Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11529 PROJECT COMPLETION REPORT BRAZIL RURAL ELECTRIFICATION PROJECT (LOAN 2365-BR) JANUARY 6, 1993 Energy and Industry Division Country Department I Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EOUIVALENTS Currency unit = Brazilian Cruzeiro (Cr$) Cr$1.00 = 100 centavos US$1.00 = Cr$866 MEASURES AND EOUIVALENTS kW (kilowatt) 1,000 W (Watts) MW (Megawatt) = 1,000 kW kWh (kilowatt hour) = 1,000 Wh (Watt hours) MWh (Megawatt hours) 1,000 kilowatt hours GWh (Gigawatt hour) = 1,000,000 kWh kV (kilovolt) = 1,000 V (Volts) kVA (kilovolt-ampere) = 1,000 VA (Volt-amperes) MVA (Megavolt-ampere) = 1,000 kVA FISCAL YEAR January 1 to December 31 MWh (Megawatt hours) = 1,000 kilowatt hours GLOSSARY OF ACRONYMS CEMIG = Centrais Eletricas de Minas Gerais S.A. COPEL Companhia Paranaense de Energia DNAEE = Departamento Nacional de Aguas e Energia Eletrica ELETROBRkS = Centrais Eletricas Brasileiras S.A. ICB = International Competitive Bidding LIB = Limited International Bidding RE = Rural Electrification (generic) SEPLAN = Secretaria de Planejamento da Presidencia da Republica SEST = Secretaria de Controle de Empresas Estatais SAP Special Action Program FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation January 6, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Brazil Rural Electrification Prolect (Loan 2365-BR) Attached is a copy of the report entitled "Project Completion Report on Brazil - Rural Electrification Project (Loan 2365-BR)" prepared by the Latin America and the Caribbean Regional Office with the Borrower providing Part II of the report. The project's physical targets were exceeded. Lower unit costs, improved technical standards, and competitive pressures of ICB made possible a 652 increase in the number of connections above that anticipated during appraisal, with a 2X decrease in expenditure. The PCR is informative but contains no quantification of project benefits. Impact monitoring and evaluation studies will be completed in 1993. These studies are of critical importance in deciding whether similar projects should be implemented in the future. Using the FRR as a proxy indicator of the project's development success until these studies are completed, the project is rated as unsatisfactory. The project has failed to meet its financial objectives, as has, in general, the Brazilian power aector. At current power prices, the project has a negative financial rate of return (FRR), which if continued over a sustained period would make it difficult for the power companies to cover the costs of repair and maintenance. Thus, the sustainability of project benefits is uncertain. An audit of the project may be carried out after the evaluation studies have been completed by the Borrower. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their officiaL duties. Its contents may not otherwise be discLosed without WorLd Bank authorization. FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT BRAZIL CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELETROBRAS); COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG); COMPANHIA PARANAENSE DE ENERGIA (COPEL) RURAL ELECTRIFICATION (RE) PROJECT LOAN 2365-BR TABLE OF CONTENTS PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) EVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . (ii) PART I: MAIN FINDINGS & LESSONS (Prepared by the Bank) .1 1. Project Identity .1.. . . . . . . . . . . . . . . . . . . . . . . 2. Background .1.. . . . . . . . . . . . . . . . . . . . . . . . . . Borrower & Beneficiaries .1.. . . . . . . . . . . . . . . . . . Political & Economic Context ... . . . . . . . . . . . . . . . 2 Bank Lending Policy ... . . . . . . . . . . . . . . . . . . . 2 Bank lending to the Power Sector ... . . . . . . . . . . . . . 4 Sector Organization ... . . . . . . . . . . . . . . . . . . . 4 Sector Development Objectives ... . . . . . . . . . . . . . . 5 3. Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Timetable & Issues .... . . . . . . . . . . . . . . . . . . . 5 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Description .... . . . . . . . . . . . . . . . . . . . . . . 7 Expected Cost, Financing, Procurement, and Timetable ... . . . 8 Negotiations, Loan Approval & Signing, and Effectiveness . . . . 9 4. Implementation .9... . . . . . . . . . . . . . . . . . . . . . . 9 Cost, Financing, Project Scope, and Timing ... . . . . . . . . 9 Performance of Suppliers, Contractors, and Auditors ... . . . 9 Unit Costs & ICB .... . . . . . . . . . . . . . . . . . . . . 10 COPEL: Training Program & Technical Assistance ... . . . . . . 10 CEMIG: Training Program & Technical Assistance ... . . . . . . 11 ELETROBRAS: RE Sector Study . . . . . . . . . . . . . . . . . . 11 5. Project Results .... . . . . . . . . . . . . . . . . . . . . . 12 Impact of Electrification on Rural Properties ... . . . . . . 12 Internal Rate of Return ... . . . . . . . . . . . . . . . . . 13 6. Financial Performance .... . . . . . . . . . . . . . . . . . . 13 Sector Finances .... . . . . . . . . . . . . . . . . . . . . 13 Financial Performance of CEMIG & COPEL ... . . . . . . . . . . 14 7. Performance .... . . . . . . . . . . . . . . . . . . . . . . . 17 CEMIG & COPEL .... . . . . . . . . . . . . . . . . . . . . . 17 Bank & Government .... . . . . . . . . . . . . . . . . . . . 19 8. Lessons ......................................... 19 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (Continued) PART II. COMMENTS OF EXECUTING AGENCIES . . . . . . . . . . . . . . . . . 20 PART III. STATISTICAL TABLES Table la: Bank Lending to ELETROBRAS . . . . . . . . . . . . . . . . 28 Table lb: Bank Lending to COPEL ... . . . . ... . . . . . . . . 30 Table lc: Bank Lending to CEMIG ... . . . . . . . . ..... . . 31 Table 2: Issues at Identification and Appraisal . . . . . . . . . . 32 Table 3: Project Timetable . . . . . . . . . . . . . . . . . . . . 34 Table 4: Actual & Forecast Project Cost & Sources of Financing . 35 Table 5: Actual & Forecast Project Components and Implementation Periods ... . . . . . . . . . . . . . . ..... . . . . 36 Table 6a: Actual & Forecast Disbursement Timetable . . . . . . . . . 37 Table 6b: Actual & Forecast Disbursement by Category . . . . . . . . 38 Table 7: Return on Combined Investment Programs . . . . . . . . . . 39 Table 8a: Sector Tariff Levels . . . . . . . . . . . . . . . . . . . 40 Table 8b: Actual Sector Finances: Sources and Applications of Funds 41 Table 9a: CEMIG: Actual & Forecast Sales by Customer Category . . . 42 Table 9b: CEMIG: Actual & Forecast Income Statements . . . . . . . . 43 Table 9c: CEMIG: Actual & Forecast Sources & Applications of Funds . 44 Table 9d: CEMIG: Actual & Forecast Balance Sheets . . . . . . . . . 46 Table 9e: CEMIG: Actual & Forecast Key Financial & Service Indicators 47 Table 10a: COPEL: Actual & Forecast Sales by Customer Category . . 48 Table 10b: COPEL: Actual & Forecast Income Statements . . . . . . . . 49 Table 10c: COPEL: Actual & Forecast Sources & Applications of Funds . 50 Table lOd: COPEL: Actual & Forecast Balance Sheets . . . . . . . . . 51 Table l0e: COPEL: Actual & Forecast Key Financial & Service Indicators 52 Table lla: CEMIG: Compliance with Key Covenants . . . . . . . . . . . 53 Table llb: COPEL: Compliance with Key Covenants . . . . . . . . . . . 54 Table 12: Use of Bank Resources . . . . . . . . . . . . . . . . . . 55 PROJECT COMPLETION REPORT BRAZIL CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELETROBRAS); COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG); COMPANHIA PARANAENSE DE ENERGIA (COPEL) RURAL ELECTRIFICATION (RE) PROJECT LOAN 2365-BR PREFACE This is the Project Completion Report (PCR) for the Rural Electrification (RE) Project, for which Loan 2365-BR (US$222.8 million) was approved on December 8, 1983. The borrower and lesser beneficiary was Centrais Eletricas Brasileiras, SA (ELETROBRAS), the public-sector corporation which serves as holding company for the Federal power utilities and which performs sector-wide planning and financial functions. The major beneficiaries and executing agencies were Companhia Energetica de Minas Gerais (CEMIG) and Companhia Paranaense de Energia (COPEL), the state-owned power companies of their respective states. The project consisted of: (i) works and equipment to expand the rural distribution systems of the executing agencies; (ii) training and technical assistance to upgrade staff; and (iii) a study of RE problems. With the agreement of the Bank, the size and scope of both subprojects were substantially increased. Both companies completed the enlarged subprojects in 1989 (except for a handful of connections in 1990); they had surpassed the appraisal targets for new connections in 1987, the original target completion date. The loan was closed on June 30, 1990; and the last disbursement was on September 18, 1991. The Energy and Industry Operations Division, Country Department I (Brazil, Venezuela, and Peru) prepared this PCR based on, inter alia: (i) final project reports prepared by CEMIG and COPEL; (ii) Bank sources, including the loan documents, supervision reports, and Bank-beneficiary correspondence; and (iii) interviews with Bank staff. Preparation of this PCR began in July 1992. A draft of this report (Parts I and III) was sent to the borrower and beneficiaries. Their comments were incorporated into the PCR as Part II. PROJECT COMPLETION REPORT BRAZIL CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELETROBRAS); COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG); COMPANHIA PARANAENSE DE ENERGIA (COPEL) RURAL ELECTRIFICATION (RE) PROJECT LOAN 2365-BR EVALUATION SUMMARY Project Description. Loan 2365-BR (US$222.8 million) helped to finance a rural electrification project consisting of works and equipment (substations, lines, circuits, etc.) plus technical assistance, training, and a study of RE problems. The project objectives were: (a) increased agricultural production through electrified irrigation; (b) fuel savings as a result of substitution of electricity for petroleum products; and (c) improved rural living conditions. The borrower and lesser beneficiary was Centrais Eletricas Brasileiras, SA, the Federal holding company which has sector-wide planning and financial functions. The major beneficiaries and executing agencies were Companhia Energetica de Minas Gerais (CEMIG) and Companhia Paranaense de Energia (COPEL), the state power companies of their respective states. As measured by actual and forecast numbers of connections, completion dates, costs, etc., implementation of the project was a success. However, as explained later, final judgement on the economic performance of this project remains a question. Actual and Forecast Cost and Proiect Timetable. Actual expenditures amounted to US$572.2 million, 2.1% less than the appraisal forecast (US$584.7 million). Due to lower unit costs, improved technical standards, and the beneficial impact of international competitive bidding, there was an 83% increase in the number of new connections over the level anticipated at appraisal. The Bank agreed to the enlarged scope and greater size of the project. Given such enlargement, the actual cost of the completed project is not fully comparable with the cost anticipated at appraisal. The project, except for a few dozen connections carried out in early 1990, was carried out between 1984 and 1989. By December 30, 1987, the original project completion date, CEMIG and COPEL had exceeded the appraisal targets for new rural connections. Project Issues. At appraisal, due to a lack of uniform standards for defining and evaluating RE projects, project-design methodology was an issue and the subject of extensive discussion within the Bank. To resolve this matter, it was agreed that the study of RE problems would address, inter alia, the technical and economic issues related to project justification. The completed study established that it was possible to calculate an economic rate of return for an RE project based on benefits including increased agricultural production due to electrification plus the savings on fuel costs by substituting electricity for petroleum products. As the executing agencies are still gathering data, this report does not include a calculation of the economic rate of return of the project. This information may be of key importance in deciding whether similar projects should be considered in the future. The Staff Appraisal Report (SAR) pointed out that CEMIG and COPEL were carrying out their: (i) generation/transmission programs in conformity with a least-cost national expansion plan approved by the Bank; and (ii) RE projects optimized on the basis of: (a) technical standards chosen through an economic comparison of alternatives; (b) a large unfilled demand for electricity in rural areas; and (c) ranking of areas to be electrified according to criteria suggesting higher benefit/cost ratios. Pending completion of the RE study and identification of the benefits of an RE project, the SAR did not include a calculation of the rate of return for the project as part of its economic justification. Instead, the SAR justified the project economically because of its being part of the combined CEMIG-COPEL expansion programs for 1984-1988, which had a projected internal rate of return of 9%. Macroeconomic and Sector Events. Notwithstanding successful collaboration on the part of Brazilian power authorities and Bank staff to plan (1982-1983) and execute (1984-1989) the project, Bank lending to the power sector declined during the 1980s (and stopped altogether in 1992) due to a combination of macroeconomic deterioration and Government policies toward the sector. Concerning economic events, when Mr. Sarney took office as President in 1985, Brazil was experiencing an export-led boom; however, inflation was at a high level. Given his weak political mandate and the strong opposition of Congress, the President resorted to anti-inflation programs relying on price controls, unsupported by significant fiscal/monetary measures and requiring minimum or no sacrifice from any major political group. The three macroeconomic stabilization plans -- Cruzado, 1986; Bresser, 1987; and Summer, 1989 -- were not successful; and the economy suffered from "stop-start" growth, high rates of inflation, large public-sector deficits, and problems servicing foreign debt. Following the failure of the Bresser Plan, the Bank designed (1988) a lending strategy based on the concept of "graduated response" to policy and institutional change -- that is, the level of lending would depend on the comprehensiveness and credibility of the Government's stabilization and adjustment efforts. During project planning and execution (1982-1989), political and short-run inflationary considerations dominated the regulatory approach of the Federal Government to the sector. Such considerations led to low sector tariffs, and hence to inadequate levels of internally generated resources and declining ratios of financial performance. In 1981, 1983, and 1986, the Bank and the Government agreed on plans to restore sector finances, relying on a combination of tariff increases and other measures. The 1986 plan included financial targets consistent with the Cruzado Plan, i.e., modest tariff increases in 1986 followed by larger tariff increases in 1987 and later years. Like the plans of 1981 and 1983, the 1986 plan failed to achieve more than short-term improvement primarily because the Government chose strategic objectives other than the financial rehabilitation of the sector. Following agreement on the 1983 plan for sector financial rehabilitation, the Bank continued to make investment loans supporting power projects in Brazil, even though the Government did not raise tariffs and the financial performance of the sector did not improve as expected. With a power sector adjustment loan (2720-BR; US$500 million; 1986), the Bank supported the Cruzado Plan; and planned a second power sector adjustment loan in 1987 (also US$500 million), provided that the sector met certain financial targets in 1986 and provided there was good reason to expect compliance with financial targets - iv - in 1987. The Bank and the Government could not agree on the terms for a second sector adjustment loan. In June 1990 the Bank approved an investment loan (3227- BR) which required the Government to raise and maintain tariffs at a level equivalent to US$54/MWh (in prices of July 1989). Since loan approval, tariffs in real terms have declined from about to US$50/MWh to about US$42/MWh (in prices of July 1989). In April 1992, with no prospect of near-term loan signature or increases of tariffs to covenanted levels, the Bank withdrew the loan. Institutional Performance. CEMIG and COPEL implemented their respective RE projects efficiently and collaborated well with the Bank. During 1984-1988, their actual and forecast financial performances were reasonably close, as measured by sales, average tariffs, revenues, and most key financial indicators. In the case of CEMIG, summarized sales and revenues exceeded fore- cast levels by a healthy margin because of the acquisition of concessionaires. However, the financial performance of both companies was being undermined by rising unit labor costs. At CEMIG, the rising level of total personnel expenses reflected: (i) less-than-expected improvements to efficiency due to the acquisition of less efficient concessionaires; and (ii) rising unit labor costs (as measured by average personnel expense). By 1988, CEMIG's ratio of customers per employee was well below the target ratio (176 vs. 198). By 1989, the ratio was 163. COPEL was more successful than CEMIG in this area. In 1988, its ratio of customers to personnel was 183 as compared with the forecast level of 181. In 1989, the ratio had improved to 187. Compounding CEMIG's declining efficiency were increases in unit labor costs. By 1989, the average personnel expense, Cr$13,645 (in constant prices of December 1983), was 78% higher than the average personnel expense of 1984 (CrS7,659). For COPEL, the increase was 125% (1989: Cr$12,013; 1984: Cr$5336 -- in constant prices of December 1983). Both companies made the point that there had not been an increase in their base average salary. Instead, the increase was due to social charges and "premiums" for longevity, increased productivity, etc. In the final analysis, the financial performance of CEMIG and COPEL reflected the impact of factors outside the control of company management. The Federal Government establishes policy with respect to levels of tariffs, investment expenditure, and borrowing and the state government establishes operating and personnel policy. In such circumstances, the managements of CEMIG and COPEL are severely restricted in their autonomy. The Bank identified the right technical issues at appraisal; and negotiated loan documents consistent with project and sector objectives. Except for not reviewing the sector RE study, the level and extent of Bank supervision were appropriate, as the executing agencies were competent. Internal Rate of Return on the Combined Investment Programs. The internal rate of return of the combined programs based on actual costs and benefits was - 10.7% -- a reflection of the current low level of tariffs and the high level of labor costs. If tariffs had been maintained at the level prevailing in 1988, the highest level during the last five years, the economic rate of return on the combined investment programs would have been zero. v Lessons to be Learned. This project has three lessons. (a) The lower-than-expected unit costs for materials and equipment demonstrate the usefulness of ICB. (b) While final data for calculating the internal rate of return of the project remains pending, the enthusiastic response of the rural populations to electrification appears to confirm their perception of it. usefulness, especially their perception of enhanced options and alternatives. (c) It seems clear that lending in circumstances of continuing financial deterioration, as occurred between 1981 and 1986, sends the borrower the wrong message and leads to a significant risk that agreements for financial rehabilitation will not be observed. In April 1992, the Bank withdrew Loan 3227- BR after waiting almost two years for signature and the tariff increases required for effectiveness. This appears to be the right way to maintain the credibility of the Bank. PROJECT COMPLETION REPORT BRAZIL CENTRAIS ELETRICAS BRASILEIRAS, S.A. (ELETROBRAS); COMPANHIA ENERGETICA DE MINAS GERAIS (CEMIG); COMPANHIA PARANAENSE DE ENERGIA (COPEL) RURAL ELECTRIFICATION (RE) PROJECT LOAN 2365-BR PART I: MAIN FINDINGS AND LESSONS (PREPARED BY THE BANK) 1. Prolect Identity Project Name: Rural Electrification (RE) Project Borrower: Centrais Eletricas Brasileiras, SA (ELETROBRAS) Beneficiaries: Companhia Energetica de Minas Gerais (CEMIG), Companhia Paranaense de Energia (COPEL), and ELETROBRAS Loan Number: 2365-BR Loan Amount: US$222.8 million (Disbursed: US$222.0 million; Canceled: US$0.8 million) Loan Dates: Approval: 12/08/83; Effective: 03/20/84; Closing: 06/30/90; Last Disbursement: 09/18/91 RVP Unit: LAlEI Country: Brazil Sector: Energy Subsector: Electricity 2. Backaround 2.01 Borrower and Beneficiaries. Between 1982 and 1989, the Bank and Brazilian power officials successfully collaborated to prepare and execute the Rural Electrification (RE) Project which is the subject of this report. The Bank supported this project with Loan 2365-BR, amounting to US$222.8 million. The borrower and lesser beneficiary was Centrais Eletricas Brasilerias, SA (ELETRO- BRAS), the Federal holding company. Except for a carrying out a study of the problems of rural electrification, ELETROBRAS played no role with respect to project execution. The Bank monitored the study, but did not otherwise supervise ELETROBRAS. This report follows the same approach. The major beneficiaries were the executing agencies, Companhia Energetica de Minas Gerais (CEMIG) and Companhia Paranaense de Energia (COPEL), the state-owned power companies serving their respective states. 2.02 Due to the development of more efficient design criteria and lower- than-expected unit costs, execution of the project, as measured by actual and forecast data on numbers of connections, completion dates, cost, etc., was a success. Notwithstanding the pending question as to the internal economic rate of return on the project on an ex-post basis (see paras. 5.04-5.05), there would, under ordinary conditions, probably have been a second Bank-supported RE project in Brazil, given the successful implementation of this project. But this did not happen. Indeed, Bank lending for power projects in Brazil declined during the 1980s and then stopped altogether in 1992 -- primarily due to the macroeconomic and sectoral factors discussed below. -2- 2.03 Political & Economic Context. To understand the phasing out of Bank lending for power projects in Brazil, it is important to review briefly the political and economic circumstances of the 1980s. These circumstances also form part of the project context. During 1982-1983, when the project was planned, the military Government faced complex political and economic problems. On the political side, the military successfully undertook those steps leading to its withdrawal from direction of national political life in 1985 (see below). On the economic side, to stimulate exports and to restore the shaken confidence of foreign lenders following the debt crisis of 1982, the Government implemented stabilization policies aimed at reducing aggregate domestic demand via restrictive monetary and fiscal policies, real exchange-rate depreciation, and tightened import restrictions. On balance, these measures achieved their objectives, thereby laying the basis for an export-led recovery starting in mid- 1984 (see Schedule 2.1 for key economic indicators). 2.04 In 1985, a year after project execution had begun, a civilian President (Mr. Jose Sarney) took office. That same year, led by booming exports, the economy grew strongly with the result that Brazil continued to achieve the external adjustment required by the debt crisis and a resumption of growth. How- ever, inflation became more entrenched -- 235% in 1985 (after 211% in 1984). The causes of inflation were the: inability of Brazil to effect the necessary change in the domestic saving-investment balance required by the contraction in foreign borrowing; continued recourse to borrowing from the monetary authorities to finance persistent public sector deficits; and pervasive indexation of the economy. 2.05 Because Mr. Sarney succeeded to the presidency following the death of his party's presidential candidate (Mr. Tancredo Neves), his political man- date, which was weak at the beginning of his Administration, became weaker under the pressure of events.! To offset his weak mandate and strong opposition in Congress, the President tried to muster support for anti-inflation programs entailing minimum or no sacrifices by any major political group. The Cruzado Plan (February-November 1986) and the Bresser Plan (June-September 1987) included some forms of price control and deindexation; but they included no significant fiscal/monetary measures. In 1989, there was one final attempt to control prices (the "Summer" Plan), but this was not successful. These measures failed with the result that the economy suffered from "stop-start" growth, high rates of inflation, large public sector deficits, and problems servicing foreign debt. 2.06 Bank Lending Policy. The lending policy of the Bank changed in response to changes in the Government's macroeconomic goals. For example, in 1984-1985, the Bank supported the objective of restoring creditworthiness not only with conventional project loans, but also with its so-called "Special Action Program" (SAP), consisting of quick-disbursing, policy-based loans for export development and agriculture, and other SAP actions including loan increases and supplements and special account operations. The SAP successfully raised disbursements while supporting policy adjustments required by the crisis. 1/ The effort by Congres to ewrite the Countition involved a continuing uthrea to the political position of President Saay. During the yeah 19S7-1988, the middle yea of his Administntion, the Congress considered (but thea rejected) proposals for replacing a presidential government with a parlimentary governnent and reducing the preidential term of office from 5yean to 4. Tle l988 Constitution re-establishd the power of the Congres,s enh nced the autonomy of the stAtes and municipalities, reduced the economic power, of the Executive, and reinforced the rights of organized labor. -3- 2.07 In 1986, with Loan 2720-BR (US$500 million, 1986), an adjustment loan supporting a plan for sector financial rehabilitation, the Bank endorsed the Cruzado Plan. The financial targets for sector financial rehabilitation were designed to be consistent with the price-control approach of the Cruzado Plan (para. 6.05), i.e., only modest tariff increases in late 1986 followed by higher tariff levels in 1987 and later years, resulting in a rising return on remunerable assets of 9.1% by 1989. (It was expected that a second power sector adjustment loan would be processed in 1987, provided that sector performance in 1986 was satisfactory and provided that there was reason to believe that sector performance would be consistent with the financial targets for that year.) 2.08 In 1988 and 1989, following the failure of the Bresser plan in 1987, the Bank saw the Government's major task to be, not GDP growth and improved creditworthiness, but stabilizing the economy and controlling the growth of fiscal deficits financed through money creation -- a task made infinitely more difficult by the weak political position of the President and a host of complicated economic constraints. Cognizant of the political and economic uncertainties facing Brazil and of the implications of different lending levels for the its risk exposure, the Bank designed a lending strategy based on the concept of "graduated response" to policy and institutional changes -- that is, the level of lending would depend on the comprehensiveness and credibility of the Government's stabilization and adjustment efforts. The Bank intended that its ESW work focus on providing the basis for dialogue with the Government on the fiscal side of its stabilization program. This approach continued to prevail when the project was completed in 1989. Schedule 2.1: Key Economic Indicators, 1981-1989 * 1981 1982 1983 1984 1985 1986 1987 1988 1989 Real GDP Growth Rate 1%) (4.4) 0.6 (3.51 5.1 8.3 7.6 3.6 (0.31 3.0 Pubkc deficit/GDP (% 6.0 6.6 3.0 1.6 4.3 3.6 5.5 4.3 NA Inflation Rate (%l 95.1 99.7 210.9 223.8 235.1 55.0 415.7 1037.0 1783.9 IIGP/DI - Dec./Dec.l Exp. Vol. Growth Rate 1%) 21.3 -9.2 14.3 22.1 -2.0 -23.6 14.5 17.6 2.3 Imp. Vol. Growth Rate 1%) -12.3 -6.0 -17.3 -3.0 -1.1 15.0 -3.8 -0.8 15.8 (in Billions of US$) Debt service 17.8 20.8 18.4 20.0 22.3 24.2 25.3 16.4 17.2 Totaldebt 73.9 85.4 93.6 102.0 105.1 111.0 121.3 114.0 115.3 Trade balance 1.2 0.8 6.5 13.1 12 5 8.3 11.2 19.1 16.0 Current account balance -11.7 -16.3 -6.8 0.1 -0.2 -5.3 -1.4 4.4 0.3 * Sourceas: World Bank: Brazil: A Macroeconomic Evaluation of the Cruzado Plan, dated December 1987, p. 3, Table 1.1 and p. 13, Table 1.6; and Brazil: Economic Stabilization with Structural Reforms. Report No. 8371- BR, dated January 31, 1991. p. 47. Table 2.2 and p. 80, Table 4.2. 2.09 Besides what was reviewed above, the project context reflected other elements. Set forth below are the first of these elements -- the level of Bank lending to the power sector, sector organization, and sector development objectives. Other elements are discussed in later chapters. -4 - 2.10 Bank Lending to the Power Sector. Since 1949, the Bank has made 41 loans totalling about US$3.6 billion to benefit the electric power sector, including ten loans to ELETROBRAS, amounting to almost US$2.5 billion (Part III, Table la); three loans to COPEL amounting to US$169.1 million (Part III, Table lb); and five loans to CEMIG amounting to US$149.2 million (Part III, Table lc). Counting loans to ELETROBRAS, the proceeds of which were relent to the operating companies, COPEL and CEMIG have benefitted from four and seven loans, respectively, amounting to US$273.2 million and US$324.7 million, respectively. 2.11 Through the mid 1970s, the bulk of Bank power lending helped to finance hydroelectric stations and transmission works constructed in the Southern and Southeastern regions. From the mid 1970s to 1985, the emphasis shifted to financing the expansion of transmission and distribution systems nationwide. In 1986, a sector adjustment loan aimed at encouraging financial rehabilitation, conservation, and environmental/social safeguards (2720-BR, para. 2.07). During the next three years (1987-9), the Bank and the Government, due to macroeconomic, tariff, and other factors, failed to agree on the terms of a second sector adjustment loan. In June 1990, after the Government implemented major tariff increases, the Board of Executive Directors of the Bank approved an investment loan in connection with a transmission and conservation project (3227-BR; US$385 million). However, because the loan agreement remained unsigned for almost two years -- the Government was unwilling for political reasons to raise tariffs to the levels covenanted for effectiveness -- the Bank withdrew the loan in April 1992. No further lending to support power projects in Brazil is under preparation. 2.12 Sector Organization. The sector consists of a relatively compact group of state- and Federally-owned utilities with primary responsibilities for, respectively, distribution and generation/transmission. Under existing Federal electricity legislation, the authority of the Federal Government to supervise sector decision-making, especially with respect to levels for tariffs, borrowing, and investment expenditure, is paramount. However, because of a generalized liquidity crisis -- many state governments are protesting low tariff levels by authorizing their operating companies not to make payments for debt service owed ELETROBRAS or electricity purchased from the Federal generating companies and not to make payments to RENCOR, the mechanism for transferring excess income from the financially stronger utilities to the financially weaker utilities -- the structure of the sector is being re-examined. 2.13 Three agencies established the regulatory environment during project planning and execution (1982-1989): (i) Departamento Nacional de Aguas e Energia Eletrica (DNAEE); (ii) ELETROBRAS; and (iii) Secretaria de Controle de Empresas Estatais/Secretaria de Planejamento (SEST/SEPLAN). DNAEE and ELETROBRAS are under the jurisdiction of the Ministry of Mines and Energy. DNAEE is a regula- tory body which approves, inter alia, tariff levels and expansion plans; ELETRO- BRAS is a holding company for Federally-owned power companies with sector-wide planning and financial functions. SEST/SEPLAN is a planning agency. In 1981, in connection with its larger macroeconomic strategy, the Government required that SEST/SEPLAN review and approve tariff increases and planned levels of investment expenditures by state- and Government-owned enterprises, including power utilities, to ensure consistency with the larger macroeconomic plan of the Government. -5- 2.14 Sector Development Obiectives. In order to reduce dependence on imported petroleum and to improve the national balance-of-payments situation, the Government, following the oil crisis (1974), adopted a national energy policy which emphasized conservation, rational energy use, and substitution of domestic energy resources for imported energy. This policy called for maximum exploitation of local primary energy sources, especially hydro and maximum efficiency of operations by interconnecting and coordinating the generation and transmission facilities between regions. The national energy policy also called for the pro-motion of electricity usage through extension of distribution coverage in urban and rural areas.y The Bank supported the sector development objectives with loans which, beginning in the mid 1970s, emphasized the financing of transmission and distribution works. 3. Preparation 3.01 Timetable and Issues. Bank interest in Brazilian RE problems began in 1978 with the dispatch of a consultant who recommended: (i) replacing the non- standard approaches of the various agencies involved in RE with a common national program under a single government agency; and (ii) restricting subsidized credit to cover the cost of connections and wiring to only low-income customers, and replacing the preferential tariffs benefitting rural customers with tariffa for large customers at least as high as those of urban customers (see Part III, Table 2 for evolution of issues, Table 3 for project timetable, and Table 12 for use of Bank resources). It was recognized by local power officials and Bank staff that rural electrification represented a major unmet need. 3.02 With the assistance of Brazilian officials, Bank staff identified the RE project in July 1982 and carried out appraisal in December 1982. However, it was not until December 1983, a year later, that the Bank approved the loan. During this time, a variety of issues -- economic, technical, financial, organizational -- were resolved. The issue which took the longest to resolve related to the level of tariffs and the financial performance of the sector. Post-appraisal missions were dispatched in January 1983 to examine RE technical and organizational problems and in July 1983 to examine the finances of the sector and the executing agencies. 3.03 Bank staff found that the Brazilian agencies involved in rural electrification were not using the same criteria to define an RE project, rank priority areas for electrification, measure economic benefits, and finance customer contributions (see para. 3.08 for the criteria used to define the project). In addition, Bank staff found that: (i) there was poor coordination between utilities to ensure that they were carrying out programs consistent with national priorities; and (ii) financial difficulties constrained the pace of RE extension. 3.04 To develop a standard approach to RE, the Bank conditioned negotiations to the creation of a Federal Commission to define policies and regional priorities. The Government complied with this condition. To help the Commission with its work, the Bank persuaded the Brazilians to include in the 2/ World Bank: Staff Appralis Report (SAR). Brazil. Rural Electrification Proiect, Report No. 4666-BR, dated November 14, 19S3, p. 3. Hereafter, referred to an SAR, RE Pro'ect -6- project a study of technical standards, project-design methodology, a medium-term RE program, and organizational changes among the participants involved with RE.2' 3.05 The lack of uniform standards for defining and evaluating RE projects did not mean that the projects were designed without reference to any criteria. The main criteria used for defining the sub-projects included, inter alia, the surveyed demand for electrification in rural areas and its relation to the rural population enjoying electricity service, the size and timing of future benefits, financing constraints and the amount of customer contribution, and the executing and monitoring capability of the utility. Selection of areas to include in the project was based on a ranking coefficient reflecting the total weight of differently-weighted parameters which aimed at maximizing the socio-economic impact of RE projects. The main parameters for selecting the areas to be included in the project were size of the rural population, number of rural properties, income from farming and livestock activities, availability of electric infra-structure, and number of properties already electrified. Because the differing weights accorded the parameters represented subjective judgements, how these areas were ranked became a valid question and led immediately to a second question: should the demand of these areas be met, given the competition for the scarce resources available to the utility and the country? In this manner, the issue of project-design methodology involved fundamental questions about the economic justification of the project. 3.06 During project preparation, the methodology of economic evaluation was an important issue, and a number of alternative approaches was considered. Both CEMIG and COPEL were requested to substantiate the merits of their proposed subprojects with survey data, as a result of which there were small changes in project design. In the chapter on economic analysis, the SAR pointed out that CEMIG and COPEL were carrying out their: (i) generation and transmission programs in conformity with a least-cost national expansion plan which had been approved by the Bank; and (ii) RE projects optimized on the basis of: (a) technical standards chosen through an economic comparison of alternatives; (b) a large unfilled demand for electricity in rural areas; and (c) ranking of those areas according to criteria suagesting higher benefit/cost ratios. The SAR did not assert that the project was least-cost, as this would have been too difficult to prove. Further, the SAR did not include an economic rate of return for the project because of the difficulty of identifying the incremental electricity sales associated with the project and because of what was expected to be a long, inconclusive debate associated with quantifying some of the project benefits, especially the net values of savings due to the substitution of electricity for petroleum and of increased revenue due to increased agricultural production. Instead, the SAR justified the project economically, applying the Bank's traditional approach to electric power project and focusing on the combined CEMIG-COPEL expansion programs for 1984-1988, which had a projected internal rate of return of about 9%. The project would include a study of, inter alia, the technical and economic issues related to project justification. 3.07 Concerning subsidized credit, the Bank and the Government agreed that it was the responsibility of the customer to finance the cost of his connection 3/ Idem., Back-to-Office Report, dated January 28, 1982. This document sect forth suggeatrd terms of reference for coonsultnts. -7- and wiring, but that help would be available from the Central Bank and commercial banks as required.!y Instead of addressing the issue of preferential tariffs, the Bank decided to condition loan processing to implementation of a sector-wide tariff scheme agreed in 1981 -- increasing tariffs in real terms by 3% in 1982 and 5% annually thereafter until the sector earned a return of 10% on remunerable assets.' When it became aware that the sector had not met this target, the Bank, taking a sympathetic attitude toward the problems of Brazil and the efforts of the Government to resolve those problems, invited the Brazilians to discuss a new scheme to restore sector finances.Y Just as negotiations for the RE loan were beginning, the Bank obtained commitment from the Government to a new sector- wide financial rehabilitation plan -- namely, that through tariff actions and other measures, the Government would raise the sector rate of return on remunerable assets by 1% a year from the then current level of 4% until the sector reached the legal minimum of 10% by 1989.2' This scheme replaced the prior tariff scheme; and as long as the Government and the sector were making progress with respect to its implementation, the Bank agreed not seek to enforce existing financial covenants, which, based on power-tariff legislation, required an annual return of 10% on remunerable assets. 3.08 An issue discussed and settled among the Brazilians was the identity of the borrower. ELETROBRAS would be the borrower and would relend the proceeds of the loan to COPEL and CEMIG, which would be the executing agents. A loan agreement defined the obligations of ELETROBRAS; project agreements, the obligations of COPEL and CEMIG; shareholder agreements, the obligations of the states of Parana and Minas Gerais, the respective owners of COPEL and CEMIG; and a guarantee agreement, the obligations of the Federal Government. 3.09 Objectives. The objectives of the RE facilities were to: increase agricultural production through irrigation; foster the development of agro- industries; substitute electricity for oil; and improve living conditions in rural areas.F' The objective of the study was to resolve certain institutional, methodological, and policy issues related to RE (para. 3.02) and to assist in the preparation of a medium-term plan for developing RE. The objectives of the training programs corresponded to their different parts: consulting services and training abroad to ensure that staff remained abreast of state-of-the-art developments; technological research to define economic standards for RE projects; and establishing demonstration farms to educate rural customers. 3.10 Description. Schedule 2 of the Loan Agreement defined the project as consisting of: Part A (CEMIG) -- (1) connection of about 60,000 rural customers through the installation of 60,000 km of distribution lines and about 60,000 4/ Ide SAR. RE Proiect. p. 28. 51 Idem.. Letter to Government, dated March 18, 1983. 6/ Idem, Ltter to the Govcrnment, dated MArch 16, 1983. 71 Wj . Intemal Mlemo, dated November 2, 1983. 8/ Idem., SAR. RE Proiect. p. 23. - 8 - distribution transformers with a total installation of about 600 MVA and related substation capacity; and (2) a training program to include 350 staff-months of fellowships abroad and 105 staff-months of technical assistance by external consultants for on-the-job training; Part B (COPEL) -- (1) connection of about 88,400 new consumers in rural areas and about 55,800 new consumers in small towns and villages in rural areas through installation of about 46,000 km of distribution lines and about 69,000 distribution transformers with an aggregate capacity of about 700 MVA and related substation expansion; and (2) a training program, including about 110 staff months of fellowships abroad and 20 staff months of technical assistance provided by external consultants for on-the-job training; and Part C (ELETROBRAS) -- a study of RE problems -- including a review of and evaluation of past studies, an analysis of technical aspects, project- financing policies, tariffs to rural consumers, and the development of a framework for a medium-term national RE plan. This study would also develop a methodology for the socio-economic review of RE projects, guidelines for the development and application of electrification standards, and organizational and institutional changes required for carrying out such plan. 3.11 Parts A and B provided for the construction of three-phase and two- phase 34.5 kV and 13.8 kV rural distribution lines and transformers (rural distribution lines), three phase and single-phase 13.8 kV connection lines and transformers for farm electrification (rural circuits), and 34.5 kV and 13.8 kV distribution lines for village electrification (primary feeders). Parts A and B also provided for the construction of low voltage distribution lines (secondary feeders), consumer connections, metering equipment, and related auxiliary equipment required for the appropriate expansion of the capacity of the CEMIG and COPEL systems. 3.12 Expected Cost. Financing, Procurement. and Timetable. The expected cost of the project was USS$584.6 million, including a foreign cost, direct and indirect, of US$242.8 million, excluding a front-end fee of US$0.6 million. It was expected that the Bank loan, US$222.8 million, would cover the foreign cost of: (i) goods and materials (US$215.9 million) procured under International Competitive Bidding (ICB), except for special teaching equipment (US$2.0 million) to be procured under Limited International Bidding (LIB); (ii) training, including fellowships (US$2.1 million) and consultant services (US$2.2 million) procured under the Bank's guidelines for selecting consultants; and (iii) the front-end fee (US$0.6 million). It was expected that the cost of consultant services amounting to US$0.7 million would reflect the cost of the proposed study of RE problems. The balance of the foreign cost of the project, US$20.6 million, was expected to be covered by supplier co-financing and corresponded to the foreign cost of reserved procurement (with a total cost of US$58.3 million), which the Bank would not finance. It was expected that the local cost of the project would be funded by CEMIG (US$64.6 million), COPEL (US$46.9 million), and rural consumers (US$230.3 million). 3.13 As for the project timetable, the SAR indicated that implementation of CEMIG and COPEL sub-projects would begin in 1984 and be completed in 1987. The Loan Agreement indicated a project completion date of December 31, 1989. The SAR indicated that the first draft of the RE study would be completed by November 1984 and the final report by November 1985. 3.14 Negotiations. Loan Approval & Sianing, and Effectiveness. Negoti- ations were completed during the first week of November 1983 without major delay; the loan documents were approved on December 8, 1983 and signed on December 14, 1983. The loan agreement became effective as scheduled on March 20, 1984. 4. ImDlementation. 4.01 Cost. Financing, Prolect Scone. and Timing. CEMIG and COPEL collaborated effectively with the Bank to execute efficiently the physical works of the project. ELETROBRAS successfully monitored the execution of the RE sector study. The actual project cost (US$572.2 million) was 2.1% less than the appraisal forecast (US$584.7 million) (Part III, Table 4). As the proceeds of Loan 2564-BR covered all of the foreign cost of the project (US$221.4 million, excluding US$0.5 million for the front-end fee), co-financing was not required. CEMIG, COPEL, ELETROBRAS and rural customers funded the local cost (US$301.7 million) (Part III, Table 4). Part III, Tables 5, 6a and 6b compares actual and forecast: project components and implementation periods, disbursement timetables, and allocations of loan proceeds. 4.02 Comparing actual and forecast project costs is not a fully useful exercise because of the substantial increase (65%) in the numbers of new customers (the sum of rural properties, villagers, and low income) over the levels expected at appraisal -- the result of the easy financing terms provided by the power companies to rural customers, adoption of more efficient technical standards and lower unit costs (paras. 4.06). Due to these factors, there were substantial reductions in connection costs. The actual average connection cost per rural property was well below the forecast level: CEMIG, US$3,136 vs. US$5,337; and COPEL, US$1,540 vs. US$2,416 (in current prices). There was a like reduction with respect to the average connection costs for the village electrification program of COPEL: US$393 vs. US$649 (in current prices). 4.03 From the beginning of project execution in early 1984, the rural populations of Parana and Minas Gerais responded with enthusiasm to the RE programs offered by CEMIG and COPEL -- so much so that by early 1986, with the agreement of the Bank, COPEL and CEMIG increased the scopes of their respective sub-projects to increase the numbers of new connections for rural properties, village residents, and low-income customers. At that time, it was correctly anticipated that all of the original goals for new connections would be exceeded by the appraisal target date of December 1987. CEMIG completed all but a minor portion of its sub-project in 1989. The minor portion (a few dozen connections) was carried out by June 1990, by which date CEMIG had connected 92,140 new rural properties, almost 54% more than expected. COPEL completed its sub-project in June 1989, by which date it had connected: (i) 122,986 new rural properties, 39% more than expected; (ii) 117,137 new village customers, 139% more than expected; and (iii) 40,722 low-income village customers, 499% more than expected (Part III, Table 5). 4.04 Performance of Supoliers. Contractors, and Auditors. With one exception, CEMIG expressed no dissatisfaction with the performance of its - 10 - suppliers, contractors, and consultants in connection with this project. It expressed no dissatisfaction with its auditors. COPEL also expressed no dissatisfaction with the performance of its suppliers, contractors, consultants and auditors. Bank opinion parallel that of COPEL and CEMIG. 4.05 Unit Costs & ICB. The table on the following page shows: (i) categories of equipment funded by Loan 2365-BR for each executing agency; and (ii) representative unit costs, actual and forecast. According to COPEL, the causes for the lower unit costs varied, but competition among suppliers was a major factor. For example, for poles, the actual and forecast unit costs were, respectively, US$48.54 vs. US$72.89. The lower actual costs resulted from economies of large-scale fabrication, adequate advanced payments which allowed suppliers to purchase raw materials with cash at lower prices, and competition from wooden poles. For transformers, the lower unit costs (US$211.34 vs. US$403.84) reflected the impact of economies of large-scale fabrication and improved production techniques, technological improvements (lighter weight solutions), and ICB. Economies of scale and ICB applied to the lower unit cost for insulators (US$3.58 vs. US$4.63). ICB accounted for the lower unit cost of meters (US$19.02 vs. US$23.75). In the case of aluminum steel core cables, the lower unit costs (US$1.75/kg vs. 2.05/kg) reflected lower supply costs for aluminum -- a world-wide phenomenon during project execution. Schedule 4.1: Disbursements by Category of Eauipment and Representative Unit Costs … C* , j )… (if) … Equipment Disbursements Representative Category CEMIG COPEL COPEL Unit Costs (in USS thousands) Actual Fore. X Diff. Cables 24,633 22,693 1.75/kg 2.05/kg - 14.6 PoLes, Plates 23,985 19,683 48.54/poLe 72.89/pote - 33.4 & Crossarms Insulators 5,186 9,073 3.58/pc 4.63/pc - 22.7 Meters 1,917 3,063 19.02/pc 23.75/pc - 19.9 Transformers 20,833 24,451 211.34/unit 403.84/unit - 47.7 Lighting 1,406 649 NA NA Arresters Rectosers 4,326 3,254 NA NA Spare Parts 10.824 - - - NA NA Sub-totaL 93,110 83,407 Other 19.699 20.793 NA NA Total 112,809 104,200 4.06 COPEL: Trainina Procram and Technical Assistance. COPEL used TJS$l.25 million and US$0.018 million of the proceeds of Loan 2365-BR for, respectively, its training program and consulting services (technical assistance). Of the total loan proceeds applied to training, US$1.15 million covered the personnel costs for master's degrees, refresher courses, etc., and US$0.10 million covered the costs of training materials. The main emphasis of the program for master's degrees was to reinforce the skill levels of personnel at COPEL's research and development center, which closely followed developments in the areas of high voltage transmission, insulation, dielectrics, chemistry, etc. The main emphasis of the consultant services was also in research and development but it included consultant services in the areas of electronic/ telecommunications systems, generation/transmission, hydrology, rural electrification, and management. COPEL was satisfied with the results of the training program and the consultant - 11 - services. Schedule 4.2 below compares actual and forecast results of the training plan: Schedute 4.2: Actual and Forecast Numbers of Men Trained Master's Refresher Courses/ Symposia/ Courses Course Visits Congresses Total Cost Forecast 8 2 91 3 104 US$1.25 miLLion Actual 7 -- 117 11 135 US$1.15 miLLion 4.07 CEMIG: Trainina Proaram and Technical Assistance. CEMIG used US$3.77 million of the proceeds of Loan 2365-BR for training and consultant services (technical assistance). The master training plan included training in rural electrification, training abroad for managers and technicians, consultant services in occupational safety, and consultant services in management, planning, organization and information technology. A total of 167 people received training abroad amounting to 226 staff months at a cost of US$1.81 million as compared with the appraisal forecast of 354 staff months at a cost of US$2.84 million. The actual and forecast costs per staff month of training were very close: US$8,009 and US$8,023. The actual and forecast costs of consultant services were, respectively, US$1.09 million and US$1.20 million; data for actual consultant staff months is not available. The actual and forecast costs of materials and equipment for the demonstration farms were US$0.88 million and US$0.26 million (including all costs for administration, freight, and assembly). CEMIG was satisfied with the results of its training program. 4.08 ELETROBRAS: RE Sector Study. ELETROBRAS used just under US$0.70 million of the proceeds of Loan 2365-BR to help finance its RE study. In May 1984, four firms submitted proposals calling for completion of the work in 18 months. Due to delays in selecting the consultant, initial work on the study did not began until January 1985. By January 1986, the consultant had completed and sent to the Bank reports covering the: methodology for area selection, economic evaluation of RE projects, technical standards, and financial resources for rural electrification. Subsequently during 1986, reports were prepared on tariff policies, organization of the sector, a master plan, and monitoring RE programs. The study established that for the purposes of economic evaluation, it was possible to calculate a so-called "social" internal rate of return for an RE project based on the costs of the project and its benefits -- the benefits being net marginal revenues from the sale of additional electricity to rural customers, cost savings from the substitution of electricity for petroleum products, and the net marginal revenue from the sale of additional agricultural production. 4.09 Bank files do not reveal any commentary on the completed study, notwithstanding a commitment to send its comments to ELETROBRAS.F' The primary factor accounting for such lack of commentary appears to be the priority accorded the problem of sector financial deterioration (paras. 6.02-6.07) by Bank staff. Another factor was staff constraints as a consequence of the Bank reorganization (1987). As for the newly created RE unit at ELETROBRAS, Bank staff expressed dissatisfaction with its organization and capabilities to guide the work of the consultants and oversee implementation of future RE programs. With respect to 2/ Idem., Supervision Reporl dRd October 20, 1987, *'A Mcnoir-, p. 2. - 12 - this last criticism, the Bank expected that the sector would continue to be organized along strongly centralized lines with ELETROBRAS and other Federal agencies establishing policy guidelines to be followed by the state operating companies. As has already been remarked (para. 2.13), the structure of the sector is under examination. 5. Proiect Results 5.01 Imxpact of Electrification on Rural Properties. An important feature of project design was a commitment from the beneficiaries to monitor results after the works were commissioned to assess expected benefits. COPEL and CEMIG complied with the covenants (Section 2.06) of their respective Project Agreements to establish satisfactory monitoring methods to measure the growth in the use of electricity by rural consumers, the reduction in the use of fuel oil, and gains in agricultural output and productivity attributable to the project. Both companies have completed intermediate monitoring and evaluation, but final results will not be available until 1983. 5.02 With the help of a local university, CEMIG designed and executed a three-stage study to evaluate the impact of its RE program: (i) diagnosing the properties before the introduction of electric power, i.e., establishing a "base line" from which to measure benefits; (ii) carrying out an intermediary evaluation of the effects of electric power on the productive process; and (iii) completing a final evaluation. 5.03 The intermediary evaluation showed that seventy percent (70%) of the survey group indicated that their main reason for electrifying was to improve their standard of living through the purchase of refrigerators, television sets, and other consumer electrical appliances. The evaluation also showed that, as a result of electrification, the typical rural property: (a) acquired, for productive purposes, an electric motor, pumping/irrigation equipment, and choppers and blowers; (b) increased gross average income by about 5%; and (c) reduced the use of oil by 10% within the overall energy mix (from 86% to 76%) and increased the use of electricity from 0.4% to 21.3%. According to CEMIG, "...the data... indicate that.. .this energy contributed to the optimization of the agricultural results with direct influence in the economy as a whole..."S 5.04 The COPEL study consisted of a system of indicators capable of identifying alterations in the sample group's living conditions, the substitution of energy products, and the increase with respect to agricultural production and productivity. Fifty-six percent (56%) of the group of rural property owners sampled by COPEL indicated that their main reason for electrifying was to improve their standard of living; twenty-three (23%) of the group indicated that their main reason for electrifying was improving agricultural production. Data on changes in the energy mix were not available. "The results obtained from the this survey do not exactly permit [us] to verify and measure the impact of electricity on income."11' 10/ CEMIG: Final Pro*ect Report (dated Jmazy 1991), p. 34 11/ COPEL Fwa Proiect R rt (datedJmnuary 1991),p. 73. - 13- 5.05 Internal Rate of Return. Pending the receipt in 1993 of final data on the results of the subprojects, this report must defer calculating the economic return of the project. This information may be of key importance in deciding whether the project should have been executed, and whether similar projects should be considered in the future. 5.06 At appraisal, the justification for the subprojects was their being parts of a combined least-cost expansion programs with a projected internal rate of return of 9%. Based on actual investment costs and actual and expected operating costs and net marginal revenues, the internal rate of return on the combined expansion programs was - 10.7% (Part III, Table 7). This low level, however, reflects the low level of actual tariffs and the high level of labor costs and does not measure the economic impact of the program or the project. If the 1988 tariffs levels of CEMIG and COPEL were maintained for subsequent years -- they were the highest tariff levels in the past five years -- the internal rate of return would be zero. 6. Financial Performance 6.01 Sector Finances. The present legal structure of the sector is such that it is fundamental to analyze sector finances (paras. 6.03-6.07) in order to interpret adequately the finances of the individual power company (6.09-6.14); and sector finances reflect the paramount regulatory authority of the Federal Government. 6.02 After 1978, sector finances deteriorated because the Government, mainly due to political considerations, allowed tariff levels to decline in real terms (Part III, Table 8a). The financial difficulties of the power sector were exacerbated by greater reliance on borrowings and a heavy debt-service burden (Part III, Table 8b). By late 1981, due to low tariff levels, the sector rate of return had declined below the legal minimum of 10% established by law, and most of the Bank's power borrowers were unable to comply with their respective revenue covenants which were based on Brazilian power-tariff legislation. 6.03 In their initial effort (September 1981) to address the financial problems of the power sector, the Government and the Bank agreed on a tariff recovery plan featuring "real" tariff increases of 3% in 1982 and of 5% annually thereafter until the sector earned a return of 10% on remunerable assets. The Bank confirmed this agreement by its letter to the Government of December 23, 1981. The letter also provided that the Bank would not enforce the covenants of previous loans relating to rate of remuneration as long as the Government and the power companies complied with the plan for sector financial recovery. 6.04 In 1982, because the Government implemented tariff increases at a slower rate than needed to raise the "real" level as called for under the plan, the level of the average tariff in "real" terms was about 10% below the level of 1981; and the sector did not cover its debt service (Part III, Tables 8a and 8b). The plan failed to achieve its objective because political considerations dominated the thinking of the Government. Also contributing to this result were defects inherent in the plan, implementation delays, and high levels of inflation. - 14 - 6.05 In 1983, the Government and the Bank amended the 1981 plan to reflect new financial targets and a deferred timetable for financial recovery. When the sector again did not meet the new targets, the Government and the Bank agreed in 1986 on a third plan of financial recovery which again deferred the timetable for recovery -- the Power Sector Recovery Plan (PSRP). With Loan 2720-BR (US$500 million; 1986), the Bank supported the PSRP. To be consistent with the price- control approach of the Cruzado Plan (para. 2.05), the PSRP featured only modest tariff increases in late 1986. Higher tariff levels were to materialize in 1987 and later years; the sector rate of return on remunerable assets was expected to rise from 5% in 1986 to 9% in 1989. In August 1987, the Bank and the Government discontinued their efforts to negotiate a second sector adjustment loan due to the re-introduction of price controls (Bresser Plan -- para. 2.05), including a freeze on electricity tariffs. The Bank and the Government renewed their efforts to negotiate a second sector adjustment loan in 1988 and in 1989 but these efforts failed due to deteriorating economic conditions and the Government's choosing strategic objectives other than the financial rehabilitation of the power sector. Between 1986 and 1989, the levels for annual average monthly sector tariff were (in prices of July 1989): 1986, US$42.56/MWh; 1987, USS52.26/MWh; 1988, USS54.67/MWh; and 1989, US$39.49/MWh . 6.06 During the years 1981-1989, the Bank, noting the difficulty and complexity of the macroeconomic and political problems of Brazil, felt that it would be more useful to help the Brazilians to formulate and implement a credible plan of tariff and financial recovery than to terminate the dialogue by suspending disbursements or by stopping the processing and approval of new loans. Accordingly, the Bank, relying on the recovery plans agreed with the Government in 1981, 1983, and 1986 continued to make investment loans (2138-BR, 2364-5-BR, etc.) and a sector adjustment loan (2720-BR); and subsequently tried to process additional sector loans in 1987-89. Notwithstanding their disappointing results, the plans and the subsequent loan-processing efforts provided a useful vehicle for dialogue with the Government. 6.07 In June 1990, the Bank renewed its effort to support the sector by approving Loan 3227-BR to help finance distribution works. Effectiveness depended on the Federal Government's raising tariffs to the covenanted level of USS54/MWh (in prices of July 1989). By December 1990, the level of average tariffs had declined from the June 1990 level of about US$43/MWh (in prices of July 1989) to about US$35/MWh (in prices of July 1989); the annual monthly average tariff for 1990 was US$40.59/MWh. In 1991, the average monthly level of tariffs was US$37.70/MWh (in prices of July 1989). As of September 1992, the level of average tariffs was US$45.40/MWh (in prices of June 1991) and the range for the year was US$42.41/MWh to US$46.37/MWh (in prices of June 1991). For nearly two years, the Government chose not to sign the loan agreement, as it did not wish to raise tariffs as covenanted. In April 1992, the Bank, after appropriate consultation with the Government, withdrew the loan. 6.08 Financial Performance of CEMIG & COPEL. CEMIG and COPEL are state- owned power companies subject to Federal regulation with respect to expansion planning and levels of tariffs, long-term borrowing, and investment expenditure. Because of such Federal regulation, their respective financial performances broadly parallel each other and that of the sector as a whole. However, since they serve different markets and respond to different local pressures, there were important differences in their respective financial performances. -15 - 6.09 CEMIG. The summarized data set forth in Schedule 6.1 compares CEMIG's actual and forecast financial performance for the period 1984-1988, the expected project-execution period. It also shows actual data for 1989 (see Part III, Tables 9a-9e for other details). Financial data reflect the price level of December 1983. During the forecast project-execution period, actual levels of summarized sales, average revenue, and total revenues were higher than expected -- respectively, 116,725 GWh vs. 108,628 GWh, or + 7.5%; Cr$23.8 vs. Cr$23.1, or +3.0%; and Cr$2,825.7 vs. Cr$2,509.5 million, or +12.6%. Contributing to the higher level of sales and revenues was the acquisition of other concessionaires, including one serving 61 municipalities with a population in excess of one million. As for summarized sources and applications of funds, CEMIG offset shortfalls in contributions (Cr$136.5 million) and borrowing (Cr$27.3 million) with larger-than-expected net internal cash generation (Cr$129.7 million) plus the short-fall in applications (Cr$34.1 million). During the years 1984-1986, the equity contributions of the state government amounted to Cr$68.8 million (US$79.4 million equivalent) -- well below the expected level of Cr$195.2 million (US$225.4 million equivalent) and below the covenanted level of US$30 million equivalent annually for the years 1984, 1985, and 1986. The Bank made inquiry as to whether the state would comply with its obligation but did not threaten to suspend disbursements for non-compliance. 6.10 Contributing to the higher-than-expected operating performance was the high proportion of industrial sales (almost 73%), their faster than expected growth rate (7.3% vs. 5.1%), and the fact that, on average, industrial tariffs have been higher than tariffs for other customer categories and closer to the marginal cost of supply. There were also improvements for key financial ratios, except for the operating ratio and rates of return on remunerable assets. 6.11 Nevertheless, despite the positive operating data, the financial performance of CEMIG was deteriorating, primarily because of higher-than-expected levels of staff and personnel expenses (total and average). In 1988, the actual and forecast levels of average employees were, respectively, 16,190 and 14,419; and the corresponding ratios of customers to employees were, respectively, 176 and 198. In 1989, the impact of lower average revenue (Cr$20.6 vs. Cr$26.6 in 1988), decreased efficiency (163 customers per employee vs. 176 customers per employee in 1988), and higher total and average personnel expenses (Cr$251.6 million vs. Cr$204.4 million in 1988; Cr$13,645 vs. Cr$12,626 in 1988) combined to cause a negative rate of return (-3.9%) on remunerable assets. According to CEMIG, the increased numbers of staff and the deteriorating efficiency ratio were due to the acquisition of concessionaires (Part II). 6.12 If, during the years 1984-1988, CEMIG had met the annual target ratios for customers to employees and not increased the actual average personnel expense beyond the actual level for 1984, CEMIG would have had cumulative savings of Cr$205.3 million. Based on actual annual staff levels and actual average personnel expenses for the years 1984-1986, if CEMIG had not increased the average actual personnel expense beyond the level for 1986, cumulative savings would have amounted to Cr$110.0 million. CEMIG and COPEL both made the point that there had been no real increase in their basic wages. However, according to COPEL, the higher average personnel expense was due to social charges and "premiums" for longevity, increased productivity, etc. (Part II). - 16 - Schedule 6.1 CEMIG: Summarized Financial Results, 1984-1988 Actual l Forecast Combined Income & Funds Statement (in CrS millions, reflecting prices of 12/83) 1/ Percent (X) Difference X of Fore- X of from 1989 Actual Total cast Total Forecast Actual Sales (GWh) 116725 NA 108628 NA 7.5 27993 Ave. Rev. (CrS/kWh) 23.8 NA 23.1 NA 3.0 20.6 Total Revenues 2825.7 100.0 2509.5 100.0 12.6 583.7 Operating Expenses 1898.3 67.2 1380.0 55.0 37.6 614.1 Purchased Energy 399.0 14.1 458.5 18.3 -13.0 143.1 Depreciation 414.7 14.7 379.1 15.1 9.4 54.4 Personnel 716.3 25.3 NA 0.0 NA 251.6 Other 368.3 13.0 542.4 21.6 -32.1 165.0 Net Operating Income 927.4 32.8 1129.5 45.0 -17.9 -30.4 33= ======= - =3=3 = 3=3= .=== 3-=. Total Sources 1020.1 100.0 1054.2 100.0 -3.2 48.9 Gross Internal Cash Gen. 1033.5 101.3 1129.1 107.1 -8.5 14.0 Less: Debt Ser. & Inc. Taxes 998.9 97.9 1224.2 116.1 -18.4 59.2 Net Internal Cash Gen. 34.6 3.4 -95.1 -9.0 -136.4 -45.2 Contributions 258.5 25.3 395.0 37.5 -34.6 42.3 Borrowing 727.0 71.3 754.3 71.6 -3.6 51.8 ===2=== =.3===Z ,=.=3= 3=3==.= ======= =.===X= ====== Total Applications 1020.1 100.0 1054.2 100.0 -3.2 48.9 Investment program 834.6 81.8 1067.4 101.3 -21.8 157.5 Interest during construction 34.7 3.4 60.8 5.8 -42.9 6.5 Net change, WC 150.8 14.8 -74.0 -7.0 -303.8 -115.1 1/ Rate of exchange: US$1.00: CrS866. Key Financial Indicators 1. Range for Rate of 5.3 - 9.3 6.5 - 9.3 -14.3 -3.9 Remuneration (X) 2. Self Financing Ratio (%) 15.5 5.4 187.0 -85.9 3. Debt-Service Coverage (X) 1.1 0.9 22.2 0.2 4. Operating Ratio (X) 67.2 55.0 22.2 105.2 5. Collection Period (Days) 47 * 50 * -6.0 62 6. Debt-Equity Ratio 49 * 52 * -6.7 26.7 Key Service Indicators 1. No. of Cust. (000), 1988 2815 2855 -1.4 3009 2. No. of Employees, 1988 16190 14419 12.3 18443 3. Cutomers per Employee, 1988 176 198 -11.1 163.0 4. Losses (X of net. gen. + purch.) 8.2 * 8.3 * 1.2 9.6 5. No. of Rural Customers, 1988 158707 125000 27.0 171607 * Represents 5-year average. - 17 - 6.13 COPEL. Schedule 6.2 has the same function for COPEL as Schedule 6.1 has for CEMIG -- it compares actual and forecast summarized financial data for the period 1984-1988, and it also shows actual data for 1989. During the forecast project-execution period, higher levels of actual summarized sales (40,892 GWh, or + 6.4%) offset lower levels of average revenues (Cr$29.6 vs. Cr$33.0, or - 10.6%) sufficiently to produce actual and forecast revenue levels which were reasonably close: Cr$1,252.3 million vs. Cr$1298.6, or - 3.5%. The lower level for average tariffs reflect, in addition to inadequate tariffs for the sector, the lower proportion of industrial sales to total sales (almost 39%) as compared with the same ratio for CEMIG (almost 73%). There were improvements for key financial ratios related to summarized operations, except for the summary operating ratio and rates of return on remunerable assets. As for summarized sources and applications of funds, the larger-than-expected net internal cash generation (Cr$101.4 million) plus the short-fall in applications (CrS274.0 million) offset shortfalls in contributions (Cr$162.8 million) and borrowing (Cr$212.6 million). As for numbers of staff and ratios of customers to employees, COPEL more than met its targets. In 1988, the actual and forecast levels of employees were, respectively, 1,725 and 1,822; and the actual and forecast ratios of customers to employees were, respectively, 183 and 181. 6.14 Despite such positive data, the financial performance of COPEL, like that of CEMIG, was deteriorating. This situation reflected the impact of lower- than-expected average revenue and rising personnel expenses (total and average). If the level of actual average revenue had reached forecast levels, COPEL would have enjoyed total revenues from the sale of electricity amounting to Cr$1,349.4 million vs. the actual level of Cr$1,205.9 million and net operating income of CrS606 million vs. the forecast level of Cr$623.9 million--assuming that there was no change in actual operating expenses. The average personnel expense increased from Cr$5,336 to Cr$8,846 (+ 65.8% in real terms) between 1984 and 1988. According to COPEL, this increase was due to social charges and "premiums". Because COPEL was successful in keeping total numbers of personnel consistent with the target levels for customers to employees, the impact of rising personnel costs was less than the impact of lower average revenue. For example, if the average personnel expense had increased at half of its actual rate of increase (6.7% vs. 13.4%) and if there had been no change with respect to the actual level of revenues and other operating expenses, COPEL would have experienced summarized net operating income amounting to Cr$454.3 million as compared with the actual figure of Cr$409 million (which was 34.5% below the forecast level). In 1989, the impact of additional decline for average revenue (CrS27.3 vs. Cr$33.0 in 1988) and higher total and average personnel expenses (CrS117.3 million vs. Cr$83.5 million in 1988; Cr$12,013 vs. Cr$8,846 in 1988) combined to cause a negative rate of return (-6.4%) on remunerable assets. 7.0 Performance 7.01 COPEL and CEMIG. All parties to the project cooperated well. COPEL executed its subproject successfully, as did CEMIG. The deteriorating financial performances of both companies reflected the impact of rising personnel expenses and Federal tariff policy. The Federal Government established tariff levels; the state governments established operating policy. Both companies complied with the major covenants of the Project Agreements (Part III, Tables Ila and llb). - 18 - Schedule 6.2 COPEL: Summarized Financial Results, 1984-1988 Actual & Forecast Combined Income & Funds Statement (in CrS milLions, reflecting prices of 12/83) 1/ Percent tX) Difference X of Fore- X of from 1989 Actual Total cast Total Forecast Actual -- - .. .. -- - - - -- - - - -- - - - - Sales (GWh) 40892 NA 38427 NA 6.4 9464 Ave. Rev. (CrS/kWh) 29.5 NA 33.0 NA -10.6 27.3 Total Revenues 1252.3 100.0 1298.6 100.0 -3.6 267.2 Operating Expenses 843.4 67.3 674.7 52.0 25.0 266.7 Purchased Energy 145.3 11.6 146.6 11.3 -0.9 57.3 Depreciation 185.9 14.8 188.5 14.5 -1.4 25.0 Personnel 512.2 40.9 339.6 26.2 50.8 184.4 Net Operating Income 408.9 32.7 623.9 48.0 -34.5 0.5 Total Sources 678.0 100.0 952.0 100.0 -28.8 -24.0 Gross Internal Cash Gen. 746.2 110.1 677.9 71.2 10.1 71.9 Less: Debt Ser. & Inc. Taxes 475.7 70.2 508.8 53.4 -6.5 289.8 Net Internal Cash Gen. 270.5 39.9 169.1 17.8 0 60.0 -217.9 Contributions 141.4 20.9 304.2 32.0 -53.5 6.7 Borrowing (& Other in 1989) 266.1 39.2 478.7 50.3 -44.4 187.2 Total Applications 678.0 100.0 952 100.0 -28.8 -24.0 Investment program 466.6 68.8 805.2 84.6 -42.1 120.1 Interest during construction 8.4 1.2 118.9 12.5 -92.9 0.0 Net change, WC 203.0 29.9 27.9 2.9 627.6 -144.1 1/ Rate of Exchange: USS1.00:Cr$866. Key Financial Indicators 1. Range for Remunerable 3.6 - 9.8 5.9-12.0 -24.7 -6.4 Return (%) 2. Self-financing Ratio (X) 48.7 23.7 105.5 Neg. 3. Debt-service Coverage (X) 1.7 1.4 21.4 0.4 4. Operating Ratio (X) 67.3 52.0 29.4 99.8 5. Collection Period (Days) 55 * 31 * 77.4 45 6. Debt-Equity Ratio 44 * 48 * -8.3 32 Key Service Indicators 1. No. of Customers (000), 1988 1725 1842 -6.4 1822 2. No. of Employees, 1988 9437 10179 -7.3 9765 3. Customers per Employee, 1988 183 181 1.1 187 4. Losses (X of net generation 6.3 * 9.0 * -30.0 7.1 plus purchases) 5. Number of Rural Consumers Connected (000), 1988 214 199 7.5 222 *Represents 5-year averages - 19 - 7.02 Bank and Government. The Bank identified the right technical issues at appraisal; and negotiated loan documents which were consistent with project and sector objectives. The Bank played an important role in highlighting the merits of reviewing RE technical standards on the basis of economic criteria and requiring ICB for poles based on a formula which allowed comparison between different materials -- wood, cement, and steel. Except for the study of RE problems, the level and extent of Bank supervision was appropriate (Part III, Tables 12), as the Executing Agencies were technically competent. 7.03 The Bank's involvement with CEMIG and COPEL took place in the wider context of its continuing dialogue with the Federal Government on addressing macroeconomic problems (paras. 2.03-2.07) and restoring sector finances (paras. 6.02-6.07). Between 1981 and 1986, the Bank, taking account of the complex economic, financial, and political problems of Brazil, made a series of investment loans and one sector adjustment loan based on the understanding that the Government would implement three credible plans for rehabilitating sector finances. The plans failed to achieve their objective because the Government, due to political considerations plus other factors, did not support the sector with adequate tariff levels. Between 1987 and 1989, despite strenuous efforts, the Bank and the Government were unable to agree on terms for new lending due to tariff, macroeconomic, and other conditions. Between 1987 and 1989, the annual average monthly tariff level declined from US$52.26/MWh to US$39.48/ MWh (in prices of July 1989). In 1990, the annual average monthly tariff rose slightly to US$40.59/MWh and then declined in 1991 to US$37.70/MWh (in prices of July 1989). Given the Government's preference for strategic objectives other than the financial rehabilitation of the sector, there was very little that the Bank could do to influence policy. 8. Lessons to be Learned 8.01 The implementation of this project constitutes no cautionary tale. The lower-than-expected unit costs for materials and equipment demonstrates, inter alia, the utility of ICB. While final data for calculating the economic rate of return of the project remains pending, the enthusiastic response of the rural populations to electrification appears to confirm their perception of its usefulness in improving their lives. There appears to be a direct link between their purchase of consumer durables and electrically powered equipment and improvements with respect to their health, nutrition, and enhanced perception of options and alternatives. 8.02 On the issue of the financial deterioration of the sector and the role of the Bank, it seems clear that lending in circumstances of continuing financial deterioration sends the borrower the wrong message and leads to a significant risk that agreements for financial rehabilitation will not be observed. In June 1990, after the Government implemented major tariff increases, the Executive Directors of the Bank approved a new loan to support a power transmission and conservation project. Effectiveness and continued disbursement were conditioned on achieving and maintaining an even higher tariff. In April 1992, the Bank canceled the loan which had remained unsigned almost two years after approval because of Government unwillingness to raise tariffs to the level required for effectiveness. This appears to be the right way to maintain the credibility of the Bank. - 20 - Part II: Comments of Executing Aaencies 1. Concerning Part I, COPEL, which telephoned its comments, limited itself to one point: the higher level of average personnel expenses was due to social charges and "premiums" for longevity, increased productivity, higher skill levels, etc. COPEL emphasized that there had not been a real increase in basic wages. 2. By showing the monthly and average annual variations of an index of the average basic wage between 1984 and 1989, CEMIG made the same point about basic wages as COPEL. CEMIG made two additional points: (i) the acquisition of other concessionaires was a major cause of the increase of personnel and the deterioration of the ratio of customers to employees; and (ii) the Constitution of 1988 caused no significant increase in the level of average personnel expenses. The above points have been incorporated into Part I. The comments of CEMIG are reproduced in full, starting on the following page. -21- O CrT 2' 3. 9 9 2 1THE: WORLD FBANK WASHI INGT'ON, 1i C. 20 4 3':1 ii U . A FAX., T... NO. (2.0;') 47:7 6..3-` 1. ATT: MR. STEPHE:N .J. E. TTN(3`);1i DEF'T.J/D:V. l AilE1 ROOM NO. I-7i.1. SUB JECT E'' PROJ1_CT C.OMPL.E-'r]:Q1 R ,;: oFfT FOFR RURAl... F:L.FTR :1R F ICAT 1N ON FP OJ..Fc::r (L.OAN 'c2365--URK) YOt.JU F'AS TMILKF DATF'D SE.P T.. 4, .992 FURT111.:R TO OUR 1T:L.EX ME.;;SA*A:.> ;AT ED OCT. 09. 9c.', AND IN REPLY TO Yo0. A3OVrF. blENT'r:: oN'"1 [r`00'JMrNTr! wf,: t¶Ai CANT WA' THE: DEPPAil h i.; -1. OF WATER ANi: ENERGY -- DAL , WHICH (CONCJE:SS,]:>Im C(OMlPRV J;ED, A T TIHE liElr 61. MUNICIPALITIES.: AND AROUND ONE MI.LLf.ION AND ONE llJUNDIV l:D I NFAIA01TANTrS . F--ROM 8 () oT i TFIE CO 'I - ANY 'S SE2:RV:I:.CE'S .NCR L:ASE:D ;. :'% R (>WI N F RO1M ,.40 4 9 .4'rTHE" NUM1h3LR OFi 1-0( A. .rI I F ('CI tlJ FJL l.ED.) 'TmrEr I NCiR r2.:;1..: ENI NUMUF:F 01.: (:; 1t.iCOiHit.:s5 ,KC D10:1) 403%, Wll:l:l..L: 1111:;: C OriJIiP U rJ1;ON J" ;I N -l fl'lW 57X 7.0l31 UiWH J N B3 ANIl) 2?9Q93 6 WH 3:N 9 ). PLl 12 IEHE: P l.() MSiOF' RURA LlL.. Eil2tR FLCA I.)ON C'E 1M Li. I MIN .hiJI Vl_iR Al. OL: ( ; (1 'JO( I c. NAT URI: tJ TO '.1: R E: I.. CW 3N N COu. (::LJt o MtR I I AL..'scL :; E:Rt:At El) tAL`;UAS ) Ml2 0 t b UI,: t:DI) 1I ARY' OR V:I:.NEk A I 2N A N oNP D1):i1RIUI L 11 U ].ON O F Q EAS I N TE*: TArTF or (- . OlF; 1I it' A I. A AN01 11:'R NOT EW0[N-11FlY ASPV E.C-r l2 s 'TIA h ...l. lJ5l USUAl l.. Y E.N( r.-E- A NUMFJE FR OF I" ERIG ONN.:i.:l. I SMAL.L.ER TiHAN I:T iS Ai..L.OWE[D BY TFIL.; A L2E'N CY WEIJA.I El INi-Cl(.5 :1 Ai CCOLNT AN]'.) THE Rl; Nl)E:R]:Nl.i N 01 !.1IR VT CI I- r l:') 1) IE tAA1 1I ON;AL DLI:-P ARl:TML-NT (1l IJf TER ANI.) - 22 - CI:MIG i..2 - PENR.:-iC'Nl:... N ,'1'91iC.1 E .:N':Fl:i rT H. 0 L rTrI..F- PF t TN r-l;r E:R ;'0yNLL L:x'XI_I::.'S ACTrLAI.. GIR 4)W''Il IN THI.. PERIODS 0 OF 81/84 ANI) 8'?/868 DO i NOIT EFFE:C-lTIVEL.Y R EPR 1 ESENT WHAT OGCUl; R t ON ACCOU.4f QI A) rHE*IE EX fP-EN.);: ACC, OLN r1) .tN CUR1RI?EN. MONEY AND PUR Al.JANr ro ACCOUNT INl; P RACT ICIts Di )O E-- NO.r ALLOW ANY CONCLUSION AIru)r :tTi ACrUAL t)ROWrHO rHI8 DIFFICUTLY TS N OT UNDl 0UEIj- 2 Y TIHE UIJtLI. TZAT:EON OF DrL1-LAT TONARRY PRIC:;E 1ND7XE., i.: INS rANCE oFr TABLE 1 WHF::RE ONF: CAN i EE. THAT T Vi-. EXFPLrrN11 INCRI:.ASL:r IS NOT I.- L1 AE'T D TO IN CI R h.A -iES IN THE 13AS81C-WAI.Am: ON WI' WrFH FALL Al-L. OGfTHER i RICN[GE Ll_:N1:F: "LT8 ANI:D OCIAi_ CHARGES); YErT7 ON THIII1S S L) J .JEC. r 4)1 IN F6 RMi YOu Ttieir THE MA i: N NlUNI [tNT C;ONCER limN TIII-. I.. 0,-l. 1. N Ci O F vE:Rf YEAR I I TIIE: SETTl t::t1E r . IN NOn 0 : A M . VAI,.)_AND E) A A8ED::; ON THI.: P RILT;ES I N I::lIF(..C:T Oil Dl7.CENI:Et_R 3i OF' EAt:;H YLAk, O 'T 1 l'. LBL IG SA I QN:; i1' t-re:T'f 0) FOR rHDIE SIiUEJ t' Q IIJN t Yl:::AR C;: on P :;i:* ; ()l I** 'rif. I '1..1;}5;;1)NI'.1.4 EI< IE.N9I'KI( INt) 'FH):'LI* L. E l.): 19'1 t- .;tviMAr iON TH)JL::r Y :YAR (TH CL: Ci I lL '1' L T IU I E(N ) U <) r 1d r Ap1~.: htr .i4; L ARC TH E.'P I.- U'1 r li A' N F' , ', F(.N:'I.JT-14 *T V E I-R t ` tt':) FI in. Al 1: f, 1;N !f . tEl)l)l;' LQN(2: :'S4f EN ' K ; 'E I: Y TH F. AYF I:,AG.,, WAt)1-. I . 11vuI: Iu rP'IEOI NTI_2~ OLYT THAT TIIIiR Wi.- A14 PC[ 'iL 1:i1)LU .LQT N 01 2- 4~ IN Vl+I' 0KB PI' El? :1:011;, l': 1.1. 1.:i: . i:)urv LOU W ^5S ' ',' ,,.i % I: TIl. 3 CP 15'-' , P L-.: R :1:01) !, Ci: 1 Hi: [3, qtl''e l .llLN l'''' i-il:::? :[N ioiu i*¶OMIENTh FR, o 3i 1'(; I39 P1:1E Roo I J O 1 DUE TO HbC r FAI.l... (F IiNi: L.AfT IGOi W I I4 E1- -AlEI:. h i1I' D ( ' T T 1'Ii1:: NrI.;. t .li... W"C31E: Wir II hl'.l. !IOr r' rT-lH:: N.!Ui 1: N L.. W,e,Gl h ANO:) rO 't'E jl: iON lT'IlL Y I NrJI: , p r1IIl.1rU.{s!T ,A,:l'U' ft:2j) E(.)sti:l J:.i_>b iEN F'f. ACE.: CI1- *TIII I) ) I H 1: ' 1. I? E : F...:). D E l... C I 1 'A i . lij' . 1:) NO 5 ' S: I N ICF' LA I .INCP. F: .:rE i: :I ' A13f F, E:31 : NGI: ( i G A ..,? i ' i c N 1r1':. 1: t ' 1;-.: I ' ,... Y F: 1.: P hR r i . il--'NE N E F 1' ' A N ) A 1 '' ttRI ' i2t L;ur U I 0 Cc: I]R I F Tli H1 VER 1::: 4 AtDi I IS. 5 1. IL AL.. 1 P::R .'N14l: L. AND) 'T IIXT I i NOIT A cU u Firt1i-? Y MP I? f . '1I Y 1: 1 y '': o 1:F1 8 ,Ap r, : T:, I'L N - 23 - C/.-MIG P .1 _ . i.~~Ii.. ~Q: E LiU I FP- .-iE I IN ITE Mi "JOTHE:R LJUS i.9,?2t.", ONE SHOULD.) REAL) Uss; i9g,6949 AND CONSP-EQLJEN ILY "ro 'Ai.- L) Ll iit t 2l F2 0 ?" IN STE c-,) OF Ut,FUl', THI; AL TERA ILOtq 1ti3 D lU o THE FAt: TM,AI' BY THL TIMIE OF ilHIC FINAI EVAL1-UATION, WE,!-' HAD Not RECEIVE:ID AL.L IHE DtE:3.X t A DVrCE; FROM BtAN. E QIYI K. i'l-I THE ACrTr u Ao .. UNDE:i 'c,I:) I H) UN!)EN rHL I.-OAN. REtGARDSl, FRANCIS:'3CO 1. t.l MOFRE Ti I^' F' FiNNA DIP.Lz:c'roIe SiEE ,T,Ic.L/ p, SEE ATTACH-D HERETO TA3 -r Er- I 2 3AliD 4 . -24 - IM5IG TABLE i COMPARISON BETWEEN THE AVER-AGE EXFPENSE AND THE AVERAGE BASIC-WAGE GROWTH EXAMPLE: YEAR OF 1987 BASIS OF PRICES DEC/83 - DEFLATION BY IGP …--------------.----.-----,---------------..---… PERSONNEL NO. OF AVERAGE INDEX AVERAGE INDEX EXPENSE EMPLOYEES EXPENSE BASIC-WAGE CRS THOUSAND CRS CRS DEC/83 9,836,170 ±2,236 803,871 I10 360,122 l00 JAN/87 9,466,975 1a,01@ 630,711 78 362,082 106 FEB 10,464,326 1.4,983 698,413 87 405,492 113 MAR 10,985,576 14,956 734,526 9i 426,871 119 APR i0,224,243 L4,960 683,i7i 35 370,2'2 103 MAY £2,435,674 14,930 832,932 104 393,669 109 JUN ±1,721,340 i4,924 785,402 98 377,660 105 JULY 9,700,986 1;,016 646,043 80 345,465 96 AUG 10,053,539 1J,228 660,201 82 328,661 91 SEPT 10,761,834 15,265 705,00± 88 352,772 98 OCT 10,092,521 15,397 655,486 82 343,02i 95 NOV 20,e87,810 i5,579 1,340767 167 532,089 ±48 DEC 26,629,709 15,558 1,7i1,641 2i3 462,9S9 ±29 TOTAL 153,420,534 - - - AVERAGE $2,785,044 i5,1'.1 843,869 1l0 393,427 109 -25 - O:-MIG 'T'A B L E c2 INDIC(:ES tt:l' FIE AYEIRAGLE DA5EIC WA511u -- 194A 'T0 1.9c-t9 1`3 f .[S Ol:' PRKIlC:E5 - : ,88 rl O MON lTH/YEAR B4 85 896 R7 88 8 9 JAN 1BJ8~~~~i0 90 94 1.00 i092 97 FEV 9,." fBi f^ 15.3 101§2; MA1SRCH S33 74 i 0 2. 119 98 f83 APRIL 7 6 67 11 f nJo' MiAY il5 11i? 11 7 i0S9 t1¢ 79 ,.JUNE 106s i2! i.l. 9i05 86, 77 ,JULY ? 6 toot t`15 96 a i. 77 AU (.; 89 f 37 i 14 9 l 7 5 7' 81EPT e;l 81i1 9f3 70 76 OC T - '2 75 ,c; 9 1 15t e-, 6. h l:., Nov 1 i.2 124 J.J 6 J.48 ii7 i .e,3 DEC 14i it0 J. 18 a i2S9 t4 ifl0 AVIERKAGE 984 g8 IOS 1)909 9s1 85 VARIATION YEi-'R/Y[.-AR? (0.7) :17.6 0: 1.6 . 3> c) ACCUMULA4TED VARIAl'ION (0.7> 16.7 i6.6 (2.4) .i CF.MIG TAIBLE 3 I PERSONNEL CADRE-1983 TO 1989 POSITION IN DECEMBER OF EACH YEAR EFFECTIVE INDEX CONTRACTED INDEX TOTAL INOEX TOTAL EFFECTIVE 1RON VORKS- VARIATION VARIATION TEMARY YEAR 83 12,236 too .,563 10d 13,799 iO 0 a 84 12,883 i05 1,542 99 14,425 5es 626 647 I 85 14,334 117 i,400 90 15,734 114 1,309 1,451 86 15,044 123 1.945 124 16, 123 1,255 710 87 15,558 127 1,931 124 17,489 127 640 6l4 88 f7,039 139 i,526 98 18,565 135 1,076 i,48i 89 1B,197 149 e 0 i8,197 132 (368) I1l58 COMPARISON WITH INDICES OF CUSTOMERS SERVEI) :ADRE SER'JED CUSTONRS YEAR: PERSONNEL 1 VARIATION: VARX LOCALIT. : VARIATION QVAR ' NUMBER ' VARIATION VARI 83 13,7" 2.490 2,086,418 84 14,425 626 4,5% 2.929 439 17.61 2,224.861 139.443 6.7X 85 i5,734 1,309 9,1X 3,459 530 iS.IZ 2,466,787 241,925 l1,9Z 86 16,989 1,255 8,0X 3,962 543 14,52 2,633,294 166,507 6,7X 87 17,489 500 2,9% 4,343 381 9,6I 2,774,769 i41,475 5,41 aS 18.5G5 - 1,076 6,2X 5,0e5 707 i6,3Z 2,904,922 30,153 4,71 89 18,197 (3681 --2,0% 5,i45 95 1,9I 3,077,232 172,310 5,9X TOTAL 4,399 31,91 2,655 i16,61 99i,814 47,56! - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --,- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1'LIE C'V9Z t'EZ E-ZY1 -tVss1 EB/330 INV1SNOI 0%'5GL656Ll W'LLLI9-1 TI6W 8fl 9L9'CS-Z Voll%e IN-9HB IU S'SY t'0 f09 C-ZE 1 9E 'BZ C8/330 'IS34)N1 8O3 lNYlSNOD UZIYIIl03 OO91&4.8'E'l£ VSC'E91 f01-Z8#-C ratEB t8'A I zel- ZUSSS IM313 13dOSU3J 91s lSZ VtZ'ZLI O'SZ1 E-86T Z-96 E8x83a INV1SNO3 S3S#3dX3 ---------- ---------------- ------- ---------------------------------------------- -------------- ------ --- 13NVOSV3d 9t9'Es'FZ6,z *Z9'Cjr'18 tEo'z9z-8 lEE-996'1 06E'V9L E18'061 mi3HflJ WNOIIV83dO 6861 BU6T 1861 p861 5861 861 SX18d 68/8 001 3d 13NNQ'#3J U3alAOHd b0 ISOJ 1NNV - 111 W311 .~~~~~~~~~amj - 28 - PART III Page 1 of 2 Table la: Bank Lending to ELETROBRAS Amount Loan Number (in USS Year of & Project Title miltions) Purpose Approval Status 1300-BR: 50.0 To help finance reinforcement and expan- 06/24/76 SubstantialLy completed in Northeast Power sion of distribution faciLities of three 1982, about 3 years late; and Distribution state-owned power utilities: CELPE, with many Bank-agreed changes COELBA * COELCE. to take account of patterns of growth different from what was expected at appraisal. 1538-BR: 130.0 Same as above for three state power 03/28/78 Completed in 1984-1986, about South-southeast utiLities: CEMIG, CELESC & ESCELSA. 4.5 years Late; nd with many Power Distribution Bank-agreed changes to project to account for stow growth. 1939-BR: 54.0 To help finance construction of national 12/23/80 Substantially completed in Power System load dispatch center at Brasilia CELETRO- 1991, about five years late Coordination BRAS) and a regionaL load dispatch cen- due to greater-than-expected ter at Recife (CHESF). technical complexity. 2138-BR: 182.7 To help finance a time-slice (1983-85) 05/11/82 Corpleted in 1989-90, about 4 ELETROBRAS I of the investment programs (1982-86) years late due to Lack of Power Distribution for distribution expansion of five state counterpart funding and slow power utilities: COSERN, ENERSUL, CELPE, demand growth. Loan closed on CELPA & COELCE. 12/31/89. 2364-BR: 250.6 To help finance a time slice (1983-1988) 12/08/83 Project under construction & ELETROBRAS II of the corresponding programs for dis- substantially delayed. Loan Power Distribution tribution expansion of five state-owned closed on 06/30/91. power utitities and two ELETROBRAS sub- sidiaries -- respectively, CEAL, CEPISA, CEMAR, CERON, and ELETROPAULO; & ELETRO- NORTE and LIGHT. 2365-BR: 222.8 To help finance rural distribution 12/08/83 Project successfuLly copleted Rural Electrifica- facilities of two state power utilities: without delay. Fully disbursed, tion Project CEMIG & COPEL. Loan was cLosed on 06/30/90. 2564-BR: 400.0 To help finance major transmission 06/04/85 Project substantially delayed CHESF-FURNAS Power facilities of two ELETROBRAS subsidiar- due to counterpart funding Transmission ies: CHESF and FURNAS. deficit. Loan closing sat for for 12/31/92. 2565-BR: 312.0 To help finance portions of the distri- 06/04/85 Same as above. Loan closing Southeast Power bution expansion programs of three set for 12/31/92. Distribution state power utiLities: CPFL, LIGHT, ELETROPAULO. - 29 - Page 2 of 2 Table 1a: Bank Lending to ELETROBRAS (Cont'd.) Amount Loan Numer (in USS Year of & Project Title millions) Purpose Approval Status .............................................................................................................................. 2720-BR: 500.0 To heLp finance goneral importa procured 06/26/86 Loan was fully fisbursed in Power Sector Loan under ICB. Disburseannt of this "quick- 1986. Except for envirornent/ disbursing, policy-basd" looan was con- resettLement objectives, toan ditioned to impL_e.ntation of a least- failed to generate lasting im- cost sector expansion progrm, a corres- prov_ments in sector finances, ponding time-phased sector financial especially with respect to rehabiLitation pln, nd w nvirornmntal/ tariff levels. resettlement measures. This operation was also intended to support a macro- economic stabilization program ("Cruzado Plan") which depended primarily on price cont hos to achieve its objectives. 3227-BR: 385.0 To help finance a time-slice (1990-93) 06/14/90 After loan approval (Jure 1990), the Electricity Trans- of the transmission investment & rehab. Goverrment did not: () raise tariffs mission & Conserva- program of several power utiLities, pLus to the target level which was a con- tion Project ieplemwntation of a conservation program dition for effectiveness; and (fi) (PROCEL). Proposed beneficiaries in- maintain tariffs in real terms. In ctud seven state companies and two ELE- circutancas of high, rising infla- TROBRAS subsidiaries. tion, the financial consequences for the sector have been adverse ALso the Goverrment deferred signing the Loan agreement in order to avoid pay- ing commitment fees since it did not anticipate effectiveness until Decem- bar 1992 as per its proposed tariff- improvement progrm. In circumstances of substantial nd adverse change since Loan approval nd if the loan agreement remains unsigned, it is Bank policy to consider the option of withdrawing the unsigned loan. Nor- mlly, once the Goverrnent has taken substantial corrective action, the Bank nd the borrower resume their dialogue with positive results. In the case of this loan, the Bank has withdrawn the loan and is waiting for corrective action. 2487.1 - 30 - Table lb. Blnk Lending to COPEL Loan Number (in US$ Year of & Project TitLe milLions) Purpose Approval Status a/ 476-BR: Power 8.1 To reinforce nd rehabi- 12/13/66 Project was successfully Distribution litate s.nicipal distri- compLeted In 1973. three Program bution systm of Curitiba. years tate. b/ 1257-BR: COPEL 52.0 To enable COPEL to meet 05/11/76 Project was successfully Power Distri- growing service require- compLeted in 1981, two bution Pro- ments in its concession years late. Completed ject area While wproving project reflected numrous efficlency and reliabillty changes which took account through reduction in losses of veriations of dmand and outages and better volt- growth at different load age regulation, centers. All changes were agreed with the Bank. C/ 1721-BR: COPEL 109.0 To enable COPEL to supply 06/07/79 Project, including runr- Second Power the subtransmission and ous changes (mostly ddi- Distribution distribution facilities tions), was completed in Project which are needed to suply 1987, three years late. required reliable electri- Changes reflected: tl) re- city services, definitions of Project agreed with Bank in 192 and 1985; nd (i1) variations of demnd at different load centers. 2365-BR: Rural 104.1 To enable CENIG to suply 12/08/83 Project was successfully Electrifi- electricity services to completed without delay. cation Pro- rural customers. Fully disbursed, loan was ject closed on June 30, 1990. TOTAL 273,2 a/ This loan was originally rade to Conpanhia Forca e Luz, which was absorbed by COPEL. bl Loan mont does not reflect cancellation of USS5.8 million. c/ Loan amowunt does not reflect cancellation of about USS1.1 million. d/ Borrower was ELETROBRAS, holding conpany for Federally-owned power companies, Total loans amount was USS222.8 milliion. The other beneficiary for this Loan was the power utility for the state the state of Mines Gerais. - 31 - Table lc. Bank Lending to CENIG Amount Loan Number (in USS Date of & Project Title millions) Purpose Approval Status 76-BR: Itutinga 7.30 To help finance construc- 07/16/53 Hydroelectric tion of Itutinga hydro- Project electric project. 442-BR: Jaguara 49.00 To help finance construc- 03/15/66 Hydroelectric tion of Jaguara hydro- Project electric project. 478-BR: Power 6.30 12/19/66 Distribution Program 566-BR: Volta 26.60 To help finance construc- 10/23/68 Grande Hydro- tion of Volta Grande electric Pro- hydroelectric project. ject 829-BR: Sao 60.00 To help finance construc- 06/14/72 The project was successfully Simao Hydro- tion of Sao Simao hydro- completed in 1978, two months electric Pro- electric project. ahead of schedule; and with ject no major cost overruns as measured by per-kW cost in constant prices. However, total cost of project in real terms was considerably (69.9X) higher than expected due to additions to generat- ion and transmission capa- cities. 1538-BR: South- 58.10 To help finance South- 06/08/78 The project was successfully Southeast Pwr. Southeast Power Distribu- coupleted in 1986, four and Distribution tion Project, one half years late, and with Project a modest cost underrun (-11X) as measured in current prices. 2365-BR: Rural 117.40 To enable COPEL to supply 12/08/83 Project was successfully Electrifica- electricity services to completed without delay. tion Project rural customers. Fully disbursed, loan was closed on June 30, 1990. TOTAL 324.70 -32- Table 2: Issues at Identification and Appraisal Page 1 of 2 Date Date Date Issues Item Ploannd Revised Actual Documents 1. Subsector Brief 07/24/78 1. The SB identified as Issues for carrying out RE the need (SB) to establish (a) an institutional frumwork which optimized the use of resources erd related RE to other rural development pro-grams; nd (b) non-subsidizing financial and tariff policies. Establishing (a) meant re-placing the non-standard approaches to RE by the state power copwnies1 Ministry of Agri-culture, and ELETROBRAS with a common national RE program under a single goverrnent agency. Establishing (b) meant restricting subsidized credit to finance consumer contributions (if.e. to cover the cost of connections and wiring) to only Low-income customers nd repLacing preferential tariffs with tariffs for Large customers (+ 100 kWh/ mo.) at least as hIgh as that of urban customers. The SB did not identify (c) borrower or executing sgancies/ beneficiaries or recomn.end (d) a loan size. 2. Project Brief 07/09/82 2. The PB recommended that the ank: (PS) R (a) above: condition: Ci) jggr isjI to receipt of draft legislation to improve the inrtitutional framwork and coordination of the sector; nd (ii) ne:otiations to adequate progress with respect to irplementation or organizational reform nd the preration of RE programe; Re (b) above: at negotiations seek agreement with the Government on a comptLtion date (6 to 12 months after negotiations) for a study reviewing preferential tariffs and the financing of consumr contributions through subsidized credit -- it being understood that the Bank would seek additional commitments for the Implementation of tariff/financing reforms in connection with the next Bank-financed RE project; Re (c. 4bovL: increase the loan aaxmnt to USS200 million. Re (d) above: leave to the Brazilians the choice of which inatitution would be the borrower -- the executing agencies/beneficiaries (COPEL, CEMIG, CESP), the Government, or ELETROBAS; and -33- TabLe 2: Issues at Identification and Appraisal Page 2 of 2 Date Date Date Issue Itsm PlarI,ed Revised Actuat 3. Issues Paper (IP) 12/02/82 3. The IP recommened thet the Bank: Re (a) above: in conrnction with the institutionat fre_work of the sector, condition necotiations to prior receipt of a draft decree creating a FederaL RE Comission to define policies nd regional priorities, and seek sareement at negotiations on an approvat date for the decree. To aid the Cofission, the IP recomended seeking agreement at negotiations for a consuLtant study on: (i) technical standards; (ii) project-design methodoLogy; (iii) mediun-term RE program; (iv) organizs-tional changes at ELETROBRAS and other partici-pating agencies; and (v) rural tariffs and sub- sidized credit. Re (b) above: in stead of seeking action on ruraL tariffs and subsidized credit, (i) condition further processing of the loan to immdiate fulfiltment of a sector-wide tariff agreemnt -- an increase of 3X in real term in 1982; ad (ii) seek agreement at negotistions for utility finencing, as necessary, of customer contribution. Re Cc) *bove: increase the loan to USS227 million to cover all the foreign-currency costs of the project. Re (d) abov: Lend to ELETROBRAS, which would relend to COPEL nd CEMIG. CESP withdrew from project. 4. Decision Memorandum 12/17/82 DM confirmed IP recommendations -- namely, that the Bank (DM) should: Re (a bove: condition negotiations to prior receipt of decree creating the Federal RE Cmmission. Re (b) above: condition further processing of the toan to futfittment of s*ctor-wide tariff agreement. DM modified IP recommndation re utility financing of customer contributions to shift focus of such financing from utitities to banks with utilities to assume onty residu t financing. Re (cl bove: raise loan amount to USS250 million. Re (d) above: no comment. 2. Preparation 12/10/82 1. Mission recommended not including the RE progrm of ELETROPAULO in project, given the small size of the progrm -- it wouLd benfit onty 8,000 customers. - 34 - Table 3: Project Timetable Date Date Date Item Planned Revised Actual - Identification/Preparation 07/82 - Appmisal 12/82 - Loan Negotitions 10-11/83 - Board Approval V1208/83 - Loan Signature 12/14/83 - Loan Effectiveness 03/20/84 03/20/84 - Project Completion 1231/89 12/31/89 - Loan Closing Date 06130/90 12/31/91 12/31/91 - Last Disbursement 11/20/91 =. =. - - 35 - Table 4: ActuaL & Forecast Cost & Sources of Financing 1. Project Cost Actual Forecast Percent ------------------------- ------------------------- Difference For- For- Actual Executing eign Local Total eign Local Total from Agency/Cosx- Forecast ponent (in USS millions) (in USS millions) ---------- Part A: ELETROBRAS Study of RE Sector 0.70 0.00 0.70 0.70 0.00 0.70 NA Part B: CEMIG B.1 RE Program 112.83 1/176.09 288.92 125.00 195.20 320.20 -9.8 9.2 Training & TA 3.78 0.00 3.78 4.30 0.00 4.30 -12.1 Sub-total 116.61 176.09 292.70 129.30 195.20 324.50 -9.8 Part C: COPEL C.1 RE Program 102.95 2/174.73 277.68 111.50 146.60 258.10 7.6 (i) Rural Properties 71.24 118.14 189.38 91.80 121.70 213.50 -11.3 (ii) VilLages 21.74 40.36 62.10 12.30 23.90 36.20 71.5 (iii) Substastion Expan. 9.97 16.23 26.20 7.40 1.00 8.40 211.9 C.2 Training & TA 1.25 -0.10 1.15 1.30 0.00 1.30 -11.5 Sub-total 104.20 174.63 278.83 112.80 146.60 259.40 7.5 TOTAL COST 221.51 350.72 572.23 242.80 341.80 584.60 -2.1 =5SSSU n=SSf S5 ==SSS 55z55 5n 5=s 558 5=55s 5 2. Sources of Financing Part A: ELETROBRAS Bank 0.70 0.00 0.70 0.70 0.00 0.70 0.0 ELETROBRAS 0.00 0.00 0.00 0.00 0.00 0.00 NA Sub-total 0.70 0.00 0.70 0.70 0.00 0.70 NA Part B: CEMIG Bank 116.61 1/ 0.00 116.61 117.40 0.00 117.40 -0.7 Co-financers 0.00 0.00 0.00 11.90 0.00 11.90 NA CEMIG 0.00 58.60 58.60 0.00 64.60 64.60 -9.3 Customers 0.00 117.49 117.49 0.00 130.60 130.60 -10.0 Sub-total 116.61 176.09 292.70 129.30 195.20 324.50 -9.8 Part C: COPEL Bank 104.20 0.00 104.20 104.10 0.00 104.10 0.1 Co-financers 0.00 0.00 0.00 8.70 0.00 8.70 MA COPEL 0.00 119.60 119.60 0.00 46.90 46.90 155.0 Customers 0.00 55.03 55.03 0.00 99.70 99.70 -44.8 Sub-total 104.20 174.63 278.83 112.80 146.60 259.40 7.5 TOTAL FINANCING 221.51 350.72 572.23 242.80 341.80 584.60 -2.1 ...... 555555 =5 = 55... *----s ...555 Mazza= - 55s5 1/ Differs modestly from data shown in Table 6b due to differences in rates of exchange for conversion of various currencies into US dollars. 2/ Includes USS180,000 of expenditures for consulting services. - 36 - Table 5: Actual 4 Forecast Compontnts and Implementation Periods Actual, Forecast, and Revised Components (and Costs) Actual nd Forecast Ilptementation Periods 1986 X Inc. Actual Forecast Differ. Fore- Revi- over Conponent Unit Actual cast sion Fore. Start- Comple- Total Start- Comple- Total ing tion No. of ing tion No. of (No. of PART A: CEMIG Date Date Months Date Date Months Months) 1. RuraL Properties 06/84 06/90 72 03/84 12/87 45 27 1.1 Dis. Lines km 75586 60000 72500 26.0 (Note: As of 12/87, the original project completion date, 1.2 Transformers kVA 982329 600000 932640 63.7 CEMIG had connected 72,309 rural properties -- 20.5X more 1.3 No. of Meters Un 90200 66564 NA 35.5 than expected. In 1988, 1989, & 1990, CEMIG connected, 1.4 No. of Poles Un 523676 451100 475686 16.1 respectively, 8,749; 10,853; nd 229.) 1.5 No. of Connections Un 92140 60000 80000 53.6 Sub-total Coat (in USS m.) 288.92 320.20 249.84 -9.8 2. Training & n/m 226 350 ... Tech. Assis. nm/ --- 105 --- Sub-total Cost (in USS m.) 3.78 4.30 4.60 -12.1 Total Cost, CEMIG Comp. (in USS m.) 292.70 324.50 254.44 -9.8 PART B: COPEL 1. Rural Properties 06/84 06/89 48 03/84 12/87 45 3 1.1 No. of Circuits Un 92061 66280 88497 38.9 (Note: As of 12/87, the original project coupletion date, 1.2 Transformers kVA 782920 695000 764000 12.7 COPEL had connected 115,760 rural properties -- 30.9X more 1.3 Dis. Lines km 54074 44186 53246 22.4 than expected. In 1988, COPEL connected 7,226 rural pro- 1.4 No. of Connections Un 122986 88373 120000 39.2 perties for a total of 122,986.) Sub-total Cost (in USS m.) 189.38 213.50 180.38 -11.3 2. Villages 06/84 06/89 60 03/84 12/87 45 15 2.1 Feeders km 514 190 286 170.5 2.2 No. of Circuits Un 3740 1544 1925 142.2 2.3 Dis. Lines km 4164 1932 1932 115.5 2.4 Transformers kVA 74800 30880 38640 142.2 2.5 No. of Conn. Un 117137 49000 63000 139.1 2.6 No. of low- Un 40722 6800 NA 498.9 income customers Sub-total Cost (in USS m.) 62.10 36.20 31.00 71.5 3. Substations a 34.5/13.8 kV & Equipment 3.1 Substations Un 64 22 61 190.9 03/84 06/87 45 03/84 12/87 63 -18 3.2 Metering Equip. Un 188121 142219 172328 32.3 02/84 06/87 40 01/84 12/86 36 4 3.3 Special/Communi- Un 920 624 624 47.4 04/85 11/89 44 01/84 11/87 44 0 cations Equipment Sub-total Cost (in USS m.) 26.20 8.40 31.47 211.9 4. Training & m/u 135 110 104 22.7 04/85 02/90 58 03/85 12/87 33 25 Tech. Assis. --- 20 - Sub-total Cost (in USS m.) 1.15 1.30 1.15 -11.5 Total Cost, COPEL Comp. (in USS m.) 278.83 259.40 244.00 7.5 PART C: ELETROBRAS 1. Study (in UsS m.) 0.70 0.70 0.50 0.0 01/85 04/86 16 01/84 03/85 15 I TOTAL PROJECT 572.23 584.60 498.94 -2.1 COST (in USS m.) 37- Table 6a: ActuaL & Forecast Timetable o of Disbursements in millions of USS) Actual as a Actual Forecast of Forecast Six- Six- six- Fiscal Year Month CumU- Month Cumu- Month Cumu- and Semester Total lative Total lative Total lative 1984: 06/30/84 20.50 20.50 * 6.70 6.70 306.0 306.0 1985: 12/31/84 3.56 24.06 6.70 13.40 53.1 179.6 06/30/85 25.84 49.90 13.30 26.70 194.3 186.9 1986: 12/31/85 47.71 97.61 13.30 40.00 358.7 244.0 06/30/86 44.22 141.83 14.50 54.50 305.0 260.2 1987: 12/31/86 24.26 166.09 41.10 95.60 59.0 173.7 06/30/87 15.10 181.19 29.00 124.60 52.1 145.4 1988: 12/31/87 8.56 189.75 29.00 153.60 29.5 123.5 06/30/88 21.56 211.31 25.50 179.10 84.5 118.0 1989: 12/31/88 11.21 222.52 25.50 204.60 44.0 108.8 06/30/89 0.00 222.52 9.00 213.60 0.0 104.2 1990: 12/31/89 0.00 222.52 9.20 222.80 0.0 99.9 06/30/90 0.01 222.53 ** 0.00 222.80 MA 99.9 1991: 12/31/90 -0.53 222.00 * 0.00 222.80 0.0 99.6 06/30/91 -0.01 221.99 * 0.00 222.80 MA 99.6 1992: 09/18/91 -- date of last disbursement e Reflects deposit in Special Account. * Loan Closing Date. * Negative data represents refunids. Total amount canceled USS0.81 million. - 38 - Table 6b: Actual t Forecast Disbursement by Category Percent (X) Difference from Actual Forecast Forecast (in USS miLLions) Category 1. Part A: CEMIG 1A - Equipment 112.81 113.05 -0.2 & Materials 1B - Consulting 1.09 0.99 10.3 Services 1C - Training 2.68 3.30 -18.7 Sub-totaL 116.59 117.34 -0.6 2. Part B: COPEL 2A - Equipment 102.77 102.77 0.0 & Materials 2B - ConsuLting 0.18 0.18 0.0 Services 2C - Training 1.25 1.25 0.0 Sub-totaL 104.20 104.20 0.0 3. Part C: ELETROBRAS 0.70 0.70 -0.2 4. Front-end fee 0.56 0.56 -0.8 5. Special Account -0.05 0.00 N.A. Total 221.99 222.80 -0.4 - Amount cancelled: USS0.81 million. - 39 - TabLe 7: Return on Combired Investment Programs BENEFITS COSTS Net Marginal Sales Marginal Revenues Investment Expend. NET (in GWh) (in 12/83 CrSs m.) (in 12/83 CrSsSs n.) BENE- Year CEMIG COPEL Total CEHIG COPEL Total CEMIG COPEL TotaL FITS IRR 1984 200 113 313 2.60 1.88 4.48 103.60 58.40 162.00 -157.52 -10.7 1985 824 351 1175 9.31 5.03 14.34 181.50 85.90 267.40 -253.06 1986 1641 276 1916 17.33 2.98 20.31 155.50 74.20 229.70 -209.39 1987 2376 706 3082 26.65 11.12 37.77 223.20 115.40 338.60 -300.83 1988 4412 1367 5779 44.24 13.96 58.20 170.80 132.70 303.50 -245.3 1989 5209 1528 6737 3.21 2.75 5.96 157.50 120.10 277.60 -271.64 1990 5238 1974 7211 6.45 9.40 15.85 -- -- -- 15.85 1991 5532 2083 7615 2.20 7.39 9.59 -- -- 9.59 1992 5532 2083 7615 2.20 7.39 9.59 -- -- -- 9.59 5532 2083 7615 2.20 7.39 9.59 -- -- -- 9.59 5532 2083 7615 2.20 7.39 9.59 -- -- - 9.59 5532 2083 7615 2.20 7.39 9.59 -- -- -- 9.59 2012 5532 2083 7615 2.20 7.39 9.59 -- -- -- 9.59 Table 8a- Sector Tariff Levels Average Corstant Electricity Price 1S8S Prices 40 20 Is 1970 1972 1974 1973 1973 1930 1982 1934 19" * Years - 41 - Table8b: Actual Sector Fiarances: Sources ard Apolication of Funds BRAZIL POWER SECTOR SOURCES AND APPLICATIONS OF FUNOS (US3 millions) SOURCES 1977 1973 1979 1980 1981 1982 1983 1984 1986 1968 1987 a. Cross internal cash gen-rntion 2144 2362 3449 2595 2971 2929 2932 1928 2687 .2948 3939 b Leass: debt service 1025 1411 2314 2813 2676 3471 3913 5177 7393 7180 8661 c Not internal cash gonoration 1119 941 1136 -218 301 -542 -961 -3251 -5208 -4234 -4922 d. Consumer-based contributions 1398 1544 1441 1374 1736 1625 1472 1719 1463 1240 1144 e. Covornment contributions 659 403 262 262 590 409 2030 1971 2797 4868 5975 f. other 16e 538 44 619 2S0 1127 C6O 2e6 646 539 633 g. Total non-borro--d funding 3262 3428 2882 2928 2125 2519 3067 -195 -468 2411 2830 h. borrowing 2424 2967 3665 4121 3896 3678 1140 8326 4197 2387 1826 Total Sources 5886 6365 8787 6149 6523 8197 4227 6131 3791 4776 4856 APPLICATIONS a. Investments 4195 4576 4583 4077 4124 4565 3898 3246 8731 8492 5683 b. Loons to Italpu 559 739 698 786 987 1196 708 959 667 691 719 C. Total investment 47s4 5309 5281 4882 5111 5881 4402 4196 4888 4196 1683 d. Other 932 1075 1484 1286 1413 537 -175 1934 -07S 58 -1208 Total applications 6888 6384 676S 8148 6524 6198 4227 6132 3796 4776 485U Debt-service coverage (x) 2.09 1.87 1.49 0.92 1.11 0.84 0.75 0.37 6.34 0.41 9.44 Self-financing ratio (C) 23.5 17.7 21.5 -4.5 5.9 -9.6 -22.3 -77.4 -111.5 -161.1 -84.0 Consumer-based financing (%) S2.9 46.8 48.8 23.9 39.8 17.4 11.2 -38.5 -90.2 -71.S -84.4 8orrowing/inveotment C1) 61.6 55.7 73.6 84.6 72.4 06.0 25.9 15a.7 89.9 65.s 31.1 - 42 - Table 9a: CEMIG -- Actual and Forecast Sales by Customer Category, 1983-19 Actual Sales by Customer Category, 1989 1983-1988 1982 1983 1984 1985 1986 1987 1988 Summar- X Annual 1989 ---- ---- ---- ---- ---- ---- ---- ized of Growth ---- (in GWh) Sales Total Rate ((X) Industrial (Act.) Actual 12700 12784 14483 16184 17196 17603 19434 97683 72.6 7.3 20135 Forecast 12700 12405 13184 14251 15418 16358 17159 89153 70.5 5.1 X Dif. from Fore. 0.0 3.0 9.9 13.6 11.5 7.6 13.3 9.6 Residential Actual 2206 2402 2476 2690 3017 3315 3497 17303 12.9 8.0 3782 Forecast 2206 2385 2575 2775 2988 3213 3450 17479 13.8 7.7 X Dif. from Fore. 0.0 0.7 -3.9 -3.1 1.0 3.2 1.4 -1.0 Commercial Actual 1013 1101 1162 1231 1360 1453 1509 7816 5.8 6.9 1587 Forecast 1013 1089 1165 1251 1342 1437 1537 7820 6.2 6.0 X Dif. from Fore. 0.0 8.7 6.7 5.7 8.8 8.3 5.1 -0.1 Rural Actual 219 249 300 391 519 669 729 2857 2.1 22.2 770 Forecast 219 243 298 373 456 536 608 2513 2.0 18.6 X Dif. from Fore. 0.0 2.6 0.8 4.8 13.9 24.8 19.9 13.7 Public entities Actual 160 171 184 196 213 236 249 1248 0.9 7.7 261 Forecast 160 167 179 191 205 219 234 1194 0.9 6.5 X Dif. from Fore. 0.0 2.6 3.0 2.2 3.8 7.7 6.5 4.5 Public service Actual 336 354 415 451 504 537 561 2823 2.1 8.9 567 Forecast 336 383 415 476 504 530 706 3013 2.4 13.2 X Dif. from Fore. 0.0 -7.4 0.0 -5.2 0.0 1.3 -20.5 -6.3 Public lighting Actual 428 471 466 513 532 564 626 3171 2.4 6.5 647 Forecast 428 459 489 522 556 592 630 3248 2.6 6.7 X Dif. from Fore. 0.0 2.7 -4.9 -1.6 -4.4 -4.8 -0.7 -2.4 Interdepartmental Actual 39 38 47 47 47 50 58 287 0.2 6.7 66 Forecast 39 36 33 37 46 59 68 279 0.2 9.7 X Dif. from Fore. 0.0 6.7 43.4 25.2 3.5 -15.3 -15.2 2.9 Electric Utilities Actual 198 261 297 206 153 166 193 1276 0.9 -0.5 179 Forecast 198 254 276 297 311 311 350 1800 1.4 10.0 X Dif. from Fore. 0.0 2.7 7.5 -30.5 -50.8 -46.7 -45.0 -29.1 Total ActuaL 17299 17831 19829 21908 23541 24592 26855 134463 100 7.6 27993 Forecast 17299 17421 18613 20173 21825 23256 24742 126500 100 6.1 X Dif. from Fore. 0.0 2.4 6.5 8.6 7.9 5.7 8.5 6.3 *Base Year: 1982 - 43 - Table 9b: CEMIG: Actual and Forecast Income Statements, 1984 - 1988; Actual Income Statement, 1989 (in millions of cruzeiros, reflecting prices of December 1983) Per- Summarized cent Income Statement (X) 1984 1985 1986 1987 1988 1984- 1988 Diff. 1989 from Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Fore- Act- ual cast uat cast ual cast ust cast uai cast ual cast cast uat Elect. Sales (Gwh) 19829 18613 21908 20173 23541 21825 24592 23276 26855 24741 116725 108628 7.45 27993 Average revenue 21.76 19.90 22.01 21.29 21.78 22.78 25.93 24.37 26.59 26.08 23.80 23.10 3.02 20.61 per kWh sold (Cr5/kWh) Sales Revenues 431.5 370.4 482.1 429.5 512.8 497.2 637.7 567.2 714.0 645.2 2778.1 2509.5 10.70 577.0 Other 8.2 0.0 8.6 0.0 7.0 0.0 13.8 0.0 10.0 0.0 47.6 0.0 NA 6.7 TotaL Rev. 439.7 370.4 490.7 429.5 519.8 497.2 651.5 567.2 724.0 645.2 2825.7 2509.5 12.60 583.7 Operating Exp. Energy purch. 25.6 21.4 50.7 57.5 72.7 97.7 107.1 121.5 142.9 160.4 399.0 458.5 -13.0 143.1 Depreciation 77.0 64.6 84.7 70.7 86.5 78.0 89.8 81.1 76.7 84.7 414.7 379.1 9.4 54.4 Other 147.7 101.7 183.7 105.0 191.2 108.3 254.7 111.8 307.3 115.6 1084.6 542.4 100.0 416.6 Total Op. Exp. 250.3 187.7 319.1 233.2 350.4 284.0 451.6 314.4 526.9 360.7 1898.3 1380.0 37.6 614.1 Operating Income 189.4 182.7 171.6 196.3 169.4 213.2 199.9 252.8 197.1 284.5 927.4 1129.5 -17.9 -30.4 Plus: GGR rec'ts. -48.8 -69.0 -39.9 -75.1 -23.3 -61.7 -29.0 -67.0 -27.0 -73.4 -168.0 -346.2 -51.5 0.0 Less: Reversion 16.4 6.2 9.2 6.8 37.5 6.7 10.3 6.8 67.2 6.8 140.6 33.3 322.2 10.0 3 Fuel Paym'ts. Net Op. Income 124.2 107.5 122.5 114.4 108.6 144.8 160.6 179.0 102.9 204.3 954.8 1442.4 -33.8 -40.4 Fin. rev. (net) -55.3 -99.3 -43.4 -103.6 -63.9 -121.8 -35.0 -127.4 -39.3 -129.3 -236.9 -581.4 -59.3 91.1 Adjustments for 64.4 0.0 0.3 0.0 42.9 0.0 -168.9 0.0 205.3 0.0 144.0 0.0 NA 743.0 inflation Non-op. rev., net 1.5 0.0 -0.4 0.0 1.3 0.0 -29.6 0.0 2.3 0.0 -24.9 0.0 NA -3.1 Net Income be- 134.8 8.2 79.0 10.8 88.9 23.0 -72.9 51.6 271.2 75.0 1335.7 2023.8 -34.0 790.6 fore taxes Income taxes 7.9 0.1 4.8 0.2 2.9 0.5 0.0 1.5 89.5 2.5 105.1 4.8 2089.6 236.6 Adjustment for 0.0 0.0 0.0 0.0 27.3 0.0 0.1 0.0 0.0 0.0 27.4 0.0 NA 0.0 Decree-Law 2284/86 and 2335/87 Adjustment -49.1 0.0 -30.0 0.0 -13.8 0.0 0.0 0.0 0.0 0.0 -92.9 0.0 NA 0.0 Net Income 77.8 8.1 44.2 10.6 99.5 22.5 -72.8 50.1 181.7 72.5 1230.6 2019.0 -39.0 554.0 - 44.- Page 1 of 2 Table 9c: CENIG: Actual and Forecast Sources and Applicationa of Funds, 1984-1988; Actual Sources and Applications of Funds, 1989 Summ rized (in millions of cruzeiros, reflecting prices of December 1983) Funds Statement Data (X) 1984 1985 1986 1987 1988 1984- 1988 Diff. 1989 Sources of ______ from Funds Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Fore- Act- uat cast uat cast usl cast ual cast uat cast ual cast cast ual Net Op. Incone 124.2 107.5 122.5 114.4 108.6 144.8 160.6 179.0 102.9 204.3 618.8 750.0 -17.5 -40.4 Depreciation 77.0 64.6 84.7 70.7 86.5 78.0 89.8 81.1 76.7 84.7 414.7 379.1 9.4 54.4 Gross Internal 201.2 172.1 207.2 185.1 195.1 222.8 250.4 260.1 179.6 289.0 1033.5 1129.1 -8.5 14.0 Cash Generation Less: Debt serv. 214.8 200.6 207.6 220.1 212.0 245.9 156.9 269.4 191.5 283.4 982.8 1219.4 -19.4 58.3 Inc. Taxes 7.9 0.1 4.8 0.2 2.9 0.5 0.5 1.5 0.0 2.5 16.1 4.8 235.4 0.9 Met Int. Cash -21.5 -28.6 -5.2 -35.2 -19.8 -23.6 93.0 -10.8 -11.9 3.1 34.6 -95.1 -224.5 -45.2 Generation Other consumer- 25.1 23.0 25.7 26.6 32.4 30.1 23.0 34.2 17.2 38.2 123.4 152.1 -18.9 3.2 based contribu- tions Total contribu- 3.6 -5.6 20.5 -8.6 12.6 6.5 116.0 23.4 5.3 41.3 158.0 57.0 177.2 -42.0 tions Equity contrib. 12.4 41.5 19.6 83.9 36.8 69.8 13.8 79.8 3.0 90.2 85.6 365.2 -76.6 24.9 Less: Div. paid 10.2 32.5 9.2 47.7 13.2 58.5 11.0 69.3 4.0 81.3 47.6 289.3 -83.5 1.2 Net Equity Con- 2.2 9.0 10.4 36.2 23.6 11.3 2.8 10.5 -1.0 8.9 38.0 75.9 -49.9 23.7 tribution Consaner contri- 39.1 35.8 24.8 38.9 26.3 38.3 5.3 31.1 1.5 22.9 97.0 167.0 -41.9 15.4 bution Borrowings 129.7 179.2 133.5 171.7 118.4 102.8 63.6 140.7 281.8 159.9 727.0 754.3 -3.6 51.8 TOTAL SOURCES 174.6 218.4 189.2 238.2 180.9 158.9 187.7 205.7 287.6 233.0 1020.0 1054.2 -3.2 48.9 App(ications of Funds Invest. progrm 103.6 205.3 181.5 208.5 155.5 183.8 223.2 220.2 170.8 249.6 834.6 1067.4 -21.8 157.5 Int. during con. 10.1 18.9 11.3 27.9 6.4 6.3 3.6 2.9 3.3 4.8 34.7 60.8 -42.9 6.5 Net change, WC 60.9 -5.8 -3.6 1.8 19.0 -31.2 -39.0 -17.4 113.5 -21.4 150.8 -74.0 -303.8 -115.1 TOTAL APPLICATIONS 174.6 218.4 189.2 238.2 180.9 158.9 187.8 205.7 287.6 233.0 1020.1 1054.2 -3.2 48.9 -45 Page 2 of 2 Toble 9c (Cont'd.) CEMIG: Actual and Forecast Investment Expenditure by Category, 1984-1988 Actual Investment Expwnditure by Category, 1989 Summarized (in milliona of cruzeiros, reflecting prices of December 1983) Expenditure Data (X) 1984 1985 1986 1987 1988 1984- 1988 Diff. 1989 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~~from _ _ Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Fore- Act- Category ual cast uaL cast ual cast ust cast usl cast uaL cast cast UaL 1. Generation 6.5 31.2 6.3 28.9 7.3 30.8 50.3 60.1 61.4 96.4 131.8 247.4 -46.7 64.2 2. Transmission 20.5 24.6 31.9 19.8 36.3 27.9 62.5 34.7 48.0 30.5 199.2 137.5 44.9 32.2 ,............. ............................ .... . .... .... ---- . ---- ---- . ---- ..... .... ..... .... -----.. ..... ........ ISRD Projects 4.8 7.0 2.2 2.2 - - - - - - 7.0 9.2 -23.9 - 108 Projects 10.7 15.9 6.6 14.1 - 16.6 - - - - 17.3 46.6 -62.9 - Other 5.0 1.7 23.1 3.5 36.3 11.3 62.5 34.7 48.0 30.5 174.9 81.7 114.1 32.2 3. Distribution 57.5 141.1 125.8 151.4 98.1 116.8 94.1 117.1 51.9 114.3 427.4 640.7 -33.3 51.8 ............ ----. .... ---- . ---- ----. ---- .... . .... ----. .... ..... ----- .... . .... ....... ..... ...... .................. IBRD Projects 19.8 23.6 9.4 - - - - - - - 29.2 23.6 23.7 - IDB Projects 23.5 68.9 41.2 99.8 53.3 - 55.4 - 17.5 - 190.9 168.7 13.2 4.2 RE Project 8.1 13.4 36.3 26.8 27.6 55.8 21.7 58.1 18.6 51.4 112.3 205.5 -45.4 13.3 Other 6.1 35.2 38.9 24.8 17.2 61.0 17.0 59.0 15.8 62.9 95.0 242.9 -60.9 34.3 4. GeneraL Instal- 19.1 8.4 17.5 8.4 13.8 8.4 16.2 8.4 9.5 8.4 76.1 42.0 81.2 9.3 lation ---- ---- ---- ---- .... .... .... .... .... .... ..... ..... .... .... Total 103.6 205.3 181.5 208.5 155.5 183.9 223.1 220.3 170.8 249.6 834.5 1067.6 -21.8 157.5 - 46 - Table 9d: CEhIG: Actual and Forecast Balance Sheets, 1984 - 1988; Actual Balance Sheet, 1989 1984 1985 1986 1987 1988 1989 Assets Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- ual cast ual cast ual cast ual cast ual cast ual ( in mitlions of Cruzeiros, reflecting prices of December 1983) Fixed Assets Gross Pl't. in Ser. 2139.4 1802.6 2226.1 2003.2 2445.1 2220.4 2184.0 2380.1 1887.2 2590.2 1672.7 Less: Ac. Dep. 406.8 328.1 458.9 398.8 549.9 476.8 535.3 557.9 492.6 642.6 466.0 Net Plant in Ser. 1732.6 1474.5 1767.2 1604.4 1895.2 1743.6 1648.7 1822.2 1394.6 1947.6 1206.7 Work in Progress 126.9 176.3 147.6 207.0 123.2 169.9 235.6 221.4 302.1 252.0 323.3 Total Fixed Assets 1859.5 1650.8 1914.8 1811.4 2018.4 1913.5 1884.3 2043.6 1696.7 2199.6 1530.0 Current Assets Cash 53.4 25.5 64.6 29.5 71.7 32.3 41.7 35.0 28.1 39.0 43.6 Acc'ts. Rec. 49.2 49.9 56.1 56.8 60.7 64.5 78.0 72.2 78.8 80.6 62.0 Inventories 0.7 21.6 1.2 24.0 25.0 26.7 5.8 29.3 1.8 32.2 2.5 Other 28.2 3.2 25.8 3.2 123.7 3.2 18.4 3.2 5.4 3.2 28.5 Total Cur. Assets 131.5 100.2 147.7 113.5 281.1 126.7 143.9 139.7 114.1 155.0 136.6 Other Assets 167.4 154.5 197.5 159.6 206.5 169.6 214.2 181.5 196.6 195.2 185.4 TOTAL ASSETS 2158.4 1905.5 2260.0 2084.5 2506.0 2209.8 2242.4 2364.8 2007.4 2549.8 1852.0 Liabilities & Net Worth Net Worth 849.9 684.5 875.6 757.8 1033.7 821.7 858.9 916.4 811.1 1036.0 1018.2 Customer contrib. 162.9 133.7 194.5 172.6 238.4 211.0 226.0 242.0 191.5 264.9 176.3 Long term debt 916.7 878.4 925.7 933.6 882.9 912.3 802.0 911.0 691.3 916.8 371.0 Current liabilities 228.9 208.9 264.2 220.5 351.0 264.8 355.5 295.4 313.5 332.1 286.5 LIABILITIES & NET WORTH 2158.4 1905.5 2260.0 2084.5 2506.0 2209.8 2242.4 2364.8 2007.4 2549.8 1852.0 - 47 - TabLe 9e: CEMIG: ActuaL & Forecast Key FinanciaL & Service Indicators Sumnarized Data and/or 5-Yr. Averages A. Financial for Indicators 1984 1985 1966 1987 1988 1984 - 1988 1989 Act. Fore. Act. Fore. Act. Fore. Act. Fore. Act. Fore. Act. Fore. Act. 1. Ave. Rev./kWh 21.76 19.90 22.01 21.29 21.78 22.78 25.93 24.37 26.59 26.08 23.80 23.10 20.61 (CrS/kWh) 2. Rate of Remun.(M) 6.3 6.6 5.7 6.5 5.3 7.5 9.3 8.8 6.4 9.3 6.6 * 7.7 * -3.9 3. SeLf-fin. Ratio 2.1 Neg. 10.8 Neg. 7.0 4.1 61.8 11.4 1.8 17.7 15.5 5.4 -85.9 4. Oper. Ratio t%) 56.9 50.7 65.0 54.3 67.4 57.1 69.3 55.4 72.8 55.9 67.2 55.0 105.2 5. CoLlection Period 46 50 46 50 30 50 54 50 57 50 46.6 * 50.0 * 62 (Days Outstanding) 6. Debt-service 0.9 0.9 1.0 0.8 0.9 0.9 1.6 1.0 0.9 1.0 1.1 0.9 0.2 coverage (times) 7. Debt/Equity Ratio 51.9 56.2 51.4 55.2 46.1 52.6 48.3 49.9 46.0 46.9 48.7 * 52.2 * 26.7 8. Current Ratio 0.6 0.5 0.6 0.5 0.8 0.5 0.4 0.5 0.4 0.5 0.5 * 0.5 * 0.5 S. Service Indicators 1. Energy SaLes 19829 18613 21908 20173 23541 21825 24592 23276 26855 24741 116725 108628 27993 (GWh) 2. Number of Cus- 2154 2259 2353 2418 2551 2574 2713 2720 2851 2855 2524 * 2565 * 3009 tomers (000) 3. Number of Em- 12556 12763 13739 13141 14691 13547 15151 13949 16190 14419 14475 * 13564 * 18_43 pl oyees 4. Customers per 172 177 171 184 174 190 179 195 176 198 1'4 * 189 * 163 ErmppLoyee 5. PersonneL Exp. 96.2 NA 118.3 NA 125.0 NA 172.4 NA 204.4 NA 716.4 * NA 251.6 (ir- miLlicns of CrS, reflecting prices of 12/83) 6. Ave. Perscrnel 7639 NA 8583 NA 8511 NA 11378 NA 12626 NA 9751 * NA 1364i Expense per Employee (in CrS, reflecting prices of 12/83) 7. Losses (% of 7.7 8.3 8.3 8.3 7.1 8.3 8.8 8.3 8.9 8.3 8.2 * 8.3 * 9.6 net generation and purchases) 8. Number of Rural 63113 68200 82203 838C0 113015 100600 136473 115000 158707 125000 110702 * 98520 * 1716C7 Consumers Conn. * 5-yr. Average - 48 Table 10a: COPEL -- Actual and Forecast Sales by Customer Category, 1983-1988 Actual Sales by Customer Category, 1989 1983-1988 1982 1983 1984 1985 1986 1987 1988 Summar- X AnMual * 1989 ---- ---- .---- ---- .... ---- ---- ized of Growth ---- (in GWh) Sates Total Rate ((2) Industrial (Act.) Actuat 2339 2405 2811 3512 3547 3645 3909 19829 41.9 8.9 4015 Forecast 2339 2389 2558 2782 3057 3419 4088 18309 41.2 9.8 X Dif. from Fore. 0.0 0.7 9.9 26.2 16.0 6.6 -4.4 8.3 Residential Actual 1261 1401 1492 1616 1691 1921 2058 10375 21.9 8.5 2244 Forecast 1261 1394 1506 1643 1790 1943 2106 10186 22.9 8.9 X Dif. from Fore. 0.0 0.5 -0.9 -1.6 -5.5 -1.1 -2.3 1.9 CommerciaL Actual 834 898 985 1064 1016 1118 1164 6245 13.2 5.7 1231 Forecast 834 891 940 999 1062 1128 1198 6218 14.0 6.2 X Dif. from Fore. 0.0 0.8 4.8 6.5 -4.3 -0.9 -2.8 0.4 Rural Actual 267 312 369 453 525 619 656 2934 6.2 16.2 655 Forecast 267 307 354 434 544 690 811 3140 7.1 20.3 X Dif. from Fore. 0.0 1.6 4.2 4.4 -3.5 -10.3 -19.1 -6.6 Public usage * Actual 669 710 764 837 828 939 1016 5094 10.8 7.2 1053 Forecast 669 719 761 812 864 918 974 5048 11.4 6.5 X Dif. from Fore. 0.0 -1.3 0.4 3.1 -4.2 2.3 4.3 0.9 Other ** Actual 549 567 820 553 277 257 430 2904 6.1 -4.0 266 Forecast 549 439 179 193 213 220 241 1485 3.3 -12.8 X Dif. from Fore. 0.0 29.2 358.1 186.5 30.0 16.8 78.4 95.6 Total Actual 5919 6293 7241 8035 7884 8499 9233 47381 100 7.7 9464 Forecast 5919 6139 6298 6863 7530 8318 9418 44386 100 8.0 2 Dif. from Fore. 0.0 2.5 15.0 17.1 4.7 2.2 -2.0 6.7 Base Year: 1982 - 49 - Table 10b: COPEL: Actual & Forecast Income Statement, 1984-1988 Actual Inco_ Statement, 1989 Per- (in miLlions of CrSa, reflecting prices of Decenber 1983) Summarized cent Income, X) 1984 1985 1986 1987 1988 1984 - 1988 Dfff. 1989 from Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Fore- Act- uaL cast ual cast ual cast UaL cast ual cast uat cast cast uaL Electricity Sales (GWh) 7241 6298 8035 6863 7884 7530 8499 8318 9233 9418 40892 38427 6.4 9464 Ave. Rev./kWh sold 27.1 28.3 26.8 30.3 25.8 32.4 33.7 34.7 33.0 37.1 29.5 33.0 -10.6 27.3 (in CrS) Sales Revenues 196.3 178.2 215.3 207.8 203.5 244.0 286.3 288.4 304.4 349.4 1205.9 1267.8 -4.9 258.8 Other 4.0 4.5 8.0 5.2 6.8 6.0 15.6 6.9 12.0 8.2 46.4 30.8 50.8 8.4 Total Revenues 200.3 182.7 223.3 213.0 210.3 250.0 302.0 295.3 316.5 357.6 1252.3 1298.6 -3.6 267.2 Operating Expenses Energy purchsses 7.0 3.4 12.4 15.4 20.6 28.5 39.2 42.1 66.2 57.2 145.3 146.6 -0.9 57.3 Depreciation 34.9 32.1 39.3 34.9 39.1 37.4 39.2 40.5 33.5 43.6 185.9 188.5 -1.4 25.0 Other 69.1 63.t 88.0 65.4 97.8 67.9 113.4 70.2 144.0 73.0 512.2 339.6 50.8 184.4 Total Op. Expense 111.0 98.6 139.6 115.7 157.4 133.8 191.7 152.8 243.6 173.8 843.4 674.7 25.0 266.7 Operating Income 89.3 84.1 83.6 97.3 52.8 116.2 110.3 142.5 72.8 183.8 409.0 623.9 -34.5 0.5 PLus: GGR receipts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 MA 0.0 Less: Reversion & Fuel 22.1 33.8 22.5 36.5 12.0 29.6 12.1 32.1 8.3 60.1 77.0 192.1 -59.9 3.4 Net Operating Inc. 67.2 50.3 61.1 60.8 40.8 86.6 98.2 110.4 64.6 123.7 331.9 431.8 -23.1 -3.0 Financial charges 38.2 41.1 35.1 44.8 33.0 43.0 28.8 39.0 32.3 31.6 167.4 19.5 -16.1 15.3 Inflation Adjustment 19.8 0.0 -8.3 0.0 16.6 0.0 -87.6 0.0 15.0 0.0 -44.5 0.0 NA 258.9 Net non-operating inc. 38.7 6.8 62.7 7.7 22.8 8.9 24.7 10.3 47.3 12.3 196.2 46.0 326.5 48.6 Net Income before 87.5 16.0 80.4 23.7 47.3 52.5 6.5 81.7 94.6 104.4 316.3 278.3 13.6 289.3 taxes, etc. Income taxes 4.5 0.1 1.2 0.1 2.3 1.1 0.4 1.8 35.4 3.4 43.8 6.5 573.7 113.6 Profit sharing 4.3 3.8 0.0 3.9 0.0 4.0 0.0 4.1 0.0 4.3 4.3 20.1 78.5 0.0 Net Income 78.6 12.1 79.2 19.7 45.1 47.4 6.1 75.8 59.1 96.7 268.1 251.7 6.5 175.7 - 50 - Table 10c: COPEL: Actuat & Forecast Sources and AppLiications of Funds, 1984 - 1988; Actual Sources and Applications of Funds, 1989 (in mittions of CrSs, reftecting prices of Decemiber 1983) Sumarized Funds Data, (X) 1984 1985 1986 1987 19 88 1984-1988 Diff. 1989 from Sources of Funds Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Fore- Act- ual cast uat cast uat cast uat cast uat cast uat cast cast uat Gross Int. Cash Gen. Net Operating Inc. 68.3 50.3 61.1 60.8 40.8 86.6 98.2 110.4 64.6 123.7 333.0 431.8 -22.9 -3.0 Depreciation 34.9 32.1 39.3 34.9 39.1 37.4 39.2 40.5 33.5 43.6 185.9 188.5 -1.4 25.0 Non-operating Inc. 47.2 6.8 62.7 7.7 22.8 8.9 24.7 10.3 47.3 12.3 204.8 46.0 345.2 48.6 SaLe of assets 2.7 2.1 3.7 2.2 3.1 2.3 9.5 2.4 3.5 2.6 22.5 11.6 94.3 1.3 Sub-Total 153.1 91.3 166.8 105.6 105.8 135.2 171.6 163.6 148.9 182.2 746.2 677.9 10.1 71.9 Less: Debt service 83.9 83.5 87.6 96.2 90.5 99.2 87.9 96.6 77.7 106.7 427.6 482.2 -11.3 176.2 Income Taxes 4.5 0.1 1.2 0.1 2.3 1.1 0.4 1.8 35.4 3.4 43.8 6.5 573.7 113.6 Profit Sharing 4.3 3.8 0.0 3.9 0.0 4.0 0.0 4.1 0.0 4.3 4.3 20.1 -78.5 0.0 Net Int. Cash Gen. 60.3 3.9 78.0 5.4 13.0 30.9 83.3 61.1 35.7 67.8 270.4 169.1 59.9 -217.9 Other consumer 11.8 9.0 12.6 10.3 15.7 11.2 11.0 12.3 8.3 14.2 59.4 57.0 4.3 1.5 contributions Total consumer 72.1 12.9 90.6 15.7 28.7 42.1 94.4 73.4 44.0 82.0 329.8 226.1 45.9 *216.4 contributions Equity contributions 2.9 9.2 3.6 31.6 3.0 48.6 6.3 55.7 0.8 76.5 16.5 221.6 -92.5 0.3 Less: Dividends paid 2.7 5.3 2.5 12.7 3.3 16.7 3.4 20.5 0.8 25.2 12.7 80.4 -84.2 0.3 Net Equity contribution 0.2 3.9 1.2 18.9 -0.4 31.9 2.9 35.2 0.0 51.3 3.8 141.2 -97.3 0.0 Consumer contribution 19.6 18.2 17.5 19.9 25.9 21.8 9.2 23.7 6.1 22.4 78.2 106.0 -26.2 5.2 Borrowings 34.4 84.5 72.4 112.7 44.0 89.5 57.5 94.9 57.8 97.1 266.1 478.7 -44.4 56.5 Subsidies for invest. 123.7 Future energy sales 7.1 TOTAL SOURCES OF FUNDS 126.4 119.5 181.7 167.2 98.2 185.3 163.8 227.2 107.8 552.8 678.0 952.0 -28.8 -23.9 Apptications of Funds Investment program 58.4 101.9 85.9 146.3 74.2 158.9 115.4 191.0 132.7 207.1 466.6 805.2 -42.1 120.1 Int. during contruction 8.4 10.6 0.0 15.5 0.0 22.0 0.0 30.5 0.0 40.3 8.4 118.9 -93.0 0.0 Net chg., WC 59.6 7.0 95.8 5.4 24.0 4.4 48.4 5.7 -24.9 5.4 203.0 27.9 627.6 -144.1 TOTAL APPLICATIONS 126.3 119.5 181.7 167.2 98.2 185.3 163.8 227.2 107.8 252.8 678.0 952.0 -28.8 -23.9 OF FUNDS - 51 - Table 10d: COPEL: Actual & Forecast Balance Sheets, 1984-1988; ActuaL Balance Sheet, 1989 (in millions of CrSs, reflecting prices of December 1983) 1984 1985 1986 1987 1988 1989 Assets Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- ual cast ual cast ual cast ual cast uaL cast uaL Fixed Assets Gross Pl't in ser. 998.1 855.4 1048.8 940.2 1114.9 1027.5 1048.4 1123.3 929.4 1204.1 846.0 Less: Acc. Depreciation 185.8 143.2 210.6 171.3 253.7 202.1 246.8 235.9 225.3 272.4 219.3 Net Plant in Service 812.3 712.2 838.3 768.9 861.2 825.4 801.6 887.4 704.1 931.7 626.7 Work in Progress 108.6 106.4 129.4 165.0 146.6 233.5 139.1 325.5 161.6 448.5 204.2 Total Fixed Assets 920.9 818.6 967.7 933.9 1007.8 1058.9 940.7 1212.9 865.6 1380.2 830.9 Current Assets Cash 7.3 8.0 5.0 10.3 16.1 11.2 17.5 13.2 8.7 14.7 5.1 Accounts Receivable 32.4 16.2 33.2 18.7 41.3 21.5 41.0 24.6 36.8 28.1 33.5 Inventories 2.2 5.6 5.2 6.2 7.6 6.7 6.9 7.4 1.5 7.9 2.4 Other 39.1 3.6 62.9 3.6 31.0 3.5 15.4 3.5 2.4 3.4 9.2 TotaL Current Assets 80.9 33.4 106.3 38.8 96.0 42.9 80.8 48.7 49.3 54.1 50.1 Other Assets 7.8 94.7 7.5 104.2 8.5 120.4 6.9 145.0 6.0 179.0 8.2 TOTAL ASSETS 1009.6 946.7 1081.4 1076.9 1112.3 1222.2 1028.4 1406.6 920.9 1613.3 889.1 Liabilities & Net Worth Net Worth 429.4 378.1 464.4 427.0 498.9 517.5 439.7 640.8 396.1 803.0 472.6 Customer contributions 92.3 83.1 106.6 102.9 135.4 124.7 123.7 148.4 105.4 170.8 98.1 Long term debt 379.9 411.2 388.9 472.5 361.2 505.8 333.9 543.1 294.5 565.2 217.8 Current Liabilities 107.9 74.3 121.5 74.3 116.8 74.3 131.1 74.3 125.0 74.3 100.7 TOTAL LIABILITIES 1009.6 946.7 1081.4 1076.7 1112.3 1222.3 1028.4 1406.6 920.9 1613.3 889.1 & NET WORTH - 52- Table 10e: COPEL: Actual & Forecast Key Financial nd Service Indicators Summarized Data and/or 5-yr. Averages 1984 1985 1986 1987 1988 1984- 1988 1989 FinanciaL Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- Fore- Act- indicators ual cast ual cast uat cast ual cast ual cast uat cast uaL 1. Average Revenue 27.1 28.3 26.8 30.3 25.8 32.4 33.7 34.7 33.0 37.1 29.5 33.0 27.3 per kWh Sold (CrS/kWh) 2. Rate of Remun- 7.8 5.9 6.2 6.6 3.6 8.9 9.8 10.9 6.2 12.0 6.7 8.9 * -6.4 eration (X) 3. SeLf-financing 57.1 10.8 49.9 9.4 29.3 22.7 57.6 32.3 40.8 32.4 48.7 23.7 Neg. Ratios(X) 4. Operating Ratio(X) 55.4 54.0 62.5 54.3 74.9 53.5 63.5 51.7 77.0 48.6 67.3 52.0 99.8 5. ColLection Period 58 32 53 32 71 31 49 30 42 29 54.6 * 30.8 * 45 (Days Outstanding) 6. Debt-service coverage 1.8 1.1 1.9 1.1 1.2 1.4 2.0 1.7 1.9 1.7 1.7 1.4 0.4 (times) 7. Debt/Equity Ratio (C) 47 52 46 53 42 49 43 46 43 41 4.1 * 48.2 32 8. Current Ratio 0.75 0.45 0.87 0.52 0.82 0.58 0.62 0.66 0.39 0.73 0.69 0.59 * 0.50 5-Yr. Averages B. Service Indicators 1. Energy Sales 7241 6298 8035 6863 7884 7530 8499 8318 9233 9418 40892 38427 9464 (in GWh) 2. Number of Cus- 1325 1370 1430 1482 1539 1600 1631 1724 1725 1842 1530.0 *1603.6 * 1822 tomers (000) 3. Number of Em- 8652 8991 8877 9297 8941 9598 9310 9895 9437 10179 9043.4 *9592.0 * 9765 ployees 4. Customers per 153 152 161 159 172 167 175 174 183 181 168.9 * 166.7 * 187 Eriployee 5. Personnel Expense 46.164 NA 59.330 NA NA NA 71.684 NA 83.484 NA 65.166 * NA *117.30 (in miLlions of CrS, reflecting prices of 12/83) 6. Average Personnel 5336 NA 6684 NA MA NA 7700 MA 8846 MA 7141 * NIA * 12013 Expense per Employee (in CrS, reflecting prices of 12/83) 7. Losses (X of net gen- 6.1 9.0 5.8 9.0 4.7 9.0 7.6 9.0 7.1 9.0 6.3 * 9.0 * 7.1 eration and purchases) 8. Number of Rural Con- 109 114 137 135 168 158 191 184 214 199 164 * 158 * 222 sLmers Connected (000) * 5-Yr. Averages - 53 - Table 11a: CEMIG -- CompLiance with Key Covenants Type Legal of Docu- Sec- Cove- Compli- ment tion nant Description ance Remarks PA 2.01(c) PE Seeking commerciaL bank Pending Not required financing for consumers. PA 2.06 PE Establishing monitoring Yes methods to measure pro- ject progress. PA 2.07 PE Discuss monitoring results. Pending PA 2.08 PE Assist other Brazilian Yes ELETROBRAS collected data re CEhIG's experience on RE. utilities in RE. PA 4.02 F Furnish audited financial Yes statements by April 30 of each year. PA 4.04 (b) F Revalue assets annually. Yes PA 4.05 (a) F Consult Bank before in- Yes curring new Long-term debt unless debt-service ratio exceeds 1.5. PA 4.06 N Consult Bank before making Yes major investments. LA 3.05 N ELETROBRAS to establish an Yes RE unit. SA 2.03 F State to: (a) reinvest dividends; Yes (b) invest proceeds of Yes imposto unico; and (c) invest US$30 million No Bank monitored comrpliance in 1984 and asked in CEMIG's capital stk. CEMIG and state goverrnment for Information in 1984, 1985, & 1986. re equity contributions but received no answer. Preliminary and expected data for 1985 and 1986 indicated compliance, but audited data later showed otherwise. In 1987, Bank received no repLy to its question on status of compLiance. Bank did not press CENIG on this matter, as lack of financing was not constraining project progress. GA 3.02 (b) F Tariff policy (as clarifed No Goverrnent and Sank agreed to substitute sec- by side letter) tor-wide tariff agreement for financial cove- nant based on BraziLian tariff legislation. When sector did not meet key target ratios for financial performance, Bank chose to con- tinue dialogue with Goverrnent in 1987-1989 (and before) rather then suspend disbursements. GA 3.05 F Rate adjustments due to NA Superceded by Goverrnent-Bank agreement for sector Itaipu tariff increases, financial rehabilitation (tsee coamentary on above covenant -- Sec. 3.05 (b) -- of GA). GA 3.06 PE Establish credit facility Yes to assist consumers to sub- scribe to service. Codes: F : Financial N = Managerial, operations PE = Project Execution PA 5 Project Agreement LA z Loan Agreement SA a Shareholders Agreement GA = Guarantee Agreement - 54 - Table l1b: COPEL -- Compliance with Key Covenants Type Legal of Docu- Sec- Cove- Compli- ment tion nant Description ance Remarks ------~ ~~~ .. ........ ...... ........ ---------------------------........ ......... . ......... -------------------------------------.... PA 2.01(c) PE Seeking commerciaL bank Pending Not required financing for consumers. PA 2.06 PE Establishing monitoring Yes methods to measure pro- ject progress. PA 2.07 PE Discuss monitoring results. Pending PA 2.08 PE Assist other Brazilian Yes ELETROBRAS collected utilities in RE. data re CENIG's experience on RE. PA 4.02 F Furnish audited financial Yes statements by April 30 of each year. PA 4.04 (b) F Revalue assets nnuaLly. Yes PA 4.05 (a) F Consult Bank before in- Yes curring new Long-term debt unless debt-service ratio exceeds 1.5. PA 4.06 N Consult Bank before making Yes major investments. LA 3.05 N ELETROBRAS to establish an Yes RE unit. SA 2.03 F State to: (a) reinvest dividends; Yes (b) invest proceeds of Yes imposto unico. GA 3.02 (b) F Tariff policy (as amended No Government and Bank agreed to substitute sec- by side letter) tor-wide tariff agreement for financial cove- nant based on Brazilian tariff legislation. Under pressure of economic and political events, Goverrinment chose strategic objectives other than sector financial rehabilitation via impte- mentation of tariff increases and other measures. Hence, sector did not meet target ratios for return on remunerable assets, contribution to expansion, debt-service coverage, etc. The financial performance of COPEL deteriiorated, because of lower-than-expected tariffs and because of because of rising personnel expenses, the result of the enhanced rights of organized labor under new Constitution. GA 3.05 F Rate adjustments due to NA Superceded by Goverrnment-Bank agreement for sector Itaipu tariff increases, financial rehabilitation (see commentary on above covenant -- Sec. 3.05 (b) -- of GA). GA 3.06 PE Establish credit facility Yes to assist consumers to sub- scribe to service. Codes: F = Financial N xManagerial, operations PE - Project Execution PA * Project Agreement LA a Loan Agreement SA z Shareholders Agreement GA z Guarantee Agreement - 55 - Table 12: Use of Bank Resources Stage of Days Project Nonth/ in Speciali- Type of Cycle Year Field zation Status Problm Pre- identification 06/78 14 REC a/ NA Identifcation/ Preparation 07/82 16 ENG;FA NA AppraisaL 12/82 10 ENG;FA; NA --------- LO; LAW Post-Appraisal I 01/83 10 RE COt. NA Post-Appraisal II 07/83 5 FA MA TotaL 83 ImpL ementation Supervision 1 Part A: CEMIG 06/84 2 ENG,FA MA Part B: COPEL 06/84 2 b/ ENG;FA MA Part C: El 06/84 2 ENG;FA NA Supervision 2 Part A: CEMIG 05/85 2.5 TCON NA Part B: COPEL 05/85 2.5 TCON NA Supervision 3 Part C: EB 05/85 3 ENG;EC 2 PE Supervision 4 Part A: CEMIG 02/86 5 ENG;FA 1 NA Part B: COPEL 01/86 6 b/ ENG;FA 1 MA Part C: El 02/86 4 ENG;FA;EC 2 N Supervision 5 Part A: CEMIG 09/87 5 ENG 1 Part B: COPEL 09/87 13 b/ ENG 1 Part C: EB 10/87 4 ENG 1 TotaL 54.5 a/ Joining the mission for one day were a financial anaLyst, a loan officer, and a division chief. b/ Since mission was also supervising a dis- tribution project financed under Loan 1721-BR, about haLf of mission's time was allocated to this project. Key: REC: Rural ELectrificattion ConsuLtant ENG: Power Engineer FA: FinanciaL Analyst LO: Loan Officer LAW: Lawyer TC: Training ConsuLtant EC: Ecornmist Consultant