ensure that present employment patterns will not be severely disrupted.

25. For the rural sector, where loss of land means loss not only of housebut also the means to earn a living, the EBY policy stipulates that everyagricultural producer working a rural field affected by the dam will be entitledto a choice between cash compensatiorn and an EBY grant of another plot at leastthe size of an "economical farming unit". "Economical farming unit" is definedas a minimum of 7.5 ha of arable land, which when worked rationally by a familyenables it to meet subsistence needs and offers of potential for development ofcommercial crops as well. EBY policy is that all farm families, irrespective ofwhether they had title to land expropriated or not, are to be provided a minimumof 7.5 ha of replacement farmland at no cost to the affected family. Farmerswith title to land expropriated are entitled to a quantity of replacement landequal to the amount taken up to a maximum of 20 ha, beyond which only cashindemnification will be paid. EBY will also provide new houses, drinking waterwells, fencing materials, waste disposal systems, school buildings and acommunity center in the rural settlements. Development assistance packages willbe provided, consisting of agricultural extension, health, education and socialwork services. Suitable land for rural resettlement has been identified and isbeing purchased on the Argentine side, but in Paraguay the process of identifyingland has only just begun.

26. Other relocation policies have been formulated for 2lergas whosesources of livelihood will disappear due to the inundation. Two types ofceramics factories are found in the affected zone, those which are artesanial andthose which are commercial. The latter are generally landowners who areorganized into a producers association which will be paid indemnification forlost assets. The producers association has proposed utilizing theirindemnification to excavate and salvage sufficient clay to continue in businessfor 15 years, and EBY has agreed to pay the financing costs of this investment.

Page 9 of 13

This will permit the present generation of adults to continue in their sameoccupations while they search for new opportunities, and the present generationof minors to prepare themselves for different occupations from those of theirparents. Enterprises will be expected to reconstruct their own structures usingcompensation funds, and EBY will provide complete infrastructure services. Theartesanial producers basically earn only their subsistence by exploiting claydeposits below the highwater margin along the river. These deposits are floodedpractically everz- year for several months. For these families, the EBYresettlement plan provides a choice between: (a) resettlement to an economicallyviable farm, which is often the origin of these families; or (b) resettlement toa house/houseplot located close to a source of clay which will not be affectedby the flooding and, to which they will have guaranteed access.

27. Social Development Assistance. Companion to the economicdevelopment assistance packages will be programs designed to improve socialconditions among the affected families. These include: adult literacy courses,vaccination of all children, public health workshops and seminars, courses inmaternal and child health, family planning courses, nutritional training, andseminars in household budget management. The social programs are organized bythe relevant local government institutions at the neighborhood or rural hamletlevel through voluntary organizations composed of resettled familyrepresentatives (for example, mother groups, youth sport groups, etc.).

28. The local voluntary organizations will also be enlisted to resolve thespecial problems facing elderly people living alone, abandoned children andsingle women with young children. The organizations will be di;rectly assistedby EBY's technical specialists to formulate and finance programs addressed tothese special needs, as well as to facilitate implementation support to localgovernment institutions for the above programs and in some instances, actuallyimplement them.

29. Transfer Poliv. EBY policy is to pay for all costs of transferfrom the old to the new sites, including the costs of hauling and salvagingmovable property and the costs of transporting people and their belongings. Incases where people retain their traditional sources of employment, no maintenanceallowance is required especially as time and distance are short. In the case ofthose who must find new means of earning a living, a maintenance allowancecomposed of food, fuel and fodder rations, not cash, will be paid for a periodof one year or the beginning of an income stream from new sources of productionprovided by the project.

30. PeoDle's Particination. Local governmental and nongovernmentalorganizations have participated in the process of designing the new resettlementplan, taking into account their experience with prior policies and programs andtheir suggestions for strengthening and improvement. These organizationsindirectly represent the interests of the affected people themselves, and,therefore, the proposed plan is believed to be generally acceptable to the greatmajority of affected people. Direct participation of the affected population isplanned during the implementation stage, and will be facilitated throughvoluntary associations of resettled families as well as through each individual

Page 10 of 13

family's involvement in social development programs. EBY, working through localgovernment institutions, will provide social workers in each of the urbanresettlement neighborhoods and social workers and agricultural extension workersin rural resettlement hamlets. Social workers reside in the neighborhoods andhamlets and are responsible for facilitating the )rganization of neighborhood orhamlet voluntary associations. The voluntary organizations are designed to bean important vehicle for direct participation of the affected families inaddresar,,g and resolving neighborhood-level issues. This decentralization ofresponsibility for resettlement is a key strategy for strengthening popularparticipation as well as the organizational capacity for successful managementof the entire operation, further discussed below.

31. Specific opportunities for women in the resettlement andrehabilitation process are important, especially on the Posadas side where about45W of households are headed by women. Special provisions have been made toprovide title to new houseplots and houses to female heads of households, as wellas to register women as joint holders of houseplots and houses in male headedhouseholds. Social development assistance programs mentioned above are to alarge extent addressed to the development concerns of women and their offspring.

Organizational Capacity for Imalementation

32. The EBY Department of Resettlement and Environment (DARE) has overallresponsibility for the design and implementation of the resettlement operation.Administration of funds for the resettlement and environmental work have beendecentralized and are now controlled by the DARE. A staff development plan hasbeen prepared to ensure that DARE will be adequately staffed with experiencedspecialists in architecture, social work, social science, law, economicdevelopment, engineering, accounting, contract management and monitoring.Further staff training, to be financed under the Project, is an integral part ofthe staff development plan, including off-site workshops led by senior staff,short-courses in universities and fieldwork seminars conducted by consultantexperts.

33. The principle functions of the DARE regarding resettlement will bestrategic and long-range planning for the overall operation; coordination ofimplementation by relevant institutions of local governments; quality controlthrough a system of inspections and monitoring of the work of contractors andconsultants; technical assistance to local government institutions; voluntaryorganizations of the affected population , and disbursement and accounting of thefunds.

34. Local government institutions will, in conjunction with DARE, preparecontract documents for consultants, contractors and suppliers; be responsible forpre-qualification and selection of suitable contractors, consultants andsuppliers, as well as administration of the execution of contracts in a timelyfashion. Through its monitoring system, DARE will require twice monthly reportingon contractor performance by responsible local government institutions. Thesereports will reflect the quantity of work contracted and completed, as well asthe flow of funds. DARE will maintain a monitoring sttff sufficient to conduct

Page 11 of 13

field inspections for verification of quantity and quality of the work completedprior to authorization of payment.

35. The Governor of the Province of Misiones has designated the ViceGovernor as Chairman of a Technical Steering Committee for Yacyreta, which willmanage the resettlement operations in Posadas, with arsistance from a supportingTechnical Steering Committee for Yacyreta, established by the Mayor of the cityof Posadas. These committees have been formed to coordinate the municipal andprovincial government institutions responsible for various aspects of theresettlement, such as the Ministry of Agriculture, Ministry of Education,Ministry of Family Welfare and WomenIs Development, and the Ministry of Ports andWater Resources Development. On the Paraguayan side, the Mayor of Encarnaci6nhas also accepted responsibility for management of the corresponding municipalgovernment institutions responsible for aspects of the resettlement, and has alsoformed a Technical Steering Committee for Yacyretd. A staff development plan hasbeen formulated to strengthen the capacity of local government institutions toexercise these functions, including recruitment of suitably qt'alifiedprofessionals. Training programs to be financed by DARE will be provided tolocal government staff to enhance staff capacity for implementing theresettlement operation, including workshops, seminars and practical exercises.

Monitorinci and Evaluation Systems

36. The Monitoring System is designed to be operated by DARE through thelocal governmental institutions aesisting with implementation of the resettlementoperation. Its purpose is to provide timely feedback to project managementregarding the flow of work and adequacy of resource mobilization in relation toagreed performance goals. Local government institutions will report biweekly oncompliance with agreed quantity and quality of work targets. Draft monthlyreports will be verified and agreed upon among DARE and local governments,including joint field inspection as necessary. Final monthly reports will be madeavailable to Bank supervision missions for review and comment.

37. The Evaluation System is designed to be operated by an independentscientific research institution. Its purpose is to provide annual assessment ofsite-specific progress in achieving the goal or objective of the resettlementoperations: to improve the living conditions of the affected population. Acontract for the evaluation work will be signed with an independent scientificresearch institution which will be responsible for field research, data collationand analysis, and report writing and presentation. Draft reports will besubmitted by the contractor to EBY two months prior to the final report due dateby the contractor in a limited number for review and comment. Final reports willreflect the comments of EBY, provided these are received by the contractor onemonth prior to the final report due date. Reports will be submitted annually toEBY and made available to Bank supervision missions for review and comment.

Implementation Timetable and Yearly Cost Estimate

38. Table 1 displays the schedule of resettlement expenditures planned inArgentina and Paraguay by year (not including land acquisition andindemnification costs). Table 2 displays other investments by year required torelocate public infrastructure affected by the reservoir.

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

Year 1992 1993 1994 1995 1996 1997 1998 Total

Urban

Houning 0.77 5.84 6.71 4.30 8.26 15.48 10.12 51.48

RuralHousing 0.20 1.22 1.42 0.77 1.65 2.97 1.98 10.22

PublicBldg.. O O.55 0.95 0.49 1.10 1.98 1.32 6.3B

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

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

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

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

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

NOW. Pbyula CowWeaw&aNat holudedI _

Table 2: MRASTRUCTURS UNLOCATION COST - PERIOD 1992-1998(in January 1992 US$ millions)

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

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

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

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

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

Cs.:- 0.o.:o07: -044 0.09: 0. 0.73- 1.32 08' 3.'24

.. Elos. & . O A :0: -

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

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

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

Page 1 of 19

ARGzNTIN

YACYRETA HYDROELECTRIC PROJECT II

Environmental Management Program

Overview

1. The major environmental consequences of the proposed project stem fromthe dam and the reservoir, which will be among the largest in Latin America.Under the proposed project, the 112,000 ha (1,120 km2) reservoir (elevation78 m) will comprise about 64,600 ha of flooded land and 57,400 ha of existingwater area of the Paran& and its tributaries. At full development (elevation83 m) and assuming the construction of the Arroyo Aguapey barrage discussedbelow, the reservoir area will increase to 165,000 ha, out of which some 107,600ha of land flooded and 57,400 ha of existing water area. Of the total land areato be eventually flooded, approximately 78,200 ha are in Paraguay and 29,400 haare in Argentina. The great majority of the area to be flooded is sparsely-populated wildlands, including grasslands, freshwater marshes and other wetlandsand riverine and other forests. The permanent flooding of these habitats willhave major impacts on flora and fauna in the affected areas. The reservoir willalso transform habitats for fish and other aquatic life now present. in thatsection of the ParanM River to be inundated. Water quality conditions in thesection of the river impounded by the reservoir will deteriorate. Floatingaquatic weeds are likely to proliferate. Schistosomiasis, malaria, yellow fever,,dengue fever, and gastrointestinal diseases are expected to be the major humanhealth risks, each exacerbated by worsening water quality conditions and/orimproved habitat for insect and snail vectors. The cultivated area to bkv floodedis about 1,500 ha, while the area of cities and towns to be flooded covers about500 ha. As is discussed separately in Attachment 1 of this Annex, flooding bythe Yacyret& reservoir under the proposed project (EL 78m) will necessitate theadditional involuntary resettlement of about 16,000 people, moatly from thecities of Posadas and Encarnaci6n.

2. The 1992 Environmental Assessment (EA) Report compiles and synthesizesthe findings of various earlier environment-related studies on the Yacyret&Project. A companion document prepared by the Borrower to the Bank'ssatisfaction is the Environmental Management Plan (BMP), which identifiesnecessary measures for mitigating and compensating for the Project'senvironmental impacts. The draft EA and IMP were submitted for review tointerested NO0s; relevant municipal, departmental, and provincial governmentalinstitutions in Posadas and Encarnaci6n, and to the responsible nationalenvironmental institutions in Argentina and Paraguay. The proposed project willfinance technical assistance, design studies and strengthening implementationcapacity of both governmental and nongovernmental organizations responsible forcarrying out aspects of the IMP. The Bank will conduct a mid-term review in June1994 at which time EBY will be required to present a revised EMP for allowing asatisfactory operation at the ultimate level of EL 83m, should Paraguay and

Page 2 of 19

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

Analysis of Alternatives

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

4. Permanent operation of the Yacyret& reservoir at a lower level (suchas EL 76 or 78) would significantly reduce environmental mitigation costs. Thesecan be summarized as follows:

(a) The additionaly number of people to be involuntarily resettled at EL76 would be 7,000 (or 16,000 at EL 78), instead of about 41,500 at EL83 (discussed in Attachment 1 of this Annex);

(b) At EL 76, the reservoir would not create slow-moving or stagnantwaters in urban areas. As a result, the potential for severe waterquality-related problems (in the absence of adequate mitigatorymeasures) for EL 83 would not occur at EL 76. These problems includethe sewage and industrial pollution of relatively stagnant urban bays,increases in mosquito populations in urban areas, and an increase invector-borne and gastrointestinal diseases;

(c) The wildland area flooded at EL 76 would be only about half the amountlost at EL 83: 52,600 ha rather than 105,300 ha. wildlife losseswould also be proportionately less;

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

(e) At EL 76, the Affa Cua Branch of the Parana River would receive asubstantial amount of water all year long, since the AfMa Cua spillwaywould operate on a (more or less) continuous basis; and

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

1J Some 8,500 people have already been resettled.

Page 3 of 19

5. Despite its significant advantages from an environmental andresettlement standpoint, permanent operation of the reservoir at any level b9low83 would imply significantly lower electric power generation. Under the scenarioof permanent operation at EL 76, only about half as much power would be generatedper year as at EL 83: 9,700 instead of 18,700 GWh/year. It is anticipated thatthe additional 9,000 GWh/year will be needed in Argentina in the near future.Any other source would have much higher economic costs even when the additionalcosts of resettlement, environmental mitigation, and infrastructure relocationare taken into account.

6. The alternative of completing the Yacyret6 Project without the plannedArroyo Aguapey protection works (barrage and associated drainage channel) wouldbe environmentally much less desirable. Without the planned protection works(which are required under the existing binational Yacyreta treaty but is not yetunder construction), the Arroyo Aguapey valley in Paraguay would be permanentlyflooded. This would imply the loss of an additional (very roughly) 40,000 ha ofnatural grasslands, wetlands, and riverine forests, raising the total land arealost to the Yacyreta Project from 1.07,600 ha to about 147,600 ha. As notedbelow, at least one endangered species of bird occurs in the area that would beflooded if the protection works were not built. And an additional approximately1,000 rural people would need to be resettled without the protection works. Toobtain additional data, a separate environmental impact study of the ArroyoAguapey protection works will be carried out within the next year. This studywill compare in detail the environmental implications of the Yacyret6 Projectwith and without these works.

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

Wildlands and Biodiversity

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

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

Page 4 of 19

within Argentina and Paraguay, although it is still widespread and not threatenedin Amazonia.

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

11. Of the 121 bird species known from the reservoir area, 4 are globallythreatened with extinction. Of these, 3 (Mantled Hawk, Leucooternis oolionota;Helmeted Woodpecker, Drvocovus galeatus; and Azure Jay, Canoorax caeruleus)occur in the remaining patches of rainforest (Selva Paranense) which occur alongboth banks of the Parand River, upriver of Posadas and Encarnaci6n. The maximumarea of possible habitat for these species that would be inundated by theYacyreti reservoir is about 3,600 ha at EL 83 (none at EL 76 or 78), mostlyfragmented in small patches. The fourth species, Saffron-cowled Blackbird(Xanthoosar flayus), is presently (within the project area) only known from theArroyo Aguapey valley, an area which would remain largely unaltered by theproject unless the planned protection works are not built (in which case it wouldbe permanently flooded). Several other bird species (such as the Greater Rhea,Rea americana; Red-winged Tinamou, Rhvnchotus rufeacens; Bare-faced Currasow,.Cm fasciolata; and Toco Touqan, RamDhastos toco) occur on the islands to beflooded and are of local conservation concern, but not globally threatened.

12. Among large maumals in the reservoir area, the most threatened speciesare considered to be the Tatouay Armadillo (abossous tatogu), Maned Wolf(Crvsoogn brachvurus), Pampas Deer (ozotaceros bezoart$cu), Marsh Deer(flasocerus d$ihotomus), and South American River Otter (Lutra lonaicaudis).-hese species all have relatively wide ranges in southeastern South America, andare probably declining more from direct hunting and human persecution than fromhabitat loss. Although it supports viable populations of these species, theYacyret& reservoir area does not represent a significant portion of their totalavailable habitat. Less well known are the small mammals (particularly bats androdents) of the Yacyreta project area. Data are lacking as to exactly whichsmall mammal species occupy the project area, which may be endangered, andwhether any have a significant portion of their world population in the area tobe flooded by the reservoir. Among the a species of reptiles known from thereservoir area, 3 are considered threatened, but relatively widespread and notseriously endangered.

13. The most important measure available for mitigating the loss ofnatural ecosystems through reservoir inundation is the establishment of a networkof compensatory protected areas as similar as possible to the ecosystems thatwill be affected by the Yacyret& project. Seven reserves, totalling about 80,000ha, are proposed as partial compensation for the wildlands which would be lostdue to the Project. Five of these reserves still need to be established; twoalready exist but should have their on-the-ground management strengthened. Only

Page 5 of 19

one (Campo San Juan) of the seven reserves is likely to require land purchase byEBY. For the other reserves, the land is either already Government-owned or (inParaguay) can be managed as a protected area in cooperation with the landowners,who would obtain certain benefits (such as the avoidance of expropriation or landinvasions) in return for avoiding ecologically damaging land use practices. Noinvoluntary resettlement of the relatively few people living in some of thesereserves is considered necessary, as these peoples' existing land use practicesare highly compatible with nature conservation.

14. Of the 7 proposed compensatory reserves, 4 would be in Argentina, asfollows:

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

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

(c) Rinc6n Santa Maria is an area of about 2,500 ha (above EL 83), ownedentirely by EBY and located just upriver of the Yacyreta dam. Thesenatural grasslands are considered suitable as a temporary home formany of the animals to be rescued from the rising waters. It shouldalso serve as an interesting sample of a natural grassland which isnot grazed by cattle;

(d) Te w-CuareQ is an existing Provincial Reserve of 78 ha, under thejurisdiction of the Ministry of Ecology and Natural Resources of theProvince of Misiones. Comprising a large, scenic rocky outcroppingalong the banks of the Paran& River, it is presently only a "paperpark", with no physical demarcation or other on-the-ground protectionor management. The relatively small portion of Teyu-Cuare to beflooded at EL 83 would be compensated through support from the Projectfor its demarcation, necessary infrastructure and equipment, and thedevelopment of a management plan.

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

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

Page 6 of 19

the reservoir). Comprising about 10,000 ha of mostly Government-ownedland, this area has riverine forests, wetlands, and natural grasslandswhich are highly representative of the areas to be flooded; it alsoharbors a good population of the locally endangered Arary Tree.Although some of this potential reserve has been disturbed by thedigging of borrow pits for dam construction, these areas will becomegood wildlife habitat (especially for marsh and water birds) afterthey are physically rehabilitated by the civil works contractor (soas to have gently sloping sides).

(b) The Arroyo Yabebvrv Watershed, a relatively flat area encompassingmore than 40,000 ha is a mixture of wetlands, riverine forests, andnatural grasslands, ecologically very similar to large island areasto be flooded. Most of this land is part of large private cattleranching estates, where traditional extensive grazing patterns arehighly compatible with biodiversity conservation; and

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

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

17. In addition to the above-mentioned protected areas, the YacyretaProject would support efforts to protect native forests growing along the edgeof the future reservoir. Maintaining forest cover along as much as possible ofthe reservoir shoreline will reduce reservoir sedimentation and shorelineerosion, enhance the habitat for many native wildlife and increase the aestheticand potential tourism values. In those areas where EBY would not own thereservoir-edge land, it would solicit agreements with the landowners to leave abuffer strip of forest or other natural vegetation at least 100 meters wide.'VAvironmental staff in, or under contract to, EBY would help to enforce forestconservation in these buffer stirps; the recurrent costs would be financed out-of a special allocation from electricity sale revenues. Those areas at the edgeof the future reservoir which are unforested will, in all likelihood, naturallydevelop a cover of riverice forest or other dense natural vegetation. For thisreason, muanual treepRlanting along the reservoir edge will probably not bejustified.

Page 7 of 19

18. To reduce the mortality of animals trapped by the rising waters of thereservoir (particularly on the riverine islands to be flooded), an animal rescuecomponent is planned. This component would focus primarily on those species

e (listed in the EA) which: (a) lack sufficient mobility to escape on their own;and (b) are considered rare or threatened. Most of the animals captured arelikely to be relocated to one of the compensatory reserves mentioned above; somewould be sent to zoos. The compensatory reserves are generally considered tohave populations of most large mammal species that are well below their naturalcarrying capacity. The relocated animals of these species will therefore havea good chance of surviving and reproducing successfully, assuming that theprotected areas component of the project is effective in controlling illegalhunting.

Fish and Other Aauatic Life

19. Of the great diversity of fish species in the Paran River, the onesutilized most for subsistence, commercial, and sport purposes are Surub5(Pseudonlatystoma coruscang and E. fasciat m), Dorado (Salminus maxillosus), andS6balo (Prochilodus glatensis). Fish migration studies that entailed marking andrecapturing of fish have established that movement upriver occurs mostly inAutumn (March-April) and movement downriver occurs mostly in Spring (August-October). Other aquatic life forms have not been systematically studied to thesame degree as those fish species considered to be important by the humanpopulations along the river.

20. The Yacyretd Project will transform existing river and stream habitatsinto a reservoir lake habitat. Some of the native fish species present in theriver today are expected to adapt to and thrive in the waters of the futurereservoir (except for those areas which become anaerobic due to biomassdecomposition, discussed below). However, many other fish species are notexpected to adapt to the altered aqu:-tic environment; these species woulddisappear from the inundated sections of the river and streams. However, thesespecies would still be present in suitable habitats of the ParanM River and itstributaries above and below the future reservoir.

21. The Yacyreta Dam is expected to pose a significant barrier to fishmigrations. To facilitate passage of migratory fish upriver, the dam designincludes 2 fish transfer stations, each with 2 elevators, intended to liftmigratory species (including those which lack the jumping ability to utilize afish ladder) past the dam into the reservoir. One of the elevators is alreadyin operation, having successfully transported nearly 1 million fish of manydifferent species during the past half year. Fish mortality within the elevatorhas been well under 5 percent, except in rare instances when commercial fishermenillegally gained access to the elevator and harvested large volumes of fish.However, there appears to be considerably higher mortality just after the fishare released, as large predatory Dorado fish have learned to wait by the releasearea for an easy meal. A major unanswered question is how the migratory fish,which instinctively swim up currents, wi,ll react to the relatively still watersof the future reservoir.

Page 8 of 19

22. The fish elevators are intended to provide for fish passage upriver,but not downriver. To go downriver, migratory fish species will have to useeither the spillways (when they are operating), turbines, or navigation locks.Since the drop from the reservoir level at EL 83 to the river below the dam willbe about 20 m, considerable fish mortality may result from the impact. Migrationthrough the turbines will be even more hazardous--particularly for the largerfish, which are likely to be cut by the turbine blcdes.

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

24. Aside from the careful management of water releases and operation offish elevators, mitigation of the project's effects on fish will initiallyinvolve two main components: (a) Systematic monitoring of fish populations andmovements; and (b) control of fishing below the dam.

25. Because the fish transfer stations (and even the dam itself) areessentially a large scientific experiment involving migratory fish, carefulmonitoring is necessary. The proposed Yacyreta II Project would support aprogram of systematic monitoring of the populations and movements of economicallyimportant fish species, both above and below the dam. The monitoring programwill be assisted by a fish research laboratory which currently exists (but willbe upgraded under the project) in Ayolas, Paraguay, as well as a second facilityplanned for construction in Nisiones, Argentina, near the tail end of thereservoir. Such fish monitoring data will help to determine the optimumoperation of the dam's spillways and fish elevators.

26. Although subsistence, commercial, and sport fishing are an importantway of life in the Project area, the unnatural concentrations of migratory fishbelow the dam (and especially in the fish elevators) make fishing in these areasexceptionally easy, leading to potentially disastrous ovorfishing. For thisreason, EBY has agreed to demarcate the area of river 1,000 meters below the damwhere (under existing Paraguayan law) all fishing is prohibited.

27. Although fish hatcheries were initially planned for the YacyretIproject, they do not appear to be needed at this time. This is because adequatepopulations of economically desirable fish species are likely to become naturallyestvblished within the Yacyret6 reservoir. Ever. if this is not the case,hatcheries would be needed to establish and maintain such fish populations onlyif conditions in the reservoir were conducive to their survival but not to theirbreeding. The Project's systematic fish monitoring program will help todetermine whether fish hatcheries would indeed be a justified investment;however, this it not likely to be known until at least two years after finalreservoir filling. To avoid major ecological risks, no non-native fish species

Page 9 of 19

would be introduced into the reservoir nor other sections of the ParanA River orits tributarips.

28. Floating Aquatic Weeds. Aside from fish, the principal aquaticorganisms of concern are floating, broad-leaved aquatic plants, such asRichhornia gragaineg. These plants, which presently occur in the Parana Riverand its tributaries in relatively low numbers, could become very abundant inparts of the Yacyreta reservoir, particularly in areas of slow-moving, shallowwater with high levels of nitrogen and other nutrients. Extensive mats offloating water weeds are a potentially serious problem, particularly near urbanareas, because they provide ideal habitats for various species of mosquitoes, aswell as the aquatic snails which are potential vectors of schistosomiasis. Theycan also impede small boat navigation, block irrigation intakes, and make partsof the reservoir less suitable for many species of fish.

29. The Yacyreta Project would control water weed proliferation,particularly near sensitive urban areas through (a) biomass clearing of part ofthe reservoir area, (b) development of effective sewage collection and treatmentsystems in Posadas and Encarnaci6n, and (c) the program of water releases fromthe dam (discussed below). Since these measures may not always be sufficient,the Yacyreta II Project will finance the development of a contingency plan forwater weed control. The plan would be implemented whenever water weed mats inurban or other sensitive areas threaten to become too extensive. Aside frompartial reservoir drawdown through the management of water releases from theYacyret6 dam, the main method available for water weed control is manual removal,using boats and laborers. The recurrent costs of periodic manual water weedremoval would be covered under the special environmental allocation from theYacyreta Project's power sale revenues.

Water Ouality

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

31. Domeastic Sewaae Pollution. At EL 83, if untreated urban sewage wereto continue pouring into the urban bays of Posadas and Sncarnaci6n, very seriousenvironmental and public health problem's would result. These bays will have manylow-income residential neighborhoods virtually on their banks. Contact withslow-moving water heavily polluted by raw sewage (as well as industrialeffluents) would greatly increase public health risks from cholera, hepatitis,

Page 10 of 19

and various gastrointestinal diseases. Moreover, nutrients provided by thispollution would greatly improve the conditions for aquatic weeds, the preferredhabitat for certain species of mosquitoes (some of which are disease vectors,others merely a nuisance) and snails (which can transmit schistosomiasis).

32. To prevent this scenario, EBY would support the development ofcomplete sewerage systems for Posadas and Encarnaci6n. The system in each citywould include some type of sewage treatment plant (such as settling ponds) and/ora long discharge pipe into the relatively fast-flowing waters in the middleportion of the reservoir. These systems would only be needed when the reservoiris raised to its ultimate level of EL 83. The Yacyreta II loan would financedetailed studies to evaluate alternatives and develop a final design for thesewerage systems of Posadas and Encarnaci6n. It is planned that these systemswould then be constructed (beginning 1995), financed in part by the revenues fromelectricity sales during operation at reservoir EL 76 and El 78.

33. Industrial Water Pollution. Downriver of the existing Itaipi dam (andparticularly in the vicinity of Posadas and Encarnaci6n), a wide variety ofindustrial effluents are currently discharged into the Paran& River withouttreatment. These industries include paper and pulp mills, citrus juicefactories, manioc starch factories, turpentine and resin factories, cotton gins,vegetable oil factories, meat-packing plants, and slaughterhouses. At present,the fast-flowing Parana River is able to assimilate fairly quickly most of theorganic industrial pollution which it receives. However, at reservoir El 83,urban bays at the edge of Posadas and Encarnacion would have very limitedassimilative capacity (due to very low water velocity) for such pollution. Tomitigate this impact, the Yacyreta II Project would include a component oftechnical assistance to the responsible Argentine and Paraguayan agencies forimproved regulation of industrial water pollution.

34. Biomass Decay. Vegetation which is not cleared from the reservoirarea will decompose over a period of years following reservoir filling. Thisdecay process will consume dissolved oxygen, possibly resulting in a layer ofanaerobic water in the lower depths of the reservoir. Should the thermal columninvert at some time in the future, the result would be a massive fish kill andtemporarily very poor water quality at the surface and downriver.

35. To improve reservoir water quality, EBY will selectively deforestcertain areas to remove the woody biomass before flooding. Clearing of thebiomass will concentrate upon removal and salvage of tree trunks and cutting andburning of the rest of the vegetation in sit. Biomass clearing would be limitedto the areas below the level at which the futulre reservoir will be operated. Thefilling of the reservoir in three stages (El 76, EL 78 and EL 83) will permitsubstantial biomass removal in the critical areas where risks of thermalstratification and eutrophication are greatest.

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

Page 11 of 19

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

37. Drinking Water Oualitv. While some residents of Posadas andEncarnaci6n already have potable water piped to their homes, a majority stillrely on wells for their drinking water. Although there are no good baseline dataon the quality of drinking water from wellP in Posadas and Bncarnaci6n, it ispresumed to be generally poor because of the high recorded incidence of diarrhealdiseases in both cities. It is likely that the Yacyret4 reservoir would causethe quality of drinking water from wells to deteriorate further, by raising thegroundwater table--thereby facilitating the further mixing of groundwater withhuman sewage from existing cesspools, septic tanks, and runoff.

38. To ensure that the quality of drinking water does not deteriorate--and, in fact, to improve it to acceptable conditions from a public healthstandpoint--the Yacyrett SI Project would support the installation of a pipedpotable water delivery ytstem for the still-unserved portions of Posadas andEncarnaci6n. As in the case of the sewerage systems, the Yacyret& II loan wouldfinance detailed studies to evaluate alternatives and prepare final designs,while the actual construction vwuld begin (utilizing other funds) after the startof reservoir operation at XL 76. The proposed Yacyrett II loan (and recurrentcost funding from a special allocation of power sale revenues) would also financea permanent program to monitor the quality of urban drinking water.

DowMriver Imnaats

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

40. Since dry-season releases from the Aia Cu& spillway would imply areduction in potential power generation, such releases should, for economicreasons, be kept to a necessary minimum. To reduce the required amount of waterreleases from the AfMa Cud spillway, EBY is considering the possibility ofconstructing 3 mini-dams on the A'la Cu6 Branch that would help to ensure that nosection of the Afla Cu& Branch below the damn would ever be without some minimallyacceptable depth of water. The mini-dams would have movable gates which wouldallow fish movements; however, most fish Wdgration is expected to take place inthe Parand River's Main Branch, on which the fish elevators are situated.

41. Aside from the serious issue of the AMa Cu& Branch, the Yacyret4project is expected to have relatively minor environmental impacts downriver ofthe dam. The management of water releases from the dam will be more or less

Page 12 of 19

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

42. Presently, the Parani River in the Yacyreta project area carries muchless sediment than it did before the construction of the upstream Itaipti Dam,which now serves as a major "silt trap" for the 'river. Because the river'salready low sediment load, the additional reduction in sediment after theYacyret& dam is closed is not expected to be significant, in terms of potentiallyincreasing riverbed and bank erosion rates downriver of the dam.

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

Public Health

44. The major water-related infectious diseaees endemic in the futurereservoir area are typhoid fever, hepatitis, and various gastrointestinalinfections and parasites. Contaminated water, due to deficient waste disposal andsanitation systems, constitutes a significant public health risk today,especially in the urban areas. Various kinds of gastrointestinal infecticns andintestinal parasites, usually diagnosed simply as "diarrhea", are common on bothsides of the river. They are by far the most significant public health problemtoday, reported by clinics to number several thousands each year.

45. Water-borne disease vectors present in the region include severalvarieties of mosqucito which transmit malaria (Ang2heles albitarsis, &L darlingi,etc.), yellow fever (Culex auinauefasciatu, Aedes aeaoti, Sabethsaalbiforivus, etc.) and dengue fever (Aedes aeaovti). These vectors, in additionto many other types of mosquitos which are mainly a nuisance, are distributedthroughout the project's area of influence and especially in the riverine cities,where malaria and dengue fever are considered endemic. Malaria cases numberbetween several hundred and several thousand each yeii. bangue fever cases areprobably much more ccmmon than the several thousand recorded each year becauseof confusion of the symptoms with those of common colds and flus. Yellow feveris rare.

46. Schistosomiasis is not endemic in the area of project influence, butsnails of the genera BioUmhalaria, which are suitable vectors forschistosomiasis, do occur in the ParanM River and its tributaries.

Page 13 of 19

Schistosomiauis is present in Brazil and migration between Brazil, Paraguay, andArgentina is increasing over time. The risk of the spread of schistosomiasis tothe future Yacyreta reservoir is high, especially at EL 83, due to thecombination of improved habitat for the Biomnhalaria snails and the proximity ofa dense urban human population.

47. The future reservoir will provide good habitat for aquatic weeds andwater-borne disease vectors. The risks of human exposure to malaria, denguefever, and schistosomiasis are expected to be considerably increased by thefuture reservoir. In addition, sewage now discharged untreated into the Paran&River by cities upstream and the cities of Posadas and Encarnaci6n at the edgeof the future reservoir will increase public health risks of infectious diseases.

48. Low-income people displaced from the banks of the Paran& River and itstributaries are leaving low-lying areas along the edge of waterways where publichealth conditions are poor. Resettlement of these people will result in a markedimprovement in public health conditions for two main reasons. First, allresettled people are to be provided free complete vaccinations. Second,resettlement areas are to be provided with potable water systems, drainagesystems, and sewerage systems which affected people lack. Also, specialprecautions are being taken in the construction of resettlement dwellings toavoid creating habitat for the reduviid bug, the vector of Chagas' disease.

49. Protecting public health for the rest of the population will requirethe construction ef (a) sewage collection and treatment systems and (b) potablewater systems for both the cities of Posadas and Encarnaci6n (as discussedabove). In addition, public health monitoring of water-borne disease vectors andof clinical cases of vector-borne and infectious diseases will be carried outunder the Yacyreta II project.

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

Cultural Procertv

51. Present knowledge of archeological and historical sites that will beaffected by the project is incomplete. Systematic field surveys andinvestigations have been completed to date on the Argentine side of the ParanaRiver. Information from the Paraguay side is only indicative because systematicfield surveys have not been completed. In Argentina, some 14 archeological sitesrepresenting the UMb1 preceramic lithic tradition of hunters and gatherers havebeen identified. One of these was a village, which was excavated by theUniversidad Nacional de Misiones. Another 13 sites were identified representingthe Tupiguarani ceramic tradition of tropical forest agriculturalists. Aparticularly rich site of long occupation by people of this tradition has beenexcavated on Caflate Island. Preliminary data from Paraguay indicates thepresence of similar archeological remains.

Page 14 of 19

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

53. Archeological remains excavated from the future reservoir area on theArgentine side have been catalogued, recorded and are now curated at theDirecci6n de Cultura of the Municipalidad de Posadas. Scientific study of theseis ongoing. Under the Yacyreta II Project, the remaining archeological survey,excavation, cataloging, recording, analysis, and conservation work will becompleted. This work will be contracted by EBY with an international teamacceptable to the Bank.

Indirect Environmental Imoacts

54. By far the most important indirect environmental impacts of Yacyretawould be related to possible irrigation development. The Yacyreta schemeincludes the construction of two irrigation water intakes (one each for Paraguayand Argentina), which would make it possible in the future to use water from theYacyret& reservoir for some type of irrigation development project. Theirrigation intakes are planned for construction after initial reservoir fillingto EL 76 and before its final filling to EL 83.

55. Any large-scale irrigation development would obviously have importantenvironmental impacts. Of particular concern is a proposal (prepared by theJapanese International Cooperation Agency, JICA) for an irrigation projectencompassing about 200,000 ha in Paraguay, which would depend on water madeavailable by the Yacyreta reservoir at EL 83. It would involve drainage, landclearing, irrigation, and much new human settlement in what are presently mostlysparsely-settled wildlands in the area broadly known as the Panatanal deNeembucu, the envisaged compensatory protected area in the Arroyo Yabebyrywatershed under the proposed Yacyreta II project.

56. However, constructing the irrigation intakes as planned would notnecessarily imply that the above-mentioned project would indeed be developed.A variety of alternative, less environmentally sensitive, sites in Paraguay couldbe used for new irrigation development that would utilize Yacyreti reservoirwater. Nevertheless, it is important to follow closely the plans of JICA or anyother possible source of financing for such irrigation development, to ensurethat environmental concerns (including the need to protect the Arroyo Yabebyrywatershed in a natural state) are adequately reflected.

Imolementation of the Environmental Manaaement Plan (IMP)

Page 15 of 19

s7. Institutional Framework. In Argentina, the Secretariat of NaturalResources and Human Environment (SRNAH) created in 1991, consolidates numeroussectoral environmental agencies under the Office of the President. The newSecretariat has conducted a technical review of the EA and EMP and participatedin public hearings at which they were discussed.

58. In Paraguay, the Subsecretary for Natural Resources and theEnvironment (RNMA) is situated within the Ministry of Agriculture. Within thisSubsecretary is housed the Environment Impact Evaluation Unit, which is chargedwith evaluating development projects and has conducted a technical review of theYacyreta EA and KMP and participated in pubic hearings at which they werediscussed.

59. EBY's Resettlement and Environment Division (DARE) has a weak trackrecord to date for carrying out environmental mitigation activities. To improveEBY's ability to implement and/or coordinate all necessary environmental work,the technical staff of DARE will be strengthened by the hiring of severaladditional necessary specialists (listed in the appraisal mission's Aide Memoireand in the draft Loan Agreement). The proposed Yacyret& II loan will alsofinance a number of long-term consultants for up to 3 years to reinforce DAREduring Project construction and reservoir filling, in the fields of biomassremoval, reservoir water quality, terrestrial ecology, ichthyology and aquaticecology, and archaeology. The Yacyret6 II Project will also finance a 3-yearenvironmental training program for EBY staff and (where relevant) officials ofother agencies involved with environmental mitigation for Yacyreta.

60. Over the long term, successful implementation of the agreed EMP willrequire decentralization of responsibility to local government institutions--municipal, departmental, and provincial. EBY will retain principalresponsibility for financing, technical assistance, quality control, andaccounting functions. Local governmental institutions and NGOs are expected totake responsibility for detailed design and implementation of many aspects of themmP, as described below.

61. Manaaement of Water Releases. One of the most important environmentalmitigation tools available at Yacyret& is proper management of water releasesfrom the dam (including the spillways). The timing of water releases from theYacyret& dam will influence a wide variety of environmental conditions, bothwithin the reservoir area and downriver of the dam. Even though the principalobjective of the Yacyret& Project is electric power generation, carefulmanagement of water releases from the dam will be used to achieve the followingtypes of environmental mitigation: (a) protection of water quality, (b) controlof aquatic weeds, (c) avoidance of fish kills, (d) prevention of urban floodingand (e) facilitating downstream fish passage.

62. This sophisticated, multi-purpose management of water releases willrequire a good technical data base, trained environmental staff in EBY to adviseon water releases, and judgments concerning tradeoffs between one or moreenvironmental objectives and electric power generation. The proposed Yacyreta

Page 16 of 19

II project will finance a detailed study, to be completed well before reservoirfilling, to establish quantitative guidelines and paramters for managing waterreleases to achieve desired levels of environmental and power generationobjectives.

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

64. Wildlands and Biodiversity. EBY has requested the establishment ofthe proposed Isla Apipe Grande, Campo San Juan, Isla Yacyreot, and ArroyoYabebyry compensatory reserves through appropriate Governmental channels. TheTeyu-Cuare and Atinguy reserves already exist; the Rinc6n Santa Maria reservewill be declared unilaterally by DBY, since EBY owns all of the land. It istentatively expected that the Government agencies with principal responsibilityfor managing each reseZve will be as follows: Isla Yacyreta and Arroyo Yabebyry--Paraguay Natichal Parks and Wildlife Directorate (in the Ministry of Agricultureand Livestock); Isla Apipe Grande--Subsecretariat of Natural Resources, Provinceof Corrientes (Argentina); Teyu-Cuare- -Ministry of Ecology and Renewable NaturalResources, Misiones (Argentina); Campo San Juan, Rinco= Santa Maria, andAtinguy--EBY. The proposed project will finance the preparation of managementplans for these protected areas To varying degrees (most pi onounced in the caseof EBY), these agencies are likely to contract out the long-term managementfunctions for these reserves to qualified NGOs (such as the Fundaci6n VidaSilvestre in Argentina and the Fundacidn Koises Bertoni in Paraguay). As notedabove, DBY will finance the recurrent costs of managing these protected areas,as well as the protection of other reservoir-edge forests, through the allocationof a small portion of electricity sale revenues. The animal rescue componentwill be planned and executed by an experienced international contractor, assistedby EBY's environmental staff and by local volunteers.

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

66. Water Oualitv Biomass clearing will be conducted by DBY throughconvmnios with agencies such as the Ministry of Public Works of the Province ofMisiones and the Department of Public Works of the nlicipality of Encarnacian.The proposed project will also finance an expert consultant, to be assigned toDARE in DBY for 2 years, to oversee biomass removal operations needed for

Page 17 of 19

reservoir filling to EL 78. Regulation of industrial water pollution is the

responsibility of (a) the Ministry of Ecology in Misiones, Argentina and (b) the

National Environmental Sanitation Service (SENASA) in Paraguay.

67. Public Health. Detailed design work for the sewerage and potable

water systems for Posadas will be carried out by EBY throiSh convenios with the

Ministry of Public Health and the Sanitation Works Agency (APOS) of the Province

of Misiones. On the Paraguay side, the same work will be carried out by EBY

through a convenio with National Corporation for Sanitary Works (CORPOSANA). The

Department of Public Health of the Municipality of Encarnaci6n and the Ministry

of Public Health of the Province of Misiones will carry out epidemiological

monitoring and coordinate follow-up disease treatment programs on their

respective sides of the Parand River.

68. Cultural Propertv. Prehistoric and historic archeology work supported

by the proposed project will be carried by an international team headed by a

professional archeologist in collaboration with the Catholic University of

Encarnaci6n and the Nationa. University of Misiones. Arrangements for the

curation of the artifacts will be made with the Direcc6n de Cultura in Posadas

and the Catholic University of Encarnaci6n.

Monitorina and Evaluation

69. To help ensure proper implementation of the RMP by BEBY and cooperatinginstitutions, the proposed project will finance an annual project evaluation.This evaluation will done by an independent non-governmental environmental

research institution contracted by EBY and acceptable to the Bank. Terms ofreference will be agreed upon between the Bank and BEBY, during loan negotiations.

Annual evaluation reports will be reviewed by EBY and the Bank jointly andrecommendations formulated to address the outcomes reported.

70. Monitoring of important environmental parameters in the YacyretA'sarea of influence will be carried out by EBY and other relevant Governmentinstitutions. The recurrent costs of such monitoring will be supported by a

special allocation of power sale revenues from the Yacyretd Project. Table 1displays the planned division of institutional responsibilities for each major

type of environmental monitoring.

Prolect Budaet

71. Table 2 indicates the budget for all environmental mitigation activities

to be undertaken during the implementation period (1993-98) of the proposed loan.The budget would total about US$89.2 million (January 1992 price level), duringthis period, of which US$5.2 million would be covered by the proposed Bank loanand the balance by Argentine Government counterpart funds. Resettlement andrelated social expenditures comprise a separate component of the Yacyreta IIbudget (see Attachment 1 of this Annex). Most of the expenditures for the years1996 to 1998 w)uld only be necessary if the decision to operate the reservoirabove level 78m is made.

Table 1: INSTITOITIONAL RESPONSIBILITIES FOR ENVIRONMNTAL MONITORING

: aervir - Intidad Sinacional. . ntidad& 3ins ionalE Water :Quality -. Yart , . Y.- -

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

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

urban x-i*ngDRSCOW8N

Fi:sh Populations -ntidad B1 .ina6ional Unt d f inad ion-.and:.Mgaia. Yamyrett

72 The recurrent costs of sustaining the Yacyreta II Project'senvironmental investments are tentatively estimated at US$980,000 per year. Itis anticipated that these recurrent costs (for water-related disease monitoringand treatment, management of compensatory protected areas, protection ofreservoir-edge forests, water quality monitoring, fishery monitoring, water weedcontrol, operation of the Arroyo Aguapey protection works, and incremental costsof necessary industrial water pollution control) will be financed by a specialallocation of electricity sale revenues from HBY, once operation at IL 76 begins(see para. 2.16, main text). The initial baseline and/or preparatory studies forenvironmental monitoring activities (including water-related diseases, waterquality, fish populations and migrations, and industrial water pollution) wouldbe financed by the proposed loan.

73 In the case of the compensatory protected areas, the need forrecurrent expenditures (park staff, fuel, and supplies) is relatively immediate,to ensure that on-the-ground management of these areas is well underway beforethe reservoir filling and wildlife relocation begin. HBY would initially supportthese expenditures through the government budget contributions. Upon plantcommissioning, these costs would be paid in perpetuity out of the specialallocation of power sale revenues. The proposed loan would finance specializedassistance for park staff.

.| 1993 | 199 199S 1996 1997 1998 |TOTALSEWER4GE AND WATER SUPPLY WORKS 270 305 270 5,268 9,319 6,241 21,673URBAN COASTAL TREATMENT 197 365 243 8,636 16,491 11,202 37,134WATER QUAlLUY 1,130 1,945 876 1,600 3,324 1,506 10,381WiL DLA4NDS AND BIODIERS177 1,100 1,465 530 1,750 2,720 1,750 9,315FISH AND OTHER AQUA 77C LIFE 219 221 400 600 600 579 2,619PUBLIC HEALTH 400 600 300 482 880 480 3,142CULTURAL PROPERTY 300 200 115 350 450 714 2,!29SPECIAL SVUDIES 300 438 329 0 0 0 1,067ENVIRONMENTAL TRAINING 200 108 100 100 100 100 708MANAGEMENT AND OVERHEAD EXPENSES 173 191 103 173 241 178 1,059(Long-term consultants and aniual evaluation) _

7TOTAL ENVIRONMENT 4,289 5,838 3,266 18,959 34,125 22,750 89,227

Page 1 of 6

ARGINTIN

YACYTA HYDRORLECTRIC PROJECT II

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

Time FrameActivity Oraanization/Institution Initiated Comleted

ResettteMent and Rehabiliation

1. Institutional Strenathenina

(a) Agreements signed with local EBY/Ministry Agriculture 10/92govermental agencies for (Prova of Misiones) Ministrydevelopment of actions and of Health & Welfare (Mund. ofprograms of social communication Encarnacion), etc. I/and socio-economic development(health, education, communitydevelopment, occupationretraining)

(b) Training of local governmental EBY 02/93 09/94personnel to meet the specificrequirements of the programsreferred to In (a) above.

Cc) Agreements signed with consultants Encarnacion Municipal 12/92for local govermnental agencies Subcommittee on Yacyretd,for initial three year period. (Prov. Misiones) Pin. of Agriculture,

etc.!/

(d) Presentation of first quarterly EBY 12/92report on quality control.

(e) Agreement signed with non- EBY 12/92governmental organization forindependent evaluation.

2. Infrastructure Works

(a) Completion of housing in progress. EBYabout 299 complete units. 12/92about 312 units lacking only 05/93infrastructure.

(b) Completion of detailed design EBYstudies and projects: 01193for infrastructure 06/93

Cc) Acquisition of rural lands for EBY 11/92 01/95resettlement area; identifice-tion, valuation, expropriationfor elevation 78.

(d) Land acquisition for industries EBY 12/92 03/93

/I The coopaig local governme_ inaioa include on the Agenta aide the Pomade Municipal Commnitue on Yacyreta, Officeof the Govemor of the Provis., Provind Hosing Authodty, Provincia Minir of Agiculture, Socil Welfue, PublicHeath, Mine. md Geology, Education, ad the Provincil Subcomisonon Pluanig; on the Parguay side the agencies indcudethe Encaacion Municipl Subcommite on Yarcyre, Minteia of Agculte and Lvestock, Health and Welfe, Eduation,Cooeraivs and Houaing. S te agrewt will be apned by each agncy and EBY which will fpeciy reapobiitie foraupcs of the iniple_meaon of reslenent opeationa.

Page 2 of 6

relocatfon, including studfoe toidentify clay deposits, reset-ttement alternatives, occupationalretraining alternatives andevaluation of clay recoveryalternatives.

(e) Contract and construct urban housing Housing Authority (Prov. of 04/93 06/95and infrastructure for elevation 78. Misiones). Housing Admin.

(Municip. of Encarnacion)

(f) Contract and Construct Rural Housing Authority (Prov. of 5/93 06/95Housing and Infrastructure Misiones) Housing Admin.for elevation 78. (Nun. of Encarnacidn)

(C) Contract and Construct Encarnacidn EBY/Nunicipal Subcommission 01/93 08/93commercial zone (complete infre- on Yacyreta (Encarnacion)structure in the commercifl resettle-ment zone).health posts, etc.)

(h) Reconstruction of shops by ouners. EBY 06/93 06/95

3. Poculation Transfer

(a) Relocation of urban populatIon EBYand issuing of property deeds:for elevation 76. 11/92 06/94for elevation 78. 06/95

cb) Relocation of Rural Population EBYand issuing of property deeds:for elevation 76. 01/94 06/94for elevation 78 06/95

(c) Relocation of industrial population EBY 6/93 6/94(periurban):for elevation 76. 10/93 06/94for elevation 78 06/95

:d) Relocation of the comuercial zone EBY 10/93 06/95population and issuing of propertydeeds to serviced lots.

4. Economic and Social Develocment 0-nramr

(a) Public Health Min. Public Health (Prov. 10/92 09/98of Nisiones), Dept. PublicHealth (Encarnaci6n)

(b) Community Development. Min. Social Welfare tProv. 12/92 09/98of Misiones), Nn. Healthand Welfare (Encarnacidn)

(e) Literacy Canpaign Min. Education (Prov. of 03/93 09/98Misiones) Dept. of EducationCEncarnacidn)

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

Envirorwnental Manaamont

5. WIater ustity

(a) Sewage collection and treatment APOS/CORPOSANAIn Posadas and Encarnacidn.

Studies to devolop final 10/92 10/93designs for s jrpge net-work and sewage treat'ntplants for both cities.

Construction of (1) primary 12/93 06/98sewerage collectors andinterceptors, Ci) secondaryand tertiary sewerage net-works (including residentialhookups), and CiII) sewagetreatment plants and/orlong discharge pipes.

(b) Urban water supply system. APOS/CORPOSANA

Studies to develop final design 10/92 10/93of a potalbe water system forPosadas, Garupa, Candelaria,and Encarnacidn.

Construction of the potable water 12/93 06/98system (including residentialhook-ups) in these cities.

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

(d) Treatment of urban refuse EBYduLsps to be flooded.

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

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

(e) Formulation and ifpleientatlon Min. of Ecology (Prov. of 10/93 9/95of regulations to control industrial (Miuiones), SENASA (Paraguay)water pollution, agreed with provin-cial and departmental governmenthaving police power to enforceagremnt in and upriver of Posdasand Encarnaecidn.

Cf) Reservoir water quality monitoring, EBY 01/93 recurrentbeginning with baseLine study tobe completed before fitLing toelevation 76.

(g) Monitoring urban well-water quality, APOS/CORPOSANA 01/93 recurrentbeginMing with baseline study to beconpleted before filling to etevation76.

6. Wildlands and Biodiversitv

(a) Establishment of compensatory Min of Ecology (Prov. ofprotected areas in Islas Apipe, Misiones), Paraguay NationalCampo San Juan, Rincdn Santa Parks and Wildlife Directorate,Maria, north Ibera, and Teyu- Subsecretary of Naturat ResourcesCuare in Argentina; Cuenca (Prov. of Corrientes), EBYArroyo Yabebyry and west IslaYacyretg in Paraguay.

Studies to develop management 01/93 08/93plans, physical boundary dear-cation, necessary infrastructureand equipment for specificreserves, and (for Campo San Juan)land acquisition.

(b) Wildlife rescue. Study to design EBY 09/93 12/95rescue plan, folLowed by implementa-tion (synchronized with the 3 plannedstages of miomass clearing andreservoir filling).

Cc) Reservoir-edge vegation managuemnt. EBY

Study to (i) identify critical 01/93 07/93trosion-prone reservoir-edge areas,and (ii) recoumend appropriatesite-specific erosion controlmeasures.

Preliminary ih %lementation of 12/93 09/95erosion control measures, in-cluding (i) iega. agreementswith landowners t' maintainprotective buffer strips ofnatural vegetatior alongreservoir shoreline, and (ii)(if needed) manual reforesta-tion or other erosion controlactivities.

Monitoring and control of 10/98 recu.rentnatural reservoir-edgeforest vegetation.

7. Fish and Other Aauatic Life

(a) Research and monitoring of EBY 10/92 recurrentfish populations and migrationupriver and downriver of theYacyretd dam.

(b) Control of fishing on the Pararn Paraguay Navy 10/92 recurrentRiver (for 3 km above and belowthe YacyretU dam); agreementswith relevant agencies of theBorrower and of Fdraguay withpolice power to control illegalfishing.

tc) Control of ftloating aquatic weeds. EBY 09/95 recurrent

S. Pubilc Health

(a) Monitoring and control of Min. Pubilc Health (Prov. 12/92 recurrentvector-and water-borne Misiones), Dept. Publicdiseases, including (i) vector HeaLth (Hun. Encarnac'dn)(especially mosquito andsnail) monitoring and controland (ii) clinical diseasemonitoring and treatment.

9. Cultural Propertv

(a) Archeological, survey and Catholic University of 12/92 07/95salvage Encarnacidn, National

University of Misiones

(b) Historical building review Catholic University of 01/96 12/98salvage. Encarnacidn, National

University of Nisiones

10. Soecial Studies and Mitiastion Works

(a) Study to develop enviroimental para- EBY 02/93 C9/95meters for operating guidelines forwater releases from the Yacyroet dam.

(b) Water management in the Ana Cua EBYbranch of the Paranr River.

Study to evaluate alternatives 02/93 08/93for water management in the AnsCue branch.

Construction of mitigation 10/93 06/95works according to resultsof study.

(c) Environmental impact study of the EBY 01/93 12/93Arroyo Aguapey protection works(i.e. of the Yacyreut power plantwith and without these works).

(d) Construction of ArIoyo EBY 09/94 09/95Aguepey protection worksaccording to the results ofthe study referred to inCc) above.

A;W 2-?Attachment 3

Page 6 of 6

Ce) Planning and construction of urban EBYcoastal treatment works, includingtI) shoreline edge configurationfor Posadas, Encarnacidn, Garupaand Carmen del Paranr ; (ii) shore-line protection against floodingand river wave action; (iii) treat-ment of urban streams; andtiv) recomposition of urban and ruralroutes.

Detailed planning studies. 04/93 10/95Legal and technical details 09/95needed for civil works contractingready.

Cf) Envirormental impact study of new EBY 12/92 04/93power transmission lines for theYacyretf power plant.

11. Environmental Training

(a) Envirormental panel of EBY 11/92 09/98experts.

Cb) Environmental training EBY 02/93 09/95of local agency staff, including EBYand collaborating governmental agenciesand non-goverrwental organizations(short courses and field workshops).

12. Evaluation of Resettlement and Environmental Manraement Plan Immlementation

(a) Consultants contracted. EBY 12/92

Cb) Draft First Report EB 03/93

(c) Final First Report EBY 06/93

(d) Draft Second Report EBY 03/94

(e) Final Second Report EBY 06/94

Cf) Draft Third Report EBY 03/95

Cs) Final Third Report EBY 06/95

th) Draft Fourth Report EBY 03/96

(i) Final Fourth Report EBY 06/96

CJ) Draft Fifth Report EBY 03/97

Ck) Final Fifth Report EBY 06/97

tl) Draft Sixth Report EBY 03/98

Cm) Final Sixth Report EBY 06/98

13. Hfd-Term Revie IBRD/EBY6/94

ARGFNrlNA

YACYRETA HLDROELECTRIC PROJICT II

Hestimated DisburseMent Schedule(USS million)

Fiscal Year - Disbursement -

and Semester Semester t Accumulated e

FY93First 152.0 50.7 152.0 50.7Second 44.0 14.7 196.0 65.4

FY94First 39.0 13.0 235.0 78.4Second 29.0 9.7 264.0 88.1

FY95First 27.0 9.0 291.0 97.1Second 4.0 1.3 295.0 98.4

FY96First 3.0 1.0 298.0 99.4Second 1.0 0.3 299.0 99.7

First 0.5 0.2 299.5 99.9Second 0.5 0.1 300.0 100.0

Note: Disbursement for first semester FY93 includes US$60 millionretroactive financing and US$20 million for the Special Account.

Page 1 of 5

YACYRSTI HThRo3L3CTRaICROJZCT!!

Economic Justification

Bac,karound

1. The economic evaluation of the Yacyret6 hydroproject, carried outin 1979 for the appraisal of loan 1761-AR, was based on the Bank's traditionalapproach: (a) the project was shown to be part of the least-cost solution forexpanding the capacity of the NIS; (b) the project was shown to have beensubmitted to internal optimization; and (c) the Economic Rate of Return (ERR)was estimated as the discount rate which equates the present worth of thepower benefits and costs of the project, using the consumers, financialcharges as a proxy for full economic charges. On these bases, the ERR wasestimated to be 141. Sensitivity analyses shoved that: (a) Yacyreta was partof the least cost expansion program for Opportunity Cost of Capital (OCC), upto 201 for the basic demand growth rate of 9.61 p.a.; (b) a lower demandscenario would delay the commissioning date by one or two years withoutsubstantially affecting the ERR, and (c) an increase of 101 in the projectcosts or a decrease of 101 in the project benefits would reduce the ERR by 1.

2. Some components of the project's relocation/resettlement program(RR) were not required by the power generation project; instead, theycorresponded to improvements desired, and agreed upon, by the governments ofArgentina and Paraguay in the infrastructure works and in the livingconditions of the people affected by the project. Thus, when performing theeconomic evaluation, the Bank deducted the corresponding amounts (US$189.3million at the December, 1977 price level) from the project investment. Thesecosts were considered an additional financial charge of the project, to beborne by Yacyrett, which would pass them to the power sector of Argentinathrough electricity tariffs. Though the SAR mentions the possibility thateventually agreements would be reached with Argentine institutions benefittingfrom this additional investment to restore the corresponding funds to thepower sector, no attempt was made later to materialize this optimisticassumption. The US$189.3 million of RR, which was not part of the projecteconomic evaluation, represented 531 of the RR component, which, in turn was15.31 of the project basic direct cost, estimated at appraisal to beUS$2360.4 million (December, 1977 price level). 541 of the non-project RR wasestimated to benefit only Paraguay; the remaining 46* would benefit onlyArgentina.

3. The project economic evaluation was revised by the Bank in June1988, in connection with loan 2998-AR, because most of the assumptions made atthe time of the appraisal of loan 1761-AR were no longer valid. Awith/without project approach was used to assess whether the project was stillpart of the least cost solution. The cost of the project included only thosecomponents required to complete and operate the project. Investments madeprior to appraisal were considered sunk costs. The alternative option

Page 2 of 5

considered for the without project case consisted of a set of gas fueledCombined Cycle (CC) and gas turbine plants, which would provide equivalentpower supply, because gas had become available at relatively low cost.Results showed that completion of Yacyret& would have an ERR of over 18W.Sensitivity analysis showed that a 20* cost overrun would reduce the ERR to151. Delaying the project commissioning because of a lower demand growthwould not substantially reduce its ERR.

4. A complete review of the economic merits of the proposed projectwas performed at the April 1992 appraisal. First, the project position in theNIS' least cost generation expansion plan was reviewed; second, the projectwas evaluated against the second best alternative; and thir , the project ERRwas estimated for a base case and a number of sensitivity cases for possiblevariations in the main planning parameters: demand growth, OCC, and thevarious options for completing the project with regard to reservoir elevationand co--issioning dates. The most relevant results are presented below.

Least Cost Solution

5. Though sector planning procedures are likely to evolve with thegradual transition towards a mostly privatized sector, until now, generationand transmission expansion planning has been the responsibility of the SE,which updates the planning study every year. The methodologies used by the SEare sound. Generation exiansion is based on the interactive use of threemathematical models: (a) an investment selection model, based on linearprogramming, that defines the optimum configuration of the system over threeyear periods within the planning horizon (20 years); (b) a detailed monthlysimulation model that more precisely defines when additional ge,seration isrequired and estimates the system generation costs; and (c) a reliabilityevaluation model that verifies whether the configuration obtained through theoperation of the two previous models meet agreed reliability standards.TransMissign expansion is defined on the basis of state-of-the-art studies;for the Yacyreti transmission system, these were done witi assistance fromforeign consultants (Annex 2.3). Economic parameters used in the studies,such as discount rate and fuel costs, have been selected in agreement with theBank.

6. The full completion of the 3,100 KW Yacyreta scheme--consideringinvestments made until 1991 as sunk costs--has been found to be part of theleast cost solution for expanding the NIS generating capacity, aftercompletion of Piedra del Aguila (1993). Moreover, the estimated economicgeneration cost of the scheme is US$17.6/MWh (Attachment 1, Table A)1/,

1J This and other estimates in this annex are based on a 30 year usefullife for the plant, a conservative assumption. Civil works of a hydroplant are assumed to last 50 years, but electromechanical equipment andtransmission facilities need to be replaced at 30 years. Considering a50 year useful life for the civil work would result in a slightly higherERR.

Page 3 of 5

which is below the fuel cost of the thermal generation of existing plants,estimated at US$20/Mwh2/.

7. The other components of the 1992-1997 expansion plan for the NISare: (a) the 1,400 MW piedra del Aguila hydro plant, which is beingcommissioned; (b) Pichi-Picun-Leufu, a small hydro plant (250 MW) beingimplemented with earmarked Brazilian financing, scheduled for commissioning in1996; and (c) the 745 MW Atucha II nuclear plant, scheduled for commissioningin 1997 and whose completion has a reasonable ERR of 12.3* (Attachment 1,Table B).

Com=arison with the Second Best

S. The least cost expansion plan prepared by the SE has shown thatthe future exoansion of the system will be based on gas fueled CC plants. Arough evaluation of the full completion of the 3,100 MW Yacyreta scheme ascompared with the CC option (Attachment 2, Table A) shows that the net presentvalue of the Yacyreta solution at 121 p.a. OCC is 401 lower than the CCoption.

Internal Rate of Return of the ProDosed Pro-ect

9. Because the high proportion of investments already made inYacyret& are considered sunk costs in its economic evaluation, the ERRs undera wide set of assumptions are sufficiently high to ensure that Yacyreta iseconomically feasible, even under very unfavorable circumstances. The severeassumption reflected by the project definition is that Yacyret& would belimited to only six units operating at the maximum reservoir level of 78 m.The rate of return of the proposed project was estimated as the discount ratewhich equalizes the present value of economic net cost and benefit streamsassociated with the project. Two different approaches were used to estimatecosts and benefits, as follows:

(a) Su=olv at the Grid Level. The project contribution to the NIS atthe high voltage transmission level was considered. The economicnet cost includes: (i) the capital investment in generationassociated with the completion of the project; (ii) a proportionof the investments of the transmission system which is directlyassociated to the project; and (iii) operation and maintenancecosts during the project's useful life. Investments since thestart of the Yacyreta plant construction until 1991 were treatedas sunk costs. Costs for resettlement and infrastructurerelocation as well as for environmental mitigation measures areinternalized in the project investments. The benefits areestimated as the energy generation provided to the grid at theestimated LRMC of US$45/MWh, being approximately US$40/MWh for

2V Natural gas cost: US$ 2.00/million BTU; Specific Consumption Rate ofexisting thermal facilities (mainly old steam plants): 10,000 BTU/Kwh(efficiency: 341).

Page 4 of 5

generation (Attachment 2, Table B) and US$5/MWh for transmission.The resulting ERR for this base case (Attachment 3, Table A) is13.31.

(b) Final Ueer. The project contribution to the NIS at thedistribution level was evaluated. The economic net cost includesthe construction and operation costs of the plant, plus aproportion of the construction and operation costs of transmissionand distribution facilities, which would make possible the salesof the pioject energy, estimated as a proportional part of thetotal NIS investments that are attributable to the incrementalcapacity supplied by the project to the grid. Benefits for thiocase were assumed to be the revenues from energy sales expectedfrom the project at the estimated average rate to the finalconsumer of US$85/MWh. These revenues can be considered a lowerbound for the consumer's willingness to pay. The resulting ERRfor this base case, as seen in Attachment 3, Table B, is 17.41.

10. The project energy is totally absorbed by both High and Low Demandscenarios (Annex 1.4) as they are made available to the grid. Therefore therewill be no changes in the ERRs indicated above in the case of the Low Demandscenario.

11. Estimates of the generation, high voltage transmission anddistribution Long Run Marginal Costs (LRM2C) are generally consistent withresults of a study prepared recently by the SE with assistance from_lectricit6 de France (EdF) and financed by the Bank under loan 2751-AR.3/

The Ultimate YacvretS Confiouration

12. Bass Case. For the purpose of economic analysis, the proposedproject should also be examined under the broader approach of full completionof the Yacyret& scheme as thic is the most likely case. This meansinstallation of units 14 to 20 and operation of the reservoir at elevation83 m (para. 2.11). As shown in Attachment 4 the ERRs would be the following:(a) supply at the grid level: 24.1V (Table A); and (b) final user: 27.61(Table B).

13. Sensitivity Analyses. As noted above, the economic generationcost associated with the ultimate configuration of Yacyret& is US$16/NWh, lessthan half the NIS long term marginal cost at the generation level ofUS$40/MWh. This ensures Yacyrete's robustness in relation to: (i) a delay inthe case of the Low Demand scenario, which would be theoretically possiblefrom the point of view of energy supply, but uneconomic; (ii) possible costoverruns; and (iii) the possibility of operation at reduced elevation for aperiod longer than recommended.

l/ Use of a CC plant for defining LRPC at generation level was preferredbecause investments in ongoing projects (including the nuclear facility)could distort results.

Page 5 of 5

13.1 A planned lower demand scenario would not warrant modification ofthe planned execution schedule, because the potential benefits of deferredinvestments are lower than the variable cost of a thermal plant (fuel cost).During the period 1996-1998, the economic benefits would be lower than in thebase case, as they would correspond to the economic cost of replacing thermalgeneration in existing plants. The ERR on these bases is estimated at 20.2tp.a. (Attachment 5, Table A).

13.2 A major cost overrun is not likely to occur, because of the highproportion of investments already made in the civil works, the component mostlikely to be affected by cost overruns. Notwithstanding this, a high costoverrun of 20* yields an ERR of 21.0* p.a. (Attachment 5, Table B).

13.3 The initial operation of the reservoir is at reduced elevation inorder to postpone a substantial part of the RR program. However, there issome risk that, because of difficulties in implementing the RR program, thereservoir would be kept at reduced elevation for a period longer thancurrently proposed. Although rather unlikely, this severe case assumes thatthe reservoir would be permanently operated at 78 m, instead of reaching itsmaximum elevation of 83 m by 1998. Investments in this case would be lowerthan those of the base case, because most of the RR program would not beimplemented. Investments in the power house include the installation of thetwenty generating units which would permit the utilization of about 50* of theplant's designed average energy. The ERR for this case is estimated at 16.2*(Attachment 5, Table C).

ARGE~NTAYACYRETA HYDROEECTRIC PRDJECT 11

I TAELEA I TABLE BESTIMATE OF ECONOMIC GBERArgCN COST ECONOMIC EVALUATION OF THE ATUCHA II NUCLEAR PLANTFOR YACYlETA'S ULTIMATE CONFIGJRATION .On U_t _Wo

I Casts OJS$ m- 8n I G oIm.1 O TR CsYew II I 0 I Ye OOm I MIh I )( 4)1992 571.5 371.5 19 127 12 -12IS aM2 aM2 Iun 276 278 -m9" 83 10.0 3.3 0 1994 4 428 -4231995 176.8 16. 194. 2964 19 137 137 -1371999 2285 1.O 2895 6481 1996 170 170 -1701997 2643 16.0 2803 11471 1997 70 20 90 400 180 901996 147. 160 1ea 81.3 10 t90 40 40 5221 295 195lose a10 16.0 19m 9 40 40 5 2 2 195200 160 16.0 1s06 2m0m 40 40 am 2s5 IN201 'J 16.0 1926 am 40 40 O1 235 1952002 10 1106 2002 40 40 52 236 195no 16.0 160 1a as m11 40 40 mt u 1952m04 1e0 16" 19266 2004 40 40 m221 235 19520 16.0 160 1926 2005 40 40 5221 235 195200 16.0 16.0 10s2 40 40 5221 235 195260W 1O 16.0 19266 207 40 40 5221 235 195206 16.O 1lLO 19266 2006 40 40 5221 235 1952a 1O 16. 19 26 40 40 21 285 1952010 16.0 16O 196 21O 40 40 52 235 195201 16.0 160 1926 201 40 40 5221 285 1952012 16l0 16.0 192 2012 40 40 21 236 1952013 16i0 16.0 1926 2013 40 40 52 285 1952014 16.0 16.0 1926 2014 40 40 5221 235 195205 16.0 16.0 19208 2015 40 40 5221 235 1952016 16. '16.0 19206 2016 40 40 5221 235 1952017 6.0 16.0 1920 2017 40 40 5221 235 1952018 16.0 16.0 19206 2018 40 40 5221 235 1952019 16.0 16.0 19208 2019 40 40 5221 235 1952020 18.0 16.0 19206 2020 40 40 5221 235 1952021 16. 16.0 19266 2021 40 40 5221 235 1952022 16.0 16.0 19208 20 40 40 5221 295 1952028 16.0 16.0 19206 2023 40 40 5221 235 1952024 16.0 16.0 19206 2024 40 40 5221 235 1952025 16.0 16.0 19206 2025 40 40 5221 235 1952026 40 40 5221 235 1952027 40 40 5221 235 195

NPV 1_ 1311 99 1411 85 Ta 1205 1220 2425 160630 rEcormic erwation Cost MWh) 15.91 conomic Rads of Retufn ER123

(1)l_wmeat Made pto 1991 CsideredS&mkCuls ANW9n(1) OOCC 12% PA (2)AuxaU uiD nc4 ure AMimlawegmeu inTtuum(3) Am1 ope& d ManMintenoCcls. lndude PalC)de(4) Baed an 80% PlantFactor(5) Avrage EemyCost at TmnsnmsiisA Level (1):

ARGET11NAYACYRA HYDROF ECTWC PROJECr n

I TB A -TABLE B 1COhPAR19NOFYAllEAWrlMSN&PIH L0O1N #;ECOND8W ECN GENR 0w |%EHfM QPT0tn USSd, mnt

iswuwm O" ITOMI 110stmmba I2OEt!womTOWF bdWetml (1)IOalr Cost Tow I GUsraloYe %;_= I T_ I I _sou I T_u I FW() 1 OAKI m f O0_d IT_LFmW mi X 0M I OM1fO (WbL 4)

-3S72 Is sss 151 S 1# -9 116 S 1211sss S70 126 4ss 321 -1o 331 -2 155 1o 1651994 343 134 10 487 269 45 4 318 -1 76 781995 179 100 16 295 714 129 11 853 0 39 391996 224 38 16 275 376 10 174 13 S7S 1 65 6 74 34001S97 204 8 16 280 232 20 244 29 s25 2 65 8 74 34001i8m 147 1613s 0 292 29 321 3 65 6 74 34001999 1e 1 292 29 321 4 65 8 74 34002000 16 16 292 29 321 5 65 a 74 34002001 6 16 292 293 21 6 65 8 74 3402002 16 16 292 29 321 7 65 8 74 34W2008 16 1e 292 29 321 8 65 8 74 34002004- 16 16 292 29 321 9 65 8 74 34002005 16 16 292 59 351 10 65 8 74 340200 1e 1e 292 598 51 11 65 a 74 34002007 1s16 292 59 351 12 65 a 74 3400200 11 6 292 S9 351 1s 65 8 74 34002009 16s16 292 19 351 14 65 8 74 3400200 16e 1 292 59 351 15 65 6 74 34002011 1e 1 22 59 351 16 65 6 74 34002012 1s 16 292 59 351 17 5s 8 74 34002013 16 16 22 59 351 16 65 6 74 34002014 16 16 292 5 s351 19 es 8 74 34002015 16o16 292 59 351 20 as 6 74 3400206 16e16 292 59 351 21 65 0 74 34002017 16 16 292 59 351 22 65 6 74 340201 16 16 22 59 351 23 65 8 74 34002019 16 16 292 59 351 24 65 8 74 34002020 16 16 292 9 351 25 65 8 74 34002021 161 6 292 59 351 26 65 a 74 34002022. 1 61 292 59 351 27 65 8 74 34002023 16e i 292 so 351 26 65 6 74 34002024 lo 61 292 59 351 29 65 8 74 34002025 . 1 s16 292 59 351 30 65 8 74 3400

INPV (4. 1710 3114a V 697 174051 ( Geab COaL 40.11 :r Z

(I) ASof Coghd Ceb UsiaWhWould WOv Slmdkib, Ga gCmpfty a ndAnmalEmc AINM9An2 X-Yaepa btlof 430Whl 199 66MW19f.W200 MW 399d 1655 .MWk 9l9 (I)Badoa 554MWGaFoldCouoadCydaPlat

(2) AwamlSNatuGas tUSS2.4IWMUh0rUand4SGa ileac LoctadChgto& te Bo Ae.AmdLnat. otUSS7Okw N(3) AtUStkW-yr (2)PueCotEstmadatid OptNuhyCaeofNatu N '.0(4) OCC a I2 pa l TacsttothE os u (USba l&lU)

(S).tMS tlW-par(4) AWan Pl Factor 70S. A-Ma PgeE n 45$(3) 0CC - 12%p .

ARGENTINAYACYRETA HYDROELECTR C PROJECT II

ECONOMIC EVALUATION Of THIE PROPOSED PROJECTxf Unrs wffl Permnent Operadbn at Elealoio 78 mtrs)

(In US$ m fllbn)

TABLE A TABLE B|CASE. SUPPLY AT HIGH VOLTAGE GRID LEVEL SUPPLY TO flNAI- USER

I ~ Costs I _ Benefl% Not Closft I Benefib_tNI m es-O& IalMI Total Sab Re Benwit I neI _ns- O&M ToialI Sales, Reieue Benef1992 Genera ;tio Tow bdo - 38 owb)(I) (2) -389 199 Genefatbo ITmtmnonb Dhtrn ~(1) (2) 38 (GWh) (3) (4) -819N3 369 61 430 -430 1993 m6 61 430 -4301994 B 13 40 6 38 296 1 3 -376 1994 343 40 33 1 0 427 261 22 -4041995 179 1 0 189 2846 128 -61 1995 179 320 26 525 2508 213 -3111996 10 10 5080 229 219 1996 27 27 4456 379 3521997 ~10 10 5080 229 219 1997 27 27 4456 379 35211998 la la 5080 22 219 1998 27 27 4456 379 3521999 10 10 5080 229 219 1999 27 27 4456 379 352200T0 10 10 5080 229 219 2000 27 27 4456 379 3522001 1 0 1 0 5080 229 219 2001 27 27 4456 379 3522002 10 10 5080 229 219 2002 27 27 4456 379 3522009 10 10 5080 229 219l 2003 27 27 4456 379 3522004 10 10 5080 229 219l 2004 27 27 4456 379 3522005 10 10 5080 229 219l 2005 27 27 4456 379 3522008 10 10 5080 229 219 2006 27 27 4456 379 3522007 10 10 5080 229 219 2007 27 27 4456 379 3522008 10 10 5f186 229 219 2008 27 27 4456 379 3522009 10 io soe 22 219 2009 27 27 4456 379 3522010 10 10 5080 229 219 2010 27 27 4456 379 3522011 10 10 5080 229 219 2011 27 27 4456 379 3522012 10 10 5080 229 219 2012 27 27 4456 379 3522013 10 10 508 229 219 2013 27 27 4456 379 3522014 10 10 5080 229 219 2014 27 27 4456 379 3522015 10 10 5080 22 219 2015 27 27 4456 379 3522016 IC 10 5080 229 219 2016 27 27 4456 379 3522017 10 10 508 229 219 2017 27 27 4456 379 3522018 10 10 5080 229 219 2018 27 27 4456 379 3522019 10 10 5080 229 219 2019 27 27 4456 379 3522020 10 10 508 229 219 2020 27 27 4456 379 3522021 10 10 soso 229 219 2021 27 27 4456 379 3522022 10 10 soso 229 219 2022 27 27 44556 379 3522023 10 10 5080 229 219 2023 27 1.7 4456 379 3522024 10 10 508 229 219 2024 27 27 4456 379 352,2025 10 10 5080 229 219 2025 27 27 4456 379 352 D

I Toted -1263 119 -3-16 1697 155542 69991 I oJ 12635 119 353 846 2580 136453 1158 1 EacrFt Pbof PReSn(EPRQ I 13.3%1 Econoiric FdedRofbohfn iEPR 17.4%1 z(I) Opem toneat78m.strt ing from Deemtmer 1995. ... (t) PathDlted Za moti^onDotTotat Secto IvetmentsI tDtatributbon M(2) Averap ftkte at RVtrttmnmbion vlml45 US$/MWh wbkchwould be Attributableto theC kpdcty dded by Yacymtato thetNIS rl

(2) oaM Costs Estimated as 5'b of lovestmeto ,oer Year Vi(3) Tmtnsminion Plus Distnbution Losme Estimatedt at t7%(4) Average Rate to final user * b5 VS5/MWb

ARGENTlNAYACYRETA HYDROELECTRIC PROJECT n

ECONOMIC EVALUATION OF THE YACYRETA ULTIMATE CONFIGURATIONoIn USS millbn)

TABLE A TABLE SSUPPLY AT HIGH VOLTAGE GRID LEVEL SUPPLY TO FINAL USER

costs Bcnefih Net Costs BenefitNInvedtnents O&M Total Sabe Revnues Costs Invedments OaM I Total Sales Rnuas BeneisYea, Generates ThnmlulDt (oWi - (11 Yew Geenetsts(1| ( b1 I (s)1 (41 ((WhI (S( (5)19s2 372 is _ 389 -389 10n2 372 18 3a9 -3891993 360 126 405 -495 1003 369 126 495 -4051904 343 132 10 486 290 13 -472 1904 343 132 162 10 648 253 22 -6261905 170 100 18 297 2846 128 -169 1095 170 100 249 26 554 2435 207 -3471s06 224 36 18 277 8227 370 93 190 224 30 75 40 374 7039 S08 2241997 264 8 18 200 11127 601 210 10o7 264 a 624 50 946 0521 809 -1371008 147 18 165 15540 690 634 1098 147 03 212 13207 1130 9181999 18 18 18630 838 620 1900 73 73 15041 1355 12822000 16 18 16630 638 820 2000 73 73 15941 1355 1 822001 18 18 18630 836 820 2001 73 73 15941 1355 12822002 18 183 16030 838 820 2002 73 73 15941 1355 12s22003 18 18 18630 838 820 2003 73 73 15941 1355 12822004 18 1a 18630 638 820 2004 73 73 15941 1355 12822005 18 18 16830 838 820 2005 73 73 15041 1355 12822006 18 18 18030 838 820 2006 73 73 15941 1355 12822007 18 18 18630 838 820 2007 73 73 15941 1355 12822008 18 18 18630 838 820 2008 73 73 15941 1355 12822000 18 18 18630 838 820 2009 73 73 15941 1355 12822010 18 18 18630 838 820 2010 73 73 15041 1355 12822011 18 18 18030 838 820 2011 73 73 15941 1355 12822012 18 18 18030 838 820 2012 73 73 15941 1355 12822013 18 18 18030 838 820 2013 73 73 15941 1355 12822014 18 18 18630 838 820 2014 73 73 15941 13MS 12822015 18 18 18630 838 820 2015 73 73 15941 1355 12822016 18 18 18030 038 820 2010 73 73 15941 1355 12822017 18 18 18630 838 820 2017 73 73 15941 1355 12822018 18 18 1ae^o 838 820 2018 73 73 15041 13s5 12822019 18 18 18630 838 820 2019 73 73 15941 1351 12822020 18 18 18630 838 820 2020 73 73 15941 1355 12822021 18 18 18630 838 820 2021 73 73 15941 1355 12822022 18 18 18630 838 820 2022 73 73 15941 1355 12822023 18 18 18630 838 820 2023 73 73 15941 1355 12822024 18 18 18630 838 820 2024 73 73 15941 1355 12822025 18 18 18630 838 820 2025 73 73 15941 1355 12821

Total 1898 420 588 2888 541041 24347i Totel 1898 420 2ttO 2162 5590 462952 39351EconomlcRat ofRetum RR) 24.1%1 Eoncone RateofeRz ERR)2f 2

ANXO29AT4(1) Avemeamte atHV Trnsmlsdolevel - 4SUSS/MWh (1) lnvestmentrequired to operate at full cpdty (20utnitt ad S3m elevati

(2) It cespoods to Invetmeut liked to the trojed atnd 0 of Investmet becmd the Project to be madebyprit,4. Investar;

(3) Estimated a a Prodon of Totil Seeaor h,vesmenDsin Dtriudo which would be attributableto tde Capacty added by Yacyreta to tie NIS

(4) O&M Costs Estimated as 5% of Investments per Year(8) Tr aemi don Plu Disribudon LosusEstxmated at 17%

ANNEX 2.9Attachment 5

~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~IL

- - --- N - - - - - -- - - - - -- -I 4

R g~o co<O coe: 11 0 s s O o Z1 0 0 W 40 0 1> X0e a o wee eO ez 0 m¢ g eg

-~~~~ rt Zh "iaaila|Ua

X S- ------ ---- 3-i

C ------- ~------- ---

ai

Li~~~~~~~~~i

_1 ge °°Efle"eeeeee"e f

|§ ~~ - - -l0XeZ0ZZZ0ZZZZ"ZeZ N - 2

8 Wr o,,..,rn.uee,.,rn,eeeeeeeeaee_e_e@ i

g L fl Y S

ANNEX 2.10

ARGENTINA

YACYRETA II PROJECT

Proiect File

(Documents Filed in the Latin American and Caribbean Information Center)

A. THE POWER SECTOR

1. Law # 24065 : Generation, Transmission, and Distribution Law;

2. Ordenamiento Legal, Secretaria de Energia, Noviembre de 1988;

3. Ordenamiento Tem&tico de los Cuerpos Legales Relacionados con el

Funcionamiento del Sector El6ctrico, November 1988

4. Resolution #038 of the Ministry of Economy and Public Works;

5. Programa de Reconversi6n del Sector El6ctrico, October 1990;

B. THE PROJECT

1. Yacyreta Treaty

2. Amendment Letter #9, dated January 9, 1992;

3. Estudio de Operaci6n de Yacyret& a Cota Reducida, CIDY, July 1991;

4. Infonme de Evaluaci6n Ambiental Proyecto Hidroelectrico Yacyret&, Mayo

de 1992, EBY;

5. Plan de Acci6n Para el Reasentamiento y Rehabilitaci6n Informe Final,

EBY, Abril de 1992;

6. Management Audit Report on EBY, Diagnosis of EBY, Deloitte and

Associates, February 1992;

7. EBY: Finances, Working Papers, May 1992;

8. EBY: Cost and Finance of the Hydro Plant Component, May 1992.

9. Configuraci6n del Sistema de Transmisi6n para la C.H. Yacyret&, 6

volumenes, Secretaria de Energia, March 1987;

10. Yacyreta Transmission Study Summary, AyE, October 1991;

11. Quarterly Audit Financial Statement, period ending September 1991;

12. Annual Audit Financial Statement for FY 1990 and 1991.

I B ! b . lR o f lr woo e o \ \ To G .I r er ol o 1 3R D 1 4 1 2 8 R

801IVIA I; t' j - 5 Coronel BogodoBRAZIl

PARAGUAY r100 amndlPrn

AAGE I P A R A G U A r

/ BRAZ L I I 4ar o -'

Aoo~~~~~ .r op.,o~~~~~~~~~~o Aoso ~~~~~~Son Comie

A0 r.e G rS NTINOA I J-B o.an ° ¢ ro,A , A-s . .l- - - = @ S n C o ,

APIPEnAy G E AZ \, N . YA CY R ETA ISLA N D '

N~~~~~~~

APIPE GRANDE ISLAND > OO O0* Ga)

Pooe:Aono'" oloo, \ lAb IRLCA AALEA 0 R ENTINA IPARAGUAYSon Anton\ TALAVERA M

-- 1 -5 ISLAND / YACYRETA HYDRO PROJECTPROJECr COMPONENTS:

PA~~~~~IO i__ ec ?

' ;ZS,/L.;- 7 .8ridge

NoT N a __MoAr big.fldd

N ~~~~~~~~~~~~~~S ... nd.ry paved rood

,lroodr d

BA ridgo jnwpAwr_ptoredbh WwZd7A[4ffiSiSdL-hh. Ri-,vorr

o 0 10 15 20 ro. rv d.oo .do,4 d . rr=d.rA. B sI Towns -rolloMElER5 hoond.sori.IsCre:riEoYThr.I*.dSR.M r.r0r 0i n. ._._. InternoaronoI boAndareyKILO. ETERS r8. Booboo. oboe rlloyororr.odoooro.ooo oro.por.JE

JmLJE 1992

\QVxpRAGLi; B O L I V I A /i

-I < t S \\/, A LLG e~~~~~~G 4 i ' Nf brArrLRP4A S-n S.ldo P A R A G U A Y 1o

98 | / ~~~~~~~~~~~~~~~D. J.Py OS. n Pdm _

d.~~~~~~ f,2 pi- Domdod

Gp F77 har -bdmmd} *,

-.smnorsuoF 0 P s D

ss=h bamdmies ( ~~~~~~~~~~~~~*L. R3o ^:c 3 Goy. D

3f rLr ir \ Molvinos ~~~~~~~~~~~~~~~ ~ ~~~ ~~~~~S.. F -6-so G-nd 1f18901

\ d.Ul U11nEl un p

(\ ruzdePiede3 t _ _ _ ~ ~ ~ ~ L > 1 2 )P ., (2i6) S... T-

\ LuEnd ^tMendo3o . *~~R-lVdAt°0i 1j/-~~~~~~~~~~~~~~L i- Ebl, r lCm(68AV uh 67i /) bco 175

} / lm Reims1221 *)uin hi \Effi UL Sc il83

Z fiDAI9T9o \ Rooli¢0 8nbs3do D>tt-*@DIque~~~~~~~~~~~~~~~~~~Z C,I,

f~~~~~~~~~~~~~~~~11 N- /P.- 10D 200 30 0

t~~~~~~~~~~~~~~~~~ P.-ii N 529

\~~~~~ ~~~~ B122erl _ Ds 13

k 14SD1 D Pizd72h3ioBw lN20s, hs3 * A R G E N T I N A~~~~~~~~~~~~~(,260

i ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~. A p,1 00

*8erdbX~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 220 29 kV ~

Siere3Gn3ndMAJO POWER PLANTS- AN\~ ~ ~ ~ ~~~ ~HG VOTG TRANSMISIOIYSE

t)~~~~~~~~~20 FUTUR E EXIT8N TRNSMISSION INS

g ^ Rl~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~VER

O~~~~~~~140 NATONA kAITLAlk (PubL7W0 2208 kVgloo- - NENTOALBUDRE

Si-~~~~~~~~~~~~~~~~~~~~~~~~~Nmo ma-=31 POWER PoLAN iTS:'

T5' ( w0' 55 s 7 55' Fo~~~~~~~~~~~~~~~~~~~~~~~~TERAI , I I I _ I I .~~~~~~~~~~~~~~~~~~~~~~~HYR