Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-1774-BR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO COMPANHIA PARANAENSE DE ENERGIA ELETRICA - COPEL WITH THE GUARANTEE OF THE I'EDERATIVE REPUBLIC OF BRAZIL FOR A POWER DISTRIBUTION PROJECT April 28, 1976 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. CURRENCt'I EQUIVALENTS (as of April 13, 1976) Currency Unit Cruzeiro (Cr5$) USt1 = Cr$10.27 Cr$l - US50.97 Cr$1,000 = US$97.37 Cr'l, 000, 000 = US.$97,371 FOR OFmFCIAL USE ONLY REPORI AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL) WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRA2IL FOR A POWER DISTRIBUTION PROJECT 1. I submit the following report and recommendation on a proposed loan to Companhia Paranaense de Energia Eletrica (COPEL) with the guarantee of the Federative Republic of lirazil for the equivalent of US$52.0 million to help finance a power distribution project. The loan would have a term of 20 years, including 3-1/2 years oi grace, with interest at 8-112% per annum. PART I - THE ECONOMY 1/ 2. A report, entltled "Economic Memorandum on Brazil" (812-BR), dated July 7, 1975, was distrlbuted to the Executive Directors on July 21, 1975. Country data sheets are attached as Annex I. 3. During 1967-74 the combination of excellent domestic economic manage- ment and buoyant world economic environment produced a period of high and sus- tained income growth, strong balance of payments performance and gradually decelerating inflation. Brazil's average annual rate of growth of about 10% over this period resulted in a.60% increase in per capita income, a 130% in- crease in manufacturing output and a 380% increase in the US dollar value of exports. However, international economic events in 1974 and 1975 have forced at least a temporary slowdown in the pace of economic growth. With the sharp deterioration of the country's terms of trade and the disruption of the world capital market, the balance of payments is proving to be a severe constraint on Brazil's growth. As a result, the pace of growth has dropped sharply, into the 4-5% range during 1975-76. 4. The fourfold increase in the price of crude oil (adding some US$2 billion to the import bill), the steep rise in the price of most imported raw materials, as well as the hardening of terms of external financial credits, made management of external sector difficult in 1974-75. These factors caught Brazil at the time when its economy was overheated and growth of import demand was very high, because after a prolonged period of rapid growth some key indus- trial sectors were approaching capacity levels of output. The current account deficit, which averaged just US$1 billion in 1969-73, or 2% of GDP, widened to about US$7 billion or 7% of GDP in 1974, reflecting the sizeable differential between import growth (about 100%) and export growth (roughly 30%) and the increasing level of interest payments on debt. The bulk of the deficit was financed by a large increase In the inflow of external financial credits of considerably shorter maturity than was generally available during 1971-73. 5. The Government attempted to narrow the balance-of-payments current account defict in 1975. It was successful in keeping imports somewhat below 1/ This section is reprinted from the President's Report on the Agricul- tural Research project for Brazil (No. P-1813-BR), dated April 13, 1976. This document has a restricted distribuion and may be uud by uuuipents only in the perfornance of their offcial duties. Its contents may not otherwse be dlsclomd without World bank authofiation. the level in 1974 in nominal terms by maintaining a balanced budget, continu- ing the crawling peg exchange rate policy and by introducing direct import controls. This implied a substantial reduction in the real level of imports and was accompanied by a decline in the rate of GDP growth to 4%. Export growth of about 9% was somewhat disappointing, largely due to the frost in southern Brazil in July 1975, which adversely affected production of some key crops, including coffee and sugar, and a slowdown in manufactured export growth as a consequence of the recession in the consuming countries. Nevertheless, because of import restraint the trade deficit declined from US$4.7 billion in 1974 to US$3.5 billion in 1975. However, improvement in the trade account was virtually offset by a large increase in interest payments reflecting the growth of the external debt and higher Eurodollar interest rates. 6. The Government monitored the balance-of-payments situation very closely and in the second half of 1975 adopted several new measures designed to produce a further contraction of imports in 1976. The new measures estab- lished advance import deposit requirements on approximately 40% of merchandise imports, further increased import duties, increased gasoline prices 25% and continued restriction of public sector imports. In addition, as a longer term measure, the Government has given the state petroleum monopoly, PETROBRAS, permission to undertake service contracts with foreign oil companies. It is clear, however, that despite these measures 1976 will be another difficult year for balance of payments management as prospects are for a relatively small gain in exports and, as a result, economic growth can again be expected to be in the 4% range. 7. Adverse development during 1975-76 reflect the fact that in recent years, Brazil has become more closely integrated into the world economy and its growth has become more dependent upon and vulnerable to changes in the world economic situation. The slowdown in the rate of growth of the world economy has, with some lag, had an adverse impact on prices of Brazil's primary ex- ports and on the rate of growth of its exports of manufactures, and, through the balance of payments, on the overall growth of the economy. It now appears that world economic conditions will not permit Brazil to grow during 1975-80 at the 10% pace attained in the preceding years. However, despite the re- duced pace of growth in 1975-76 a growth path averaging 6% per annum is still feasible for 1975-80 as a whole. It is estimated that to attain such a growth path, the average annual net inflow of medium- and long-term capital (that is, capital other than direct investments and financial credits) required for the 1975-80 period will be substantial, about US$1.8 billion, or three times the average for the 1970-74 period. 8. At the end of 1975, Brazil's public external debt reached about US$11 billion. The public debt service ratio for 1975 is estimated at around 16.7% which is in line with that of other countries at a similar stage of devel- opment. Brazil's total (public and private) external debt reached about US$22 billion at the end of 1975, of which about two-thirds, or US$15 billion was in the form of financial credits. The debt service ratio during 1975 on this to- tal external debt was about 38%, or about the same as the average for 1969-73. However, it should be noted that net foreign exchange reserves at the end of 1975 were still large, about US$4.6 billion, equivalent to some four months of the 1975 imports of goocs and non-factor services. While total debt service ratio can be expected to rise somewhat in 1976, if an export growth rate of around 17% per year in collar terms (compared to 30% in 1970-74) can be main- tained over the 1975-80 period and if average maturities of new financial credits gradually improve from six to eight years, the debt service ratio in 1980 can be expected to return to the level prevailing in the 1969-73 period. Despite Brazil's heavy debt service burden, the large foreign exchange reserves accumulated over the past several years ensure that the country will have the liquidity to meet its debt service obligations in the short term, while the country's record of high caliber financial management provides grounds for confidence in the maintenance of creditworthiness over the longer run. 9. Despite its recent growth and vast potential, Brazil is still a country with a very unequal distribution of income and extensive absolute poverty. The present Government acknowledges the gravity of the country's income distribution problem and accepts the responsiblity for its alleviation. While like the previous Government it believes that a high rate of growth is necessary to increase the income of the poor, it does not believe that the "trickle down" effects of rapid growth are enough and is shaping a new posi- tive policy which could be labeled as "redistribution along with growth". To this end, in addition to pursuing some of the social programs initiated by its predecessor, the Government is also working on new measures for improving income distribution. These can be classified into three broad areas: (a) regional development; (b) provision of social services; and (c) wage policy. In addition, recent tax changes have tended to have a favorable, although marginal, impact on income distribution. 10. As one of its measures to help promote development in poorer regions, the Government has formulated a program known as POLONORDESTE for rural devel- opment in the Northeast. The program envisages investment expenditures of about US$2.5 billion during 1975-79 and is designed to raise the productivity and incomes of small farmers through, inter alia, formulation and execution of integrated rural development projects, which are likely in some cases to include changes in land tenure. POLONORDESTE is based on the assumption that the rural Northeast cannot be regarded as a homogeneous whole and, therefore, standard- ized programs are inadequate. The Government identified 28 sub-regions cover- ing large portions of the Northeast on which POLONORDESTE funds would be used initially. The recently approved Rio Grande do Norte project is one of the first under POLONORDESIE, and the Government intends to present additional similar projects for Bank consideration in the future. Active consideration is being given to a major modification in the state value added tax system to redistribute fiscal resources from the richer to the poorer states, in order to give the latter the fiscal resources which they badly need to accel- erate social programs, particularly in education. In the area of social services, the GovernmerLt has created a new Ministry of Social Security in order to consolidate its social benefit programs and to extend these programs to a larger share of the population. In 1975 it allowed under the Social Integration Program (P]S, a social security fund), the lowest paid workers - 4 - covered by PIS, with incomes previously between about US$60 and US$300 monthly, to withdraw up to one month's minimum wage (about US$60) from their PIS accounts. The Government is also strengthening the nutrition program which, under the previous Government, got off to a slow start. Greater emphasis is being given by BNH (the National Housing Bank) to low-income housing, whose beneficiaries will enjoy better financial terms than in the past. BNH is also developing a site and services program to reach parts of the population even lower down the income scale. In agriculture, the recently reorganized rural extension agency (EMBRATER) will expand and strengthen its activities directed specifically toward the small-scale farmer; and the new federal agriculture research institution (EMBRAPA) is defining its program to include a selection of crops and farming-systems which will ensure that small-scale farms benefit from research efforts. Overall, the Government's recently approved public investment program for 1975-77 gives high priority to education, health, agriculture and regional development, which account for about 30% of total public investment. Finally, the Government intends to use a wage policy to improve income distribution. It has already revised the formula governing the adjustment of the union wage scale and has introduced an 8-10% increase in the real minimum wage. PART II - BANK OPERATIONS IN BRAZIL Bank Operations 11. By March 31, 1976, the Bank had approved 60 loans for Brazil, amounting to US$2,563.2 million, of which 36 had not been fully disbursed. During FY65-69, disbursements averaged only US$10 million per year, increas- ing to an average of US$136 milion per year during FY70-74, reaching US$225 million in FY74, US$248 million in FY75, and US$127 million in the first half of FY76. Disbursements will continue to increase during the next few years. Annex II contains a summary statement of Bank loans as of March 31, 1976, and notes on the execution of ongoing projects. 12. Bank lending to Brazil was very active in FY72, when seven loans were approved totalling US$437 million, including three loans totalling US$192 million for the Stage II expansion of the steel industry. In FY73, six loans amounting to US$187.7 million; in FY74 three loans totalling US$242 million and in FY75, five loans totalling US$426.5 million were approved. So far in FY76, six loans totalling US$327 million have been approved: US$60 million for the COSIPA Stage III steel expansion program; US$75 million for the FEPASA railway rehabilitation and expansion program; US$12 million for the Rio Grande do Norte rural development project; US$85 million for a development banking project for small and medium-sized industries; US$55 million for a'secondary and feeder roads project; and US$40 million for an agricultural research project. We are working actively with the Brazilians on the preparation of a nutrition project, two ammonia/urea fertilizer projects, a project in support of electric power distribution in the Northeast, a power transmission project in the South, a water and sewerage project in the State of Minas Gerais and a rural development project in the same state. - 5 - 13. Of Brazil's external public debt outstanding and disbursed at the end of 1975, amounting to US$11 billion, the Bank held about 10%. The Bank's share of the service on this debt was about 4.5%. If present trends continue as expected, the Bank's share in total external public debt outstanding would increase to 12% by 1980. The Bank's share of public debt service would rise to about 6% while its share of Brazil's total (public and private) external debt service would remain at the present level of 2.7%. 14. IFC has commit:ted more financial resources to Brazil than to any other country. As of March 31, 1976, IFC had made 27 commitments to Brazil, totalling US$262.9 million, of which US$32.6 million has been cancelled, US$20.4 million repaid and US$126.9 million sold. Of the balance of US$83.0 million, US$60.6 million represents loans and US$22.4 million equity. A summary of IFC's investments up to March 31, 1976 is given in Annex II. Lending Strategy 15. In its lending to Brazil, the Bank has sought to help the Government achieve a number of important development objectives, which are interdependent and complementary. One of these objectives is to support institutional develop- ment and policy reform, designed inter alia to help maximize public savings and ensure that they are used economically. The proposed project will improve COPEL's operation and reduce energy losses by effecting, among other things, better inspection and maintenance of the distribution network. Support for institutional improvement has also been the central objective of the recently approved development banking and agricultural research projects. The develop- ment banking project wi:ll assist in the project appraisal and selection ability of 22 state and regional development banks. The recently approved agricul- tural research project will assist the Brazilian Agricultural Research Corpor- ation, EMBRAPA, to improve the coordination and intensify the production orientation of Brazil's agricultural research efforts in the Northeast, North and Center-West of the country. The institution-building objective has also been Important in our assistance to the transportation sector, where emphasis has been given to the rational selection of investments, the strengthening of railway operations and the improvement of their financial performance. 16. A second Bank lending objective in Brazil is to support the growing effort of the Government: to identify and develop projects designed to increase productivity and incomes of the lowest income segments of the population, to broaden the economic opportunities open to those groups, and to alleviate poverty. The proposed electric power distribution project will enable COPEL to increase the number of consumers served from 562,000 to 746,000, an increase of 33% in 3 years. The project would be instrumental in providing service to 20,000 low-income residential households which cannot at present afford to obtain electrical connection. A similar goal is included In the proposed Northeast Power Distribution project now in the final stages of preparation. The Bank is also particLpating in other important development efforts in Brazil's urban areas, and the recently approved development banking project, by focusing on small and medium-sized industries, will give special support - 6 - to a segment of the industrial sector that has significant labor absorption prospects and should result in the creation of a sizeable number of new jobs in many urban areas in the country. In the agricultural sector, the agricul- tural research project, the Lower Sao Francisco polders project and the Rio Grande do Norte rural development project, will help develop the range of rural services necessary to ensure that improved technology is made available to small farmers. With the collaboration of Bank staff, the Government is preparing additional integrated rural development projects to increase the productivity of the small farmer and we expect to present in the future an increasing number of projects of this type. The proposed project would faci- litate the continued rapid growth of agricultural processing and forestry in- dustries in the State of Parana and would support the Brazilian Government's efforts to create growth poles outside the country's traditional industrial- ized areas. We are also actively associated with the preparation of new proj- ects in the fields of water supply and sewerage, site and services, nutrition, and rural education. 17. Another important lending objective for the Bank has been to help Brazil ease the foreign exchange constraint on its development, a constraint that has become more critical since the increase in petroleum prices, by supporting projects designed to increase Brazil's export capacity and, where economical, to substitute domestic production for imports. The balance of payments would be aided by the agricultural research project as well as by the fertilizer projects and a second agro-industries project now under prepara- tion. These projects would help Brazil reduce imports of essential foodstuffs and fertilizer or enable Brazil to export additional quantities of foodstuffs to the rest of the world. Much of the investment which the Bank has helped finance in Brazil's transport sector--railways, ports, and highways--is designed to facilitate the smooth and economical flow of exports. Also, support of the steel expansion program is helping Brazil develop output of a commodity which can be produced efficiently in Brazil owing to the country's bountiful supply of high-grade iron ore and the scale of its internal markets. 18. A final objective which applies to all Bank lending to Brazil is to provide part of the very large volume of medium- and long-term capital inflows that Brazil has needed and will continue for some years to need in order to sustain rapid growth and achieve its employment creation and regional develop- ment objectives. In some sectors, such as steel and electric power generation and transmission, the Bank's participation has helped Brazil to obtain addi- tional bilateral suppliers' and financial credits in greater amounts and on more favorable terms than would otherwise have been possible. PART III - THE ELECTRIC POWER SECTOR 19. The proposed loan to COPEL for the power distribution project would be the Bank's twenty-eighth for the development of the power sector in Brazil. In 1966, the Bank assisted Companhia Forca e Luz do Parana (CFLP) to finance a power distribution prcject (Ln. 476-BR). CFLP was merged into COPEL on August 31, 1973, and COE'EL has assumed responsibility for the loan. Energy Resources 20. Brazil has one of the largest hydroelectric potentials in the world, estimated at about 100,000 MW of which less than 15% has been utilized so far, with most of the plants located in the south and southeast regions. Coal and oil resources are not as abundant; proven reserves consist of about 3,200 mil- lion tons of bituminous and sub-bituminous coal and about 780 million barrels of petroLeum. Total domestic production of crude oil was 177,000 barrels per day in 1975 representing about 18% of the country's needs. The estimated to- tal energy consumption in 1975 was about 108 million tons of oil equivalent and is expected to grow at a rate of about 7.5% per annum during the next five years. Oil products represent about 51% of total energy consumption, coal 2%, hydroelectricity about 20%, and other fuels such as firewood, charcoal and sugarcane begasse about 27%. The consumption of these other fuels is expected to remain stable, and thieir relative importance to fall steadily in the future. No economically exploitable deposit of uranium has been found so far but thorium resources in the country are among the largest in the world and in the long term may contribute to the development of nuclear power. The Power Sector 21. The power sector is operated by a number of federal- and state-owned companies, and one large private company (LIGHT-Servicos de Eletricidade S.A.). The sector is administered by the Ministry of Mines and Energy through its Department of Water and Electric Energy (DNAEE) which performs regulatory func- tions, including granting licenses for hydroelectric sites, assigning conces- sion areas, setting tar:iffs and approving expansion plans. 22. Centrais Electricas Brasileiras, S.A. (ELETROBRAS) is a Government enterprise under the Ministry of Mines and Energy in charge of planning, technical coordination, financing and administration of the electric power sector. Through its four regional companies, CHESF, ELETRONORTE, ELETROSUL and FURNAS, it is also responsible for power generation plants serving more than one state, transmiSsion systems in high and extra-high voltage aimed at the integration of state systems, and transmission systems related to bina- tional power projects, in particular, the Itaipu project which is now under construction on the Parana River between Paraguay and Brazil. For planning purposes, the power sector is divided into five regions: Southeast, Central- West, Northeast and North. When the loan for the Itumbiara hydroelectric project (Ln. 923-BR) was made, the Bank and the Government agreed on the need to coordinate the planning of electric power generation and transmission - 8 - in the South and Southeast regions which account for 87% of the total power consumption of the country. Since then, an up-to-date study of the power generation and transmission requirements for these regions up to 1990 was prepared by ELETROBRAS and submitted through the Government to the Bank. 23. ELETROBRAS is also the main source of funds for generation and major transmission projects in Brazil and this has permitted it to influence the activities of utilities, such as COPEL, in which individual states are the major shareholders. In the 1972-74 period, US$1,748 million equivalent, or 95% of the investment funds of ELETROBRAS, derived from taxes charged to the utilities and the final consumers, while about US$100 million or 5%, derived from foreign loans. Power Market 24. Between 1968 and 1974, the growth in electric energy consumption was 12% per annum. The combined sales in the south and southeast regions amounted to about 60,000 GWh in 1975. As mentioned above, ELETROBRAS prepared a market study for these two regions and prepared two plans, the first covering 1975- 81, and the second 1982-90, for the expansion of generating and transmission facilities. The least-cost generation and tranmission expansion program for the period 1975-81 provides for 14,460 MW of hydro, 1,040 MW of thermal, and 600 MW of nuclear capacity. The program contains two hydroelectric projects for the south region scheduled for commercial operation by 1981; Salto Santiago (1,300 MW), to be built by ELETROSUL, and Foz do Areia (1,125 MW) by COPEL. Both facilities will be partially financed with recently approved loans of the Inter-American Development Bank (IDB) and bilateral credits for certain major equipment. 25. Considerable uncertainty exists about the 1982-90 program, due to such factors as the impact on power demand of the slowdown in the growth in GNP, the timing of operation of the Itaipu hydroelectric project and the degree of substitution of petroleum by electricity. A Bank mission carried out a review of the Brazilian energy sector addressed to these issues in March 1976, and its report is in preparation. However, the uncertainties referred to above would not affect the justification of the proposed project which is addressed to immediate needs for electricity in COPEL's service area. 26. In order to assure the rational operation of existing and future generating and transmission facilities in the interconnected south and south- east regional systems, the Coordinating Groups for Interconnected Operation (GCOI) was established in 1973. COPEL, ELETROSUL and FURNAS are among the members of the Executive Committee of GCOI. Electric Power Tariffs 27. Brazilian legislation concerning the electric power sector assures that electric utilities receive sufficient funds to cover their operating - 9 - expenses (excluding financial charges), depreciation, "reversion quota," 1/ and a reasonable return Dn investment. Since 1966, annual revaluation of assets against which tariffs are calculated has been mandatory, and the tariff law of 1971 required that utilities earn a rate of return of not less than 10% and not more than 12%. In addition to the tariff, the residential and commercial consumers pay the "sole tax" (imposto unico) which, since 1972, has been assessed at the rate of about 25% and 30% of their respective tariffs (industrial consumers are exempted). As a result, the electric bill paid by the Brazilian residential and commercial consumers is among the high- est in the world. The proceeds from the imposto unico are used mostly for sector investments and are distributed as follows: 37% to ELETROBRAS, 2% to DNAEE, 1% to the Ministry of Mines and Energy, 50% to the states and 10% to the municipalities. Industrial consumers are required to make a compulsory loan to ELETROBRAS by purchasing 20-year 6% ELETROBRAS bonds (which are sub- ject to monetary correction). The amount of the compulsory loan is equivalent to about 50% of the tariff for small industrial consumers and to 58% of the tariff for large industrial consumers. Tariffs in the sector, which are con- sistent with sound financial and public utility practices, together with charges such as the "sole tax", enabled the sector to increase installed capa- city at an average rate of 10.1% per year since 1964, reaching about 20,100 MW in 1975, and to keep pace with an average annual growth in gross consumption of 9.2% while improving reserve margins. 28. In 1974, DNAEE began to use its discretionary powers to effect pro- gressive equalization of customer rates throughout Brazil. The result of this action was that rates of return for the comparatively higher cost utilities fell below 10%. To meet this problem, a Global Guarantee Fund (GGF) was created in December 1974, as a mechanism intended to assure qualifying utili- ties a return of up to 10%. At the same time, in order to increase the pro- ductivity of those utilities supported by GGF, DNAEE put into effect a number of measures which restri.ct the utilities from increasing their operating costs, undertaking investments, and expanding markets without DNAEE's prior approval. 29. Agreements prior to 1975 between the Bank and several Brazilian elec- tric utilities provided that tariff rates would be set at a level that would provide the return stated in Brazilian legislation, i.e., between 10% and 12%. In recognition of the efforts of the Brazilian Government to equalize electric charges throughout the nation, it has been agreed that, if transfers from the GGF are required, they will be sufficient to bring COPEL's return up to 10% (Sections 3.02 (b) of the draft Guarantee Agreement and 5.06 (c) and 6.01 (c) of the draft Loan Agreement and the draft supplementary letter). 1/ The "reversion quota" is assessed at a rate of up to 5% on the value of gross utility plant: in service less accumulated advances, contributions and grants; of this, 3% is lent by Government to ELETROBRAS which uses the funds to finance investments in the sector and the balance comprises the sole source of funds for the Global Guarantee Fund. - 10 - 30. The present electricity tariff system results in a high level of resource mobilization while discouraging nonessential use of electricity. There are, however, some important aspects of the structure (as distinct from the level) of tariffs, that should be investigated. The Brazilian Government plans to undertake a study of the tariff structure shortly, and would present to the Bank the terms of reference and the results of the study (Section 3.03 of the draft Guarantee Agreement). State Sub-Sector 31. In 1975, the population of the State of Parana was nine million people. Of these, 30% lived in cities of more than 10,000 inhabitants, the largest of which is Curitiba, the state capital with a population estimated at 1,000,000. Consumption of electric energy increased from 1,056 GWh in 1965 to about 2,982 GWh or 331 kWh/capita in 1975, of which 84% was supplied by COPEL, 15.6% by captive plants and the remainder by small public utilities which are expected to be absorbed by COPEL in the foreseeable future. The number of consumers increased from 255,000 in 1965 to about 562,000 in 1975. Consumption increased at the rate of 11.5% per annum during the same period due mainly to the substantial development of the industrial sector. In 1975, the relative share of the market was: industrial 54%, residential 18%, and commercial 14%, with the rest shared by public lighting, rural electrification and others. The share of the industrial consumer is expected to increase to 60% by 1979 as a consequence of continued rapid development, especially of agro-industries, while the total number of consumers is expected to increase to 746,000. 32. Of the 141,000 new residential consumers to be connected by 1979, about 20,000 (14%) would be "low-income" consumers, defined as those households within COPEL's concession area and near existing distribution circuits which are not served because of their inability to pay connection fees, presently about US$100. COPEL has developed, in consultation with the Bank, a program to provide electrical service to low-income consumers which includes a scheme to finance the connection charges without interest, over a period of 36 months. The choice of areas for implementing this program will be coordinated with state government urban development agencies (Section 3.06 of the draft Loan Agreement and 6 of the draft Project Agreement). PART IV - THE PROJECT 33. A report entitled "Appraisal of COPEL Distribution Project" (No. 1028b-BR dated April 22, 1976) is being circulated separately to the Executive Directors. The main features of the proposed project and loan are summarized in Annex III. The project was appraised in October 1975. Nego- tiations with COPEL, the Government, and the State of Parana were held in Washington from March 15, 1976 to April 8, 1976. COPEL was represented by a team headed by Mr. Edson Guimaraes, Financial Director. The Borrower 34. COPEL was formed in 1954 as a joint-stock corporation for the pur- pose of planning, building and developing systems of production, transmis- sion, distribution and sales of electric power within the State of Parana. Approximately 90% of the voting stock is owned by the state government and its agencies, and the balance by ELETROBRAS. COPEL's utility plant was valued at US$346 million in 1975 and construction in progress at about US$101 million. It has 4,850 employees and its facilities include installed gene- rating capacity of 432 MW (hydro 398 MW, thermal 20 MW and diesel 14 MW). 35. COPEL's management is composed of competent professionals promoted within the utility (average age 42, average service 12 years) who have ac- quired sound managerial experience and have the ability to successfully exe- cute the project. The Corporation is administered by a six-member Board of Directors which establishes policy and through the President, who is board member, directs and supervises the Corporation's business. COPEL is organ- ized into five departments, each headed by a director: Administration, Fi- nance, Operations, Engineering and Construction, and Distribution. The Distribution Department is organized into five regional offices, each headed by a superintendent: Curitiba, Ponta Grossa, Londrina, Maringa and Cascavel. 36. At year-end 1975, the number of customers per employee was 115 com- pared to 43 in 1970, despite the recent merger into COPEL of private utilities with large numbers of personnel. The customer/employee ratio should continue to increase during the project period through COPEL's retraining and selection program which is based on performance evaluations. 37. COPEL's financial performance has been satisfactory, with financial rates of return of 18%, 16% and 15% on its average net fixed assets in opera- tion in 1973, 1974 and 1975, respectively. Almost all earnings have been re- invested. COPEL's cash management is good. Cash balances are kept at a mini- mum while temporary excEss cash is invested in short-term securities. On December 31, 1975, COPEI, had a comfortable debt/equity ratio of 37:63 which is indicative of an ample borrowing capacity. 38. COPEL's internal management information system is very good. Oper- ating and financial reports are prepared accurately and promptly, and custom- er records and accounting systems are computerized. Its financial statements are audited and certified by Arthur Andersen and Company. Project Description 39. The project consists of the construction, installation and improve- ment of subtransmission, distribution and auxiliary service facilities, and consultant services and training. The main features of the project are: (i) installation of 216 circuit-km of 138 kV and 69 kV lines; 2,030 km of 34.5 kV and 13.8 kV lines; 775 MVA of transformer capacity at 138 kV, 69 kV, and 34.5 kV; 4,760 transformers with a total of 260 MVA capacity; 220,000 house- hold electric meters and 135,000 street lights; (ii) acquisition and utiliza- tion of energized-line maintenance and system protection and operation equip- ment; and (iii) inspect.on of equipment fabrication through the utilization of - 12 - consultants' services, and training of staff during such inspection. Further details of the project components are provided in Annex III. The project is expected to be completed by June 30, 1979. Cost Estimates and Financing Plan 40. The total cost of the project, as estimated in April 1976, is US$188.4 million equivalent with an estimated foreign exchange component of US$52.0 million equivalent. The cost estimates are based on recent equip- ment quotations and the cost of current civil works contracts for installa- tion. An allowance for physical contingencies of 5% is assumed for all electrical equipment and materials. For civil works and equipment erection, the allowance for physical contingencies varied from 10% to 15% depending on the state of preparation of final designs of individual components,and ave- rages 11.5%. Allowances for price contingencies are 9% for 1976, and 8% per annum for foreign costs; and 20% for 1976, 15% for 1977 and 1978, and 14% for 1979 for local costs. The allowances for foreign costs are reasonable. The allowances for local costs appear high, but COPEL has adopted them on the basis of its recent experience with similar works; these allowances do not affect the size of the proposed Bank loan, which is equal to the project's estimated foreign cost. - 13 - 41. COPEL's capital investment and financing plan during the project period (1976-79), in constant December 1975 prices, can be summarized as follows: US$ Million Capital Investment Equivalent % Construction expendLtures: IBRD project 144 22 Foz do Areia hydroelectric station 301 46 Other works 124 19 Total construction expenditures 569 87 Interest during construction 73 11 Increase in net working capital 16 2 Total capital requirements 658 100 Financing Plan Internal cash generation 315 48 Less: debt service (164) (25) dividends and participation ( 27) ( 4) Net internal cash generation 124 19 Sole Tax 57 9 State government and municipal contri- butions and other sources 76 11 Borrowings Proposed IBRD loan /1 44 7 Foz do Areia financing - ELETROBRAS 172 26 - Other sources 97 15 Other 88 13 Total borrowings 401 61 Total financing 658 100 /1 Before price contingencies. 42. Resources contributed directly by COPEL's consumers (net internal cash generation and reinvestment of the proceeds of the "sole tax") would cover a satisfactory prcportion--28%--of capital requirements. As noted In paragraph 23, the resources contributed by ELETROBRAS (US$172 million or 26% of the total capital recluirements) are also derived from sector consumers, through taxes and obligation loans. - 14 - 43. COPEL's financing plan for the project period includes US$88 million equivalent of borrowing yet to be arranged for future works. COPEL is considering the possibility of obtaining the foreign exchange component of this amount (about US$30 million) through a loan from external private lenders which would be associated with the proposed Bank loan, in a manner similar to that employed in connection with the recent Brazilian steel project (R75-103/2). 44. Construction of the Foz do Areia hydroelectric project will extend beyond 1979. It is currently estimated that, when completed in 1981, Foz do Areia will have cost US$666.5 million at current prices (US$483 at December 1975 prices), including interest during construction. To date, COPEL has arranged US$74.0 million equivalent in foreign financing for this project from IDB and US$23.0 million from bilateral credit agencies. The remainder of the cost will be financed from COPEL's cash generation and domestic loan. 45. The cost estimates and financing plans shown in paragraph 41 do not include an allowance for price contingencies. COPEL estimates that it will need an additional US$228 million during the project period to meet price contingencies. Funds for these contingencies would come principally from future tariff increases and from additional domestic borrowing. In addi- tion, both the proposed Bank loan and the IDB loan for Foz do Areia include amounts to cover price contingencies. 46. The State Governemnt would reinvest dividends received from COPEL through 1979 in the form of additional share capital of COPEL (Section 5 of the draft Project Agreement). COPEL's financing plan as shown above is reasonable, particularly with the support of the Federal Government through ELETROBRAS. In the event that COPEL did not have sufficient funds to assure the timely completion of the project, the State of Parana (Section 3 of the draft Project Agreement), and ultimately the Federal Government (Section 2.02 of the draft Guarantee Agreement), would be committed to provide them. 47. COPEL's financial outlook is satisfactory. It is expected that even when work-in-progress reaches the highest proportion to total assets, internal cash generation would cover debt service payments at least 1.8 times, partly because the debt/equity ratio will remain below 46:54 level and overall indebtedness is not expected to exceed 55% of COPEL's total net fixed assets. COPEL would not incur new debt if by such incurrence, total debt were to exceed 66-2/3% of COPEL's total fixed assets less depreciation. It would alw not incur new debt with an original term of less than 8 years, if by so doing the total outstanding principal amount of such debt were to exceed 5% of its total fixed assets (Section 5.07 of the draft Loan Agree- ment). Engineering and Project Execution 48. COPEL's own staff is expected to carry out satisfactorily the engineering designs, specifications and construction supervision of the - 1 5 - project. For the preparation of bidding documents for procurement through international competitive bidding and for equipment fabrication inspections, COPEL would use the services of a consulting firm, Companhia Auxiliar de Empresas Eletricas Brasileiras (CAEEB). COPEL would contract with local firms for construction of most of the project works. Equipment installation would be done in most instances by the suppliers. Some construction and equipment installation would also be performed by COPEL's own forces. A sufficient number of qualified local firms are available to handle the job satisfactorily and on schedule. Procurement and Disbursement 49. Procurement of the equipment to be financed by the Bank would follow the Bank's Guidelines. Manufacturers whose bids contain components manufactured in Brazil equal to at least 50% of the value of the bid would be given a margin of preference equal to 15% or the applicable import duty, whichever is less. Brazilian firms are expected to win about two-thirds of the total bids because cf the domestic capability to supply at competitive prices the type of equipment and materials used in the project. Special im- ported metering and system protection equipment estimated to cost about US$1.8 million will be purchasEd directly, without international competitive bidding because of the need for standardization. Likewise, miscellaneous imported equipment aggregating up, to US$0.8 million, required in small quantitities throughout project execution, will be purchaced directly. Procurement of project items not financed by the Bank will be through COPEL's normal pro- cedures, which are satisfactory. 50. Disbursements from the Bank loan would be made against appropriate documentation for 100% of foreign expenditures on imported goods or 100% of the ex-factory cost of locally manufactured goods and for 100% of foreign expenditures on equipment inspection and training abroad. Environment 51. COPEL will carry out the project with due regard to environmental factors. In the cities of Londrina and Ponta Grossa, for example, utility poles for feeder lines -!n congested areas will be relocated to improve traffic safety. In Curitiba, the underground distribution network will contribute substantially toward improvement in system losses and service reliability and will also improve the appearance of the most congested zone in the state's capital. Project Benefits and Rat:e of Return 52. The project would enable COPEL to meet growing service requirements in its concession area, while improving efficiency and reliability through reduction in losses and outages and better voltage regulation. The project would connect about 141,000 new consumers, including 20,000 low-income - 16 - households in the main cities of Parana. In view of the complexity of the systems effects, and of the difficulty in interpretation, an internal rate of return on the project has not been calculated. However, the rate of return on the overall investment program has been estimated to be 20%. A sensitivity analysis indicates that a reduction in sales of 10% and an increase in cost of 10% would result in a return of 17%. This indicates that the average price that consumers will pay for power will be considerably in excess of incremental system costs, and that wasteful use of electricity and unnecessary investment will be avoided. PART V - LEGAL INSTRUMENTS AND AUTHORITY 53. The draft Loan Agreement between the Bank and Companhia Paranaense de Energia Eletrica (COPEL), the draft Guarantee Agreement between the Federa- tive Republic of Brazil and the Bank, the draft Project Agreement between the State of Parana and the Bank, the draft supplementary letter on COPEL's rate of return, the draft Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a draft resolu- tion approving the proposed loan are being distributed to the Executive Directors separately. Features of the draft Loan, Guarantee, and Project Agreements of special interest are referred to in paragraphs 29, 30, 32, 46 and 47 of this report. 54. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATIONS 55. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments April 28, 1976 Si -B-B-B-B 6~~tv ~ - 0- a ~~~~NJ~~~~~~ a3, 6-0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0 a~~~~~~~~~~~~~~~~~f t 1 11 E.~~~~~~~~~~~~~~~~~~~~~~U 0006 .co 5 40~~~~ aa ac c O 0 O 0 03.a a0 0300 04tI -I N tI I t C:I t tt1 ~~~~~~ '0 0 U' -' N 8~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~It . 0k -A a a' U'~~~~~~~~~~~~~~~~~i n f . D 0 ~O I E 3 0 ~ ~ ~ ~ ~ ~ - 0 Ef --~ ~ ~ * @3. 0 *U'0 - - 33. U' S~~E. 46 ~~~~~~~~~~~~~~~~~~~~~ U' - - S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~z -E 0 6~~ ~~~~~~~~~~~~~~~~~~~~~~~~~7-0 n - 06 6 6~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~o ." m n w 0I0 433 3. Ba - 0. 00.00 00 0 a. * CC: .. o 0. 0 C 0 00046~~~~~~~~~~~~~~~~~C a a I RE a C 0066 2w.. .~~~~~~~~~~~~~~ = C 1 6.-E x l w . . . .3 f-S -O ai S 613.60 - N NO ON NSA 0 cC 066 U' 0 - 3. U' - ..0@N B~~~~~~~~~~~~~~~~~~~~~~~~~~~~~, - : Na I 464 0a a-z a Z -9.E 06II0 U' NN .*49 > ' 3. #4 0 Z~~~~~~~~N 00ta - U'AL S mw e 065 00 I N~~~~~ zI w z 21 - am 00 N Z x0.I C =0 0 4 0000 a 0 0 00 C' 0 0 U c@ c a z 0~~~~~~~~~00 0C O 00 O N P-4 be 0 0 SE S 0~~~~~~~~~~~~~~~~, a 0 LeU a - I3A eo w5 6- j - SO S~~~~~~~~~~~~~~~~~E W A t: -- TI a Page 2 o f ,pages Unless otherwise noted, data for 1960 refer to 1959-1961, for 1970 to 1968-1970, and for IM-t Recent Estimaete to l)7i-1973. **Japan has been selected as an objective country since the Bra.ilan Oovernmet baa Bishe particular interest in Japarn's developmentalexceo; also, the two governoonts have conducted joint vtudies to idotify possib2a future economic problems of Brazil on the basis of the experiences ii Japan. BRAZI7L 1960 /a Economically' ative popeatlim, 19T2 /a HEennmcally active pqpUaltoon; /b Beital pewrsmeli /c Inside only. MIST H3jT BSTXDAIU L(j Ehepital peraaimal; /b Inside only. Wrloo 1970 /a Households; /b 1961a-66; /c Inside cony. TIRUGUAY 1970 /a 1967, households. JAIPAN 1Z970 /a Households. R7, Febrwuay la, 1976 MI31TMNS OF SHCI&L INDICA'ORS Ian kraoi ukmn2) Pecultnon pe usngpro - Population divided by number of practicing r= T7h surirace ares cosprising larnd area usd inland waters. isedf le graduate nurses, -trained" or "c erti-fied"- nurses, and As-abole - Hosrt recent estimate of land area used t~opamri.ly aor permanently auxilary personnel with training or experience. for cultivation, pastures, market and k-itchen garzn or to lie fallow, h ital bed - Population divided by number of hospital beds avais si puhll~d private general end specialized hospital and ONP caita US0- MMP per capita estimates at mwakt prices, calcu- rehablitation centers; e3mludse nursing homes and establish nits for latedby, same conversfion ,othod as World Bhrk Atlas (lM7-71; basis). custodial and preventive care. Per aitasupoly of calories (I of , uiowement) - Computed from energy and vital statistics eqiaet of ntet food supplies avaiblein countr-y per capita per day; aonmid-r million) - An of July first; if not available, average available suppliea reopri so dcmestic production, iqierts less exports, of' two end-year estlmtes. ~~~~~~~and chantges in stock, net supplies exmludea animal feed, seeds, quanti- ties used in food prmossinig and losses in distribyution; requirement Pouaio20sty- r Qaekm - Mid-year population per sqwuar kilo- wer~e estimated by FAO based on pbysiological needs for normal ac tiv-ity eVwier &l0bct roes flttalaea end health conidering environmental temperature, body weights, age and Population density - per square km ofaa arable land - CoWated as above for sez distribuotimons of population, and alioming 10% for waste at household arable land only. level. r.atetai en rtd) - Protein content of per Vital statistics supl of food is defined an Crud MW`ate r thousand. - Annual live birtim par tbosad of mld- abovel requiremnts for all countries establisoied IV USDA Feonomic year populiation; usually frve-year averages ading In 1960, I97 amd Research Services provide for .admnias,m allowance of 60 grants of total 1975 for developing countries, protein per day, and 20 grams of animal and pulse protein, of ,A,ich 10 Crude death rate per thouaand - AnnuaLl deaths per thousand of aid-year grams should be animal protein; these standlards are lover than those of population; usually rive-year averaRes endinR in 1960, 1970 and 1975 75 grain of total protein and 23 grams of animal protein as an average for developing countries for the world, proposed by FAO is the Third World Peed Survey. infnt orali rae /thu)- Annual deaths of infants under mns year Per ia si suM free aima kd aus - Protein supply of food Life t4=n at. birth (vyr) - Average number of years of life remin- Dsat rae thu es 1~ - Annual deatha par thousand in age group 1-4 bit;uull ieya averages ending in 1960, 1970 and yer,oc en intis age group; suggested as an indicator of mal- 1975 f or developing countries. * trition. 2!rossrMn otion rate - Average number of live daughtwes a man minl ora eoutv period If she expIeriae present age- Education specific fertility rates; usually five-year averages ending in 1960, giaysho - Enrollment of eli ages as 1970 and 1975 for developing countries. " M N P t a -g ouain includes childireni aged1 Ppltion 12!hrate ()- total - Ceqinire annual grawth. rates of aid- 6-U years but adjusted for dif ferent lengths of primnary education; yea poulaionfor Y00, WO70, and 1960 to most. recant year. for co,mtries with universal edwcation, enrollment may exceed 100% Poo tio & rate§ - urban - Cosmputed like growth rate of total since some pupils ame below er above the official school age. on;e ere d tone of urban areas mW aLffect compra- Adjusted enrollmt ratio - secondary school - Computed as aon-e; oecond- bility of data aDnsg countrims. ar-y education requires at least four years of approved primary instruc- ~i( oftotl)- Ratio of urban to tdata population; dif- tion; provides general, vocational or teacher training instructions for fbriitef¶ittons of urban areas may affect ccqparabilitj' of data pupils of 12 to 17 years of age; correspondenc a courses are generally swig countries. mmluded. Atz:n e ir ceat) - Children (0-in years), working-age (15.61 years), Tears of echeolingrviWded fist and second levels) - Total years of aThtiedI65years and over) as percentages of aid-year population. echooling-at seodr ee, vocational instr=ion may be partially on! ratio - Ratio of population wunder IS and 65 end over to or completely excluded. of 15throug9h 64;. Vocational aeroilait I f secondarY) - Vocational institutionz include FeEV 2 ndsn2ra io- Ratio of population under 15 end 65 and over teciminal, indl talooter programs sdsich operate independently or e~laiw focein age group of 15-64; years" as dapartmants of secondary institutions. Family plannin, - acceutors (cumua-tive. than - Cmelative nupbes of Adult literacy rate U% - Literate adults (able to read and write) as per- acceptors of birth-control devices under' asupises of national ramily centage of total adult population. aged 15 years and over. planing program since inception. Fbiniy Ioluing - users (% of married women) - Percntages of wArried n womnx of child-bearing age ti5-"i years) who use birth-control da- MMppgeroo .(averae) - Average number of pers ,-s par room irn occupied vices to all married wumen i-n same age group. convetIionalT i1e1iimis urban areas; dwelling, exclude non-permanent structures and unoccupied parta. Employment ot ~~~~~~~~~sd s itot wapd ter Oc (cupied co,.ventional dwell- Total labor force (thousand) - Economically active persona. including areas wthout tmide or outside piped water armed forces and unampoyed but excluding housmioves, students, etc.;I facilities as percentage of all occupied dwellings. definitions in various countries arm not comparable. Access to elcticit ( of all dwellin,gs) -Convantiuoal dwellins with labor force in acriculural -Agricultural labor fosce (In farming, electrict ilivirtg quaritars as percent of total dwellings itr urban foetr, utas percentage of total labor force. and rural areas. Thin 4(%of lao oc)-Uneqloyad are usually defined as per- Rurl weligsconnected to electricity ()-Computed as above for rural eons aus ar aan to take a job, ouit of a job an a given daligo~y de, rerained out of a job, and saeking work fbr a specrifid miniam period not exceeding one week; NW not be comarable betwem com- Consumption tries duie to different definitions of unmploed and sauce of data, Radioreivers(e ho e All type8 of r-e.eavr-- for radtio broad- e.g., aWoysmnt office statistics, sampl.e servop, complBory unml- casts to general.public per thou.sacl If 'Con_' - n, excludes uniUcensed ployment insurane,. receivers in counts-i as and 3in years whe.. -aF~ co crn radio sets was in effect; data f or recent ye.,rs may not be corqx,zou- since oscot ooun- Incomes distribution - Percentage of privats icmem (both In csha and tries abolished licesming. kind) received by richest 5%, richest 20%, poosrest 20%, end pooreet c arthou po - Passenger cars compris. motor cars seat~ng 40a% of population. aFMM_jP am s xla ~..bulances, hearse9 andA military Distribution of land amenrship.; Percenta4ges of land armed by wealthiest k, c)- Annoal consuxaptiorn industrial, cosmse-- 103 and poorest 103 off4landaeoeleetricit in kilowatt. hors per capita; gen- erally based on produiction data, without allowance for losses in, grid-, Health% and Nuitrition but allowing for imports and exports of electricitw. PDltion orbaician - Population divided by nwmer of practicing N ointAfr r cap - Per capeita antiual rDrmuMption in kilograme pyicians qual e rma medical school at univeoir siylvel. esiat fom atic production plum net imports of rkewsprint. ECOfNOIC DEVELOPMENT DATA ANNEX I (In millions of U.S. dollar.) Page 3 of 14 Actual Estimated lacted Averages Annul Growth Rates As prerent of GDY 1971 117T'I973 ~1974 19%WTfl8 1970-74 1974-76 1976-80 1970 1974 1980 NATIONAL, ACCOUNTS fl hAnunts in 1973 prices and exohanas rate. Croci domestic product 62,710 69,608 77,891 85.369 88,357 121,700 11.0 4.2 7.0 100.6 100.6 100.7 Gains fro. terms of trade(+ - 609 - 598 - - 469 - 965 - 819 ... - 0.6 - 0.6 - 0.7 Gross domestic income 62,101 69,010 77,891 84,900 105,278 120,881 11.0 3.7 7.1 100.0 100.0 100.0 lmports (incl. NFS) 5,199 6,357 7,577 10,073 9,183 11,264 24.0 -5.6 5.7 7.6 11.9 9.3 Exports (import capacity) 4,098 5,218 6,596 5.987 6,705 10,784 10.2 10.2 10.6 7.2 7.1 8.9 Resource gap 1,101 1,139 981 4,086 2,478 480 ...0.4 4.8 0.4 Consumption 50,437 54,547 61,529 66,578 69,020 91,586 9.7 3.0 6.5 82.2 78.4 75.8 Investment 12,765 15,602 17,343 22,408 20,910 29,775 22.0 0.5 7.1 18,2 26.4 24.6 Domestic savings 11,664 14,463 16,362 18,322 18,432 29,295 16.4 6.7 8.9 17.8 21.6 24.2 National savings 11,078 13,784 15,655 17,722 17,482 27,933 17.0 5.8 9.0 16.9 20.9 23.1 MERCHANISE TEADE Annual data at current prices -Ao Percent of total Imports Capital goods 1,241 1,734 2,143 3,108 3,569 7,522 31.0 14.3 16.7 42.8 24.8 36.1 Intermediate goods (excl.faelo) 1,210 1,451 2,233 5,091 4,638 7,343 57.0 -5.4 12.6 35.2 40.6 35.3 Fuels and related materials 316 449 727 2,812 3,022 4,344 63.0 5.6 8.3 9.4 22.4 20.9 of which: Petroleum 251 344 605 2,495 2,650 3,711 71.0 4.3 8.1 6.9 19.9 17.8 Consumption goods 478 598 1,089 1,519 1,221 1,610 42.0 -11.0 6.7 15.3 12.1 7.7 Total merchandise imports (fob) 3,245 4,232 6,192 12,530 12,448 20,819 50.0 1.9 12.5 100.0 100.0 100.0 Exports Primary products (exol. fuels) 2,315 3,063 4,718 5,606 6,987 13,142 25.0 17,0 14.4 64.8 70.4 61.2 lPuels and related materials 19 36 52 65 70 101 53.0 7.4 7.7 0.8 0.3 of which: Petroleun 8 16 16 30 30 40 ... 0.4 0.4 0.2 Manufactored goods 570 892 1,429 2,297 2,793 8,231 55.0 22.5 24.0 14.8 28.8 38.3 Total merchandise exports (fob) 2,904 3,991 6,199 7,968 9,850 21,474 31.0 18.6 17.7 100.0 100.0 100.0 Merchandise trade indices 1973-100 Export price index 67 73 100 134 140 201 18.4 4.6 8.2 Import Price index 77 82 100 145 158 216 14.3 7.9 8.4 Terms of trade index 87 89 100 93 88 93 ... Export volume index 71 86 100 96 113 172 10.0 13.7 8.8 VALUE ADDED BY SECTOR /2 Annusl data at 1973 prices and exchange rates As percent of GOP Agriculture 8,850 9,212 9,535 10,346 10,760 13,995 6.8 4,5 5.5 14.6 15.1 14.3 Industry and minIng 15,875 18,066 20,776 22,480 23,222 32,805 12.0 4.2 7.7 32.7 32.8 33.6 Services 25,554 28,532 32,140 35,620 36,860 50,777 11.1 4,3 7.0 52.7 52.1 52.1 Total 50,279 55,810 62,451 68,446 70,842 97,577 11.0 4.2 7.0 100.0 100.0 100.0 PUBLIC FINANCGE Annual data at 1973 prices snd exchange rates (Federal Government) Current receipts 6,168 7,316 8,629 9,757 10,399 15,540 16.9 6.2 9.0 9.4 11.5 12.8 Current expenditures 3,553 3,558 4,227 4,377 5,032 7,107 8.3 9.1 6.9 5.9 5.4 5.9 Budgetary saving 2,615 3,758 4,402 5,180 3,367 8,433 28,0 3.5 11.0 3.5 6.1 7.0 Other public saving 3,393 3,669 4,832 5,625 6,346 10,510 15.5 9.0 10.7 5.0 6.9 8.7 Public aect-r fixed investment 6,404 8,037 8,705 9,667 10,344 15,198 15,8 7.5 8.0 9.8 11.4 12.6 US$ million DETAIL ON PUBLIC SECTOR at 1973 price and ER INVESTlSEl5 PROGRAM 1971-74 7of Total Social Sectors 4,504 11.3 Agriculture 187 0.5 industry and Mining 6,063 15.2 Power 5,499 13.8 Transport and Co,msunicati... 7,384 18.6 Regional development 1,441 3.6 Other f3 14j712 37.0 Total expe,nditure 39,787 11O00 FINANCING Public sector savings 33,674 84.i Foreign borrowings (net) 1,762 14.5 Domestic borrowings 351 0.9 Total financing 39.787 100.00 LABOR FORCE AND OUTPUT PER WORKER5 Totls labor forte Value added per worker (1970 prices & ext. rates) In millions I% of"total 1960-70 In U.S. dollars % of average 1960-70 17960 19 70 1~960 1970 Growth rate 1960 1970 1960 1970 Groth rate Agriculture 12.2 13.1 54.0 44,4 0.7 -- 402 -- 33 - Industry 3.0 5.3 13,3 18.0 5.8 - 2,222 - 182 - Service 7.4 11.1 32,7 37,6 4.1 1- L7Q - 140 - Total 2 2.36 29.5 100.0 100.0 3.1 -- ,220 - 10 --o not applicable not available /1The national accounts data were revised I,n September 1974 to reflect data obtained in the 1970 census. CDP in 1970 has been revised upward by about 207., mainly in the industrial si-ctor. Revisions of the data for yeara prior to 1970 still have nor been completed. 12Net domsotic product at factor cost, 53 Includes financiat investment. May 14, 1975 ANNEX I BALANCE OF PAYIIITS, EXTARhL ASSISTANCE AND DEBT 48 J (In milliams, of U.S. dollers at current prices) Acftnl mlxote 1971 1972 1973 14 IY75 1979 2977 My# 7 1990 1- SUIRY BALANCE OF PATNIY Exports (incl. Iy5) 3,175 4,272 6,996 8, 5U 10,614 12,116 14,001 16,422 19,507 23,274 52,488 -'a'ots (incl. M') 4" ISm 7.J71 14 L4,W 1%22 16.&% 1U.6S3 20.95 24,308 50,264 Resource balnce (X-M) - -- sn -,D17 -3,922 -3,112 -1, -2,261 -1,45B -1,034 2,224 Interest (not) - 302 - 359 - 514 - 650 -1,273 -1,469 -1,747 -2,009 -2,272 -2,503 -3,053 Direct investment incs e 166 - 202 - 219 - 240 - 270 - 304 - 342 - 384 - 432 - 486 - 877 Workers' remittance - - - - - - - - - - - Currsnt Trnsfser. (net) 14 23 4 50 50 50 50 50 50 51Im6e on current account -Ajor-J -34 -4 BE _! -4 6a -4.i3 -3.9 74 -1. 56 Private direct investnt 168 318 940 845 940 1,035 1,135 1,275 1,435 1,615 2,908 Medium- and long-term loans Disbursements 835 1,099 1,376 1,800 2,025 2,226 2,443 2,654 3,004 3,397 6,218 -Ra-a3ents 441 _ 525 _ - 720 - 779 - 745 - 793 - Sj -1.062 -1.282 -2,867 Net disbursements 394 574 0 1,0b0 1, 1,4 1, 1,650 1,786 1,942 2,I1 3,351 Financial credits Disbursements 1,442 3,396 3,151 5,017 3,819 4,509 5,054 5,258 5,386 5,587 1,524 -Repayments - 641 - 0ti -. -I.i3 -179 -21 - -3.715 -4.130 -_4500 -4,404 Net disbursinents 801 2,,6 1,093 3!7 2,240 2,319 2,107 1,543 1,25 1,080 -2,880 Capital transactions n.s.i. 504 626 377 194 - - - Change in reserves (--increase) - 560 -2,565 -2,428 1,049 1,000 - _ _ - 519 - 836 -1,723 GRANT AND 1OAN CYlKIMM Actual Estimated 1971 1972 1973 1974 DSBT A31 MIT 5SRVICK Medium- and long-term loans Public debt outstanding IBRD 256 455 199 and disbursed 4,122 5,509 6,496 9,096 IDB 133 180 250 Interest on psblic debt 211 296 440 619 Governments 199 249 270 Repayment m public debt 608 758 953 1,081 Suppliers 324 350 775 Total pubic debt sarvice(grose)819 1,054 1,393 1,700 Bonds - - - 80 Othb 6ebt Aelvic (grosq4 607 820 1,175 1,570 Loans n.e,i. 121 100 110 _ Total debt servt (met)L& 1,384 1,744 2,242 2,670 Total mdiem d long-term loans 1 033 1 ,334 1 684 -- Burden on q~rt earnings (O. EXTERNAL PU.BIIC MDIT Actual debt outatoadim on March 31, 1974 Public debt ervica 25.8 24.7 20.6 1;7,4 Disbursed emly Percent Total det Derve, 43.6 40.8 34.0 31.2 IBRD 708 10.0 TDS + Invest. Inc. 48.8 45.6 37.3 34.0 Governments 1,nJ 253 Average Term on Suppliers 1,008 14.2 Bonds 149 2.1 Int. as % prior year DO & D 6.0 7.2 8.0 9.5 Finanecal credits 2,875 40.5 Asort. as 7 prior year DO & D 17.4 18.4 17.3 16.6 Public debt n.e.i. 273 3.8 Total public debt 7,095 100.0 IBRD debt outs. & disbursed 347 484 647 872 IBRD as % public debt 0 & D 8.4 8.8 10.0 9.6 I8W as 7 total debt 0 % D 5.2 5.0 5.1 5.0 IBiD as 7 public debt service 4.2 4.8 5.0 4.3 IBRD as 7. total debt service 2.5 2.9 2.9 2.7 /1 Gross debt service less interest earned on reserves. May 14, 1975 ANNEX II Page t of 10 THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL A. SUMMARY STATEMENT OF LOANS (As of March 31,1976) Loan Amount Less Undis- No. Year Borrower Purpose Cancellations bursed (US$ million) Twenty-Four Loans Fully Disbursed 656.9 403 1965 Furnas - Centrais Eletricas Estreito I Power 57.0 0.1 474 /1 1966 Furnas - Centrais Eletricas Estreito II Power 39.0 0.7 565 1968 Furnas - Centrais Eletricas Portc Colombia Power 22.3 0.6 566 1968 Centrals Eletricas de Minas Gerais - Volta Grande Power 26.6 0.8 677 1970 Furnas - Centrais Eletricas Marimbondo Power 80.0 5.8 728 1971 Centrais Eletricas do Sul do Brasil - Salto Osorio Power 70.0 14.9 755 1971 Brazil Education 8.4 4.4 756 1971 Brazil Ports 45.0 34.6 757 1971 Superintendencia de Agua e Esgotos da Capital Water Supply 22.0 12.6 758 1971 Companhia Metropolitana de Pollution Saneamento de Sao Paulo Control 12.0 6.1 786 1971 Rede Ferroviaria Federal Railways 46.0 5.2 797 1972 Companhia Siderurgica Nacional Industry 64.5 7.4 812 1972 Usinas Siderurgicas de Minas Gerais Industry 63.0 13.2 813 1972 Brazil Roads 89.0 5.6 828 1972 Companhia Siderurgica Paulista Industry 64.5 10.1 829 1972 Centrais Eletricas de Minas Gerais - Sao Simao Power 60.0 17.3 853 1972 Brazil Land Settl. 6.7 6.1 /1 In two tranches. ANNEX II Page 2 of 10 Loan Amount Less Undis- No. Year Borrower Purpose Cancellations bursed (US$ million) 854 1972 Brazil Roads 51.0 4.8 857 1972 Banco do Brasil Grain Storage 23.7 6.4 868 1972 Brazil Livestock 26.0 6.1 887 1973 LIGHT-Servicos de Eletricidade Power 20.0 18.0 923 1973 Furnas Centrais Eletricas Itumbiara Power 125.0 105.4 924 1973 Brazil Agro-Indus. 54.0 40.9 1008 1974 Cia Hidro Eletricas do Sao Francisco-Paulo Afonso IV Power 81.0 81.0 1009 1974 Banco Nacional de Habitacao Water Supply 36.0 35.1 1067 1974 Brazil Education 23.5 23.4 1074 1975 Rede Ferroviaria Federal Railways 175.0 174.7 1075 1975 Brazil Roads 110.0 104.7 1151 /1 1975 Companhia Siderurgica Nacional Industry 95.0 95.0 1152 1975 Companhia Siderurgica Paulista Industry 60.0 60.0 1153 1975 Brazil Agriculture 23.0 23.0 1171 1975 FEPASA-Ferrovia Paulista Railways 75.0 75.0 1195 /1 1976 State of Rio Grande do Norte Rural Develop. 12.0 12.0 1206 /1 1976 Brazil Develop. Bank 85.0 85.0 1207 /1 1976 Banco Nacional do Desenvolvimento Economico Highways 55.0 55.0 Total 2,563.1 /2 1,151.0 Of which has been repaid to the Bank and others 292.7 Total now outstanding 2,270.4 Amount Sold 38.5 of which has been repaid 10.3 28.2 Total now held by Bank 2,242.2 Total undisbursed 1,151.0 /1 Not effective as of March 31, 1976. /2 No IDA credits have been made to Brazil. ANNE, I I Page 3 of 10 B. STATEMEN3 OF IFC IINVESTMENTS (AS OF MARCH 31. 1976) Year Obligor Type of Business Amount i US$ million Loans Equity Total 1957 Siemens do Bra:3il Cia. de Eletrinidade Electrical Equipment 2.00 - 2.00 1958 Olinkraft, S.A, Celulose e Papel Pulp and Paper 1.20 - 1.20 1958 D.L.R.Plastico:; do Brasil, S.A. Automotive Parts 0.45 - 0.45 1958 Willys-Overlani do Bras.1, S.A. Industria e Comercio Motor Vehicles 2.45 - 2.45 1959 Companhia Mineira de Cimento Portland, S.A. Cement 1.20 - 1.20 1959 Champion Celul.se, S.A. Pulp 4.00 - 4.00 1966/1968/ 1972 Acos Villares, S.A. Steel 8.00 1.93 9.93 1966/1969 Papel e Celulo;e Catarinense, S.A. Pulp and Paper 4.06 3.13 7.19 1967/1972 Ultrafertil, S.A. - Industria e Comercio de Fertilizante; Fertilizers 8.22 3.03 11.25 1969 Petroquimica Usiao, S.A. Petrochemicals 5.50 2.88 8.38 1970 Poliolefinas, 3.A. Industria e Comercio Petrochemicals 5.50 2.88 8.38 1971 Oxiteno, S.A. Industria e Comerco Petrochemicals 4.60 1.44 6.04 1971 Industria de Criulose Borregaard, S.A. Pulp 4.90 - 4.90 1972/1975 Companhia de Cimento Nacional de Minas Cement 29.14 3.20 32.34 1973/1974 Companhia Siderurgica da Guanabara - COSIGUA Steel 67.00 6.50 73.50 1973 Capital Market Development Fund - FUMCAP Capital Market Development 5.00 - 5.00 1973 Empresa de Desenvolvimento de Recursos Mickol Mining and Refining 26.00 4.40 30.40 Minerais - CODEMIN, S.A.NiklMnnanRenng200 40 300 1974 Industrias Villares, S.A. Elevators and Industrial Equipment 6.00 - 6.00 1974 Fabrica de Tecidos Tatuape, S.A. Textiles 31.00 - 31.00 1975 Capuava CarbonDs Industriai9 Ltd. Carbon Black 6.18 1.08 7.26 1975 Oxiteno Nordeste, S.A. Petrochemicals 10.00 - 10.00 Total Gross Comitments 232.40 30.47 262.87 Less Cancellations, Terminations, Repayments and Sales 171.84 8.09 179.93 Total Commitments Now Held by IFC 60.56 22.38 82.94 Total Undisbursed 17.68 0.80 18.48 ANNEX IT Page 4 of 10 C. PROJECTS IN EXECUTION 1/ (As of March 31, 1976) There are now 31 effective Bank loans under disbursement: Loan No. 403/474 Estreito Hydroelectric Project: US$57 and US$39 million loans of February 26, 1965 and December 19, 1966; Effective Dates: July 8, 1965 and June 1, 1967; Closing Date: December 31, 1976. The project is completed and the loan is almost fully disbursed. Equipment costs were substantially below estimates. The original Closing Date was April 1, 1971. 565 Porto Colombia Hydroelectric Project: US$22.3 million loan of October 23, 1968; Effective Date: February 18, 1969; Closing Date: December 31, 1975. Changes in the project layout and design have increased substantially the local cost, which will be covered by ELETROBRAS, without, however, significantly affect- ing the economic justification for the project. Construction work is completed. The Closing Date of the project was postponed from March 31, 1975, the original date, to December 31, 1975, to allow for disbursement of retention payments. 566 Volta Grande Hydroelectric Project: US$26.6 million loan of October 23, 1968; Effective Date: February 27, 1969; Closing Date: June 30, 1976. The project was delayed six months by spillway foundation difficulties but progress has since been satisfactory. The project was completed in September 1975 with a cost overrun of US$138 million due to foundation problems and cost increases in equipment. However, the resulting unit cost of generating capacity is still attractive. The Closing Date of the Loan was postponed a second time to June 30, 1976, to permit payments to continue on several purchases already placed. The original Closing Date was January 31, 1975. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 5 of 10 Loan No. 677 Marimbondo Hydroelectric Project: US$80 million loan of May 25, 1970; Effective Date: September 29, 1970; Closing Date: May 31, 1977. Construction work is proceeding on schedule. The cost of the project has increased by US$42 million, or 15% over the original estimate, because of increased excavation and concrete work, resulting from poor rock foundation, and increased equipment prices. This has not significantly affected the economic justi- fication of the project. 728 Salto Osorio Hydroelectric Project: US$70 million loan of April 5, 1971; Effective Date: July 19, 1971; Closing Date: May 31, 1977. The construction of the Salto Osorio hydroelectric plant is progress- ing satisfactorily and the first two of the planned four generating units are now in commercial operation. A cost overrun of about US$127 million, due to increased equipment and construction costs, is foreseen, but this does not significantly affect the economic justification of the project. The cost overrun is being financed by loans from ELETROBRAS and a commercial bank. The construction of the transmission system, delayed to allow required modifications, is proceeding satisfactorily. 755 Education Project: US$8.4 million loan of June 21, 1971; Effective Date: October 28, 1971; Closing Date: December 31, 1977. Prog- ress on the construction and equipping of the project schools is now proceeding satisfactorily. However, the project implementation is behind the original schedule due to initial delays in establish- ing and staffing the project unit and because of subsequent changes in project content. The original Closing Date was December 31, 1975 756 Santos Port Project: US$45 million loan of June 21, 1971; Effective Date: October 29, 1971; Closing Date: June 30, 1979. Execution of the project is now proceeding satisfactorily, although there have been further delays and cost overruns which will be financed by the Borrower. The Government has approved legislation which converted DNPVN from a government agency to a public corporation, PORTOBRAS. PORTOBRAS, with the assistance of management consultants, has been improving port operations in Santos. The National Port Development Study financed under the project is now completed. 757 Sao Paulo Water Supply Project: US$22 million loan of June 21, 1971; Effective Date: January 13, 1972; Closing Date: June 30, 1976. The project suffered initial delays caused by the State of Sao Paulo not furnishing the required counterpart funds, which are now included in the state budget. The Government has consolidated all the water and sewerage companies in the state into a single company, SABESP, and a loan assumption agreement with the new company was conzluded on December 18, 1974. Progress of the project is expected to improve with new management of the company which took office recently. The original Closing Date was June 30, 1975. ANNEX II Page 6 of 10 Loan No. 758 Sao Paulo Pollution Control Project: US$15 million loan of June 21, 1971; Effective Date: January 13, 1972; Closing Date: June 30, 1976 A review of the original design resulted in its modification to ex- clude the discharge of raw sewage and a related treatment facility. As a result of the modifications in the project, the loan amount was reduced to US$12 million. The Government has consolidated all the water and sewerage companies in the State into a single company, SABESP, and a loan assumption agreement with the new company was concluded December 18, 1974. Progress of the project is expected to improve with new management which took office recently. The original Closing Date was June 30, 1975. 786 Railway Project - MBR: US$46 million loan of August 25, 1971; Effective Date: February 4, 1972; Closing Date: March 31, 1978. The project is now completed, except for the construction and equip- ping of the Borrower's main workshop at Jaceaba. The purchase of equipment for this workshop was delayed because of a change in the location of the workshop resulting from the Government's decision to build a new railway line between the cities of Belo Horizonte and Volta Redonda. To allow additional time required for the purchase of this equipment, the Closing Date, originally September 30, 1975, was postponed to March 31, 1978. 797 CSN Steel Expansion Project, Stage II: US$64.5 million loan of February 8, 1972; Effective Date: August 31, 1972; Closing Date: July 1, 1976. The latest cost estimate is US$653 million, an in- crease of about 65% over the appraisal estimate due to design evolution, unforeseen site works and increases in local construc- tion costs. This cost increase will not significantly affect the economic justification of the project. The project is now 75% complete and is about ten months behind the appraisal schedule. 812 USIMINAS Steel Expansion Project, Stage II: US$63 million loan of April 11, 1972; Effective Date: July 28, 1972; Closing Date: June 1, 1977. The latest cost estimate is US$952 million, an increase of about 67% from the appraisal estimate due primarily to design evolution and increases in local construction costs. This cost increase will not significantly affect the economic justification of the project. The project is 80% complete and is about nine months behind the original schedule. Implementation of Stage III, which is not being financed by the Bank, is well under- way. The original Closing Date was June 1, 1976. 813 Third Highway Construction Project: US$89 million loan of April 11, 1972; Effective Date: December 4, 1972; Closing Date: June 30, 1976. Construction works are more than 98% completed but are slightly behind schedule; the estimated total contract cost is about 2% above the appraisal estimate. The feasibility studies and detailed engineering financed under the loan were ANNEX II Page 7 of 10 Loan No. started later than planned, but are now completed at a cost substantially below the appraisal estimate. Disbursements are lagging behind the appraisal forecast, but have improved during the past year. 828 COSIPA Steel Expansion Project, Stage II: US$64.5 million loan of June 14, 1972; Effective Date: October 5, 1972; Closing Date: January 15, 1977. The latest cost estimate is US$733 million, an increase of about 55% over the appraisal estimate due primarily to increased local construction costs. This will not significantly affect the economic justification of the project. The project is now 70% complete and is about nine months behind the original schedule. 829 Sao Simao Hydroelectric Project: US$60 million loan of June 14, 1972; Effective Date: September 20, 1972; Closing Date: September 30, 1979. Construction of the project is proceeding according to schedule. An anticipated 50% cost overrun is being covered by local and foreign borrowing. 853 Alto Turi Land Settlement Project: US$6.7 million loan of July 24, 1972; Effective Date: February 15, 1973; Closing Date: December 1, 1978. COLONE has prepared revised farm development plans whose credit component, to be financed by public financial institutions, will be significantly higher than originally estimated, although still low in comparison to other settlement projects. Administra- tive delays in the release of public funds for farm credit and COLONE working capital requirements and difficulties in recruiting project staff delayed the start of project execution. Settlement, however, has now begun and the project should be completed in 1978 as envisaged. 854 Fourth Highway Construction Project: US$51 million loan of August 4, 1972; Effective Date: March 21, 1973; Closing Date: December 31, 1976. Construction is more than 75% completed but behind schedule. However, disbursement is expected to be com- pleted by the Closing Date. The estimated total contract cost is 11% above the appraisal estimate. 857 Grain Storage Project: US$30 million loan of September 27, 1972; Effective Date: January 16, 1973; Closing Date: December 31, 1979. After some initial difficulties with the appraisal of subprojects, the project had been progressing satisfactorily. However, in April 1975 the Government adopted a national grain storage financing program involving subsidized interest rates. Therefore, on October 28, 1975, the Bank and the Borrower agreed to cancel the uncommitted balance (about 20%) of the loan. Disbursement of the loan is proceeding as scheduled. ANNEX II Page 8 of 10 Loan No. 868 Interim Second Livestock Project: US$26 million loan of December 19, 1972; Effective Date: May 24, 1973; Closing Date: June 30, 1977. The project is proceeding normally. The loan has been fully com- mitted and is expected to be disbursed as scheduled. 887 Power Distribution Project: US$20 million loan of April 16, 1973; Effective Date: July 31, 1973; Closing Date: June 30, 1976. Prin- cipally due to difficulties encountered in preparing bidding docu- ments and delays in deliveries of equipment and materials, the project is about two years behind schedule. Complete delivery and installation of equipment and materials to be financed by the loan will probably take until July 1977 and a postponement of the Closing Date will be required. 923 Itumbiara Hydroelectric Project: US$125 million loan of August 1, 1973; Effective Date: October 30, 1973; Closing Date: December 31, 1982. Contracts for penstocks, turbines, and concrete and earth works have been awarded. Commissioning of the first generating unit is scheduled for March 1980, four months behind original schedule due to delay in awarding of the civil works contracts. 924 Agro-Industries Credit Project: US$54 million loan of August 1, 1973; Effective Date: March 11, 1974; Closing Date: December 31, 1978. The Central Bank expects to complete commitment of project funds by mid-1976. 1008 Paulo Afonso IV Hydroelectric Power Project: US$81 million loan of June 17, 1974; Effective Date: April 15, 1975; Closing Date: December 31, 1978. A Bank mission recently reviewed the progress of the preparation and implementation of plans for resettlement of the 9,700 families to be displaced by the Sobradinho reservoir. Execution of these plans is underway, and construction of new towns to house the urban portion of the population has begun. The rural population is being offered the opportunity of resettlement in a promising new agricultural area in the Corrente River region in the western part of the State of Bahia. Those who prefer to remain near their present houses will be resettled in new villages on the edge of the future reservoir. The construction of the underground power station and Sobradinho Dam is proceeding on schedule. 1009 Minas Gerais Water Supply Project: US$36 million loan of June 17, 1974; Effective Date: January 9, 1975; Closing Date: August 15, 1977. The State Water Supply Company changed its name from Companhia Mineira de Agua e Esgotos (COMAG) to Companhia de Saneamento de Minas Gerais (COPASA-MG). The project is progressing on schedule and the loan has been fully committed. ANNEX II Page 9 of 10 Loan No. 1067 Second Education Project: US$23.5 million loan of December 27, 1974; Effective Date: April 17, 1975; Closing Date: December 31, 1979. Project execution has started reasonably well, and is expected to be completed by the target date. Project implementation units have been established in all eight project states and these, together with the main project unit, PREMEN, are working well. The pre-investment studies in the Northeast, financed under the loan, are underway and are expected to yield useful information for future sector investment planning. 1074 Second Railway Project: US$175 million loan of January 17, 1975; Effective Date: June 17, 1975; Closing Date: December 31, 1979. Project execution is progressing reasonably well and appropriate steps are being taken to strengthen project management and control. Cost estimates for the Investment Plan, of which the project is a part, have increased substantially on several items. The Borrower is therefore preparing a revised Plan in which items with low prior- ity will be postponed or scaled-down. This revision is not expected to affect the project items. Tendering for Bank-financed items is on schedule. 1075 Fifth Highway Project: US$110 million loan of January 17, 1975; Effective Date: May 15, 1975; Closing Date: December 31, 1979. Project execution is proceeding satisfactorily. Contracts for civil works for all 21 lots have now been awarded and construction works are proceeding according to schedule. Implementation of the road maintenance component of the project is slightly delayed due to protracted negotiations for the hiring of consultants. 1152 COSIPA Steel EKpansion Project - Stage III: US$60.0 million loan of August 4, 1975; Effective Date: March 4, 1976; Closing Date: June 30, 1980. Project is proceeding according to schedule. Bidding for equipment is underway. 1153 Lower Sao Francisco Polders Project: US$23.0 million loan of August 4, 1975; Effective Date: November 25, 1975; Closing Date: December 31, 1979. Construction of dikes and the irrigation and drainage system for the Betume varzea has begun. Bidding for most of the other civil works and equipment procure- ment is underway. Preliminary estimates, prior to bid evalua- tion, are that project costs might increase considerably over the appraisal estimate due to partial design changes and more rapid than expected increases in equipment and construction prices and in costs of land expropriation. The emergency works ANNEX II Page 10 of 10 Loan No. remain the least cost way to offset the effects on the project area population of the hydroelectric developments upstream. Nevertheless, further possible modifications in the design of emergency and irrigation works are being studied by CODEVASF and its consultants with a view to limiting cost increases. 1171 Third Railway Project (FEPASA): US$75.0 million loan of November 12, 1975; Effective Date: March 24, 1976; Closing Date: June 30, 1979. Project execution is proceeding satisfactorily. ANNEX III Page 1 of 2 BRAZIL COPEL POWER DISTRIBUTION PROJECT Loan and Project Summary Borrower: Companhia Paranaense de Energia Eletrica (COPEL). Guarantor: Federative Republic of Brazil. Amount: US$52 million equivalent. Terms: Payable in 20 years, including 3-1/2 years of grace and 8-1/2% interest per annum. Project Description: The project consists of COPEL's distribution expansion facilities to be initiated from July 1, 1976, and to be comtpleted by June 30, 1979. It includes investments in subtransmission and distribution needed to meet increased demands on the utility's system; related inspection and training and acquisition of laboratory maintenance and system operation equipment as follows: (i) installation of 50 circuit-km of 138 kV tie lines; (ii) construction, expansion or improvements of nine 138 kV substations, including addition of 305 MVA transformer capacity; (iii) installation of 390 MVA transformer capacity at 69 kV and 80 MVA transformer capacity at 34.5 kV; (iv) in- stallation of 166 circuit-km of 69 kV lines, 130 km of 13,8 kV feeders, 1,040 km of 34.5 kV lines and 860 km of 13 8 kV lines, 4,560 transformers (13.5 kV/220 - 120 V) and 200 transformers (34.5 kV/220-120 V) with an aggre- ga:e capacity of 260 MVA; 3,100 circuits of 34.5 kV and 13.8 kV (340 m average length); 145,000 electric meters; 135,000 street lights; (v) improvement of 1630 existing circuits of 34.5 kV and 13.8 kV (340 m average length); (v:L) replacement of 85,000 electric meters; (vii) expan- sion of meter laboratory facilities and equipment; (vLii) supplementary equipment for maintenance and ope- ration including energized-line maintenance and system protection and operation equipment; and (ix) inspection of equipment fabrication, through the utilization of con- suLtants' services, (60 man-months), and training of staff during such inspection (128 man-months). ANNEX III Page 2 of 2 Estimated Cost: (in US$ million equivalent) Category Local Foreign Total Substation 69 kV 12.1 9.0 21.1 Substations 34.5/13.8 kV 3.9 2.4 6.3 Subtransmission Lines 3.8 1.0 4.8 Distribution 50.4 18.1 68.5 Auxiliary Services 0.9 11.0 11.9 Physical Contingency 9.3 1.9 11.2 Engineering and Administration 19.9 - 19.9 Training - 0.3 0.3 Fabrication Inspection - 0.4 0.4 Price Contingency 36.1 7.9 44.0 Total Project Cost 136.4 52.0 188.4 Financing Plan: (in US$ million equivalent) Net internal cash generation and contributions 136.4 IBRD loan 52.0 Total Project Cost 188.4 Estimated Disbursements: (in US$ thousand equivalent) Fiscal Year Annually Cumulative 77 9,000 9,000 78 17,000 26,000 79 19,000 45,000 80 7,000 52,000 Procurement Arrangement: Equipment and materials to be financed by the recommended Bank loan would be procured on the basis of international competitive bidding under the Bank's Guidelines; the manu- facturers whose bids contain components manufactured in Brazil equal to at least 50% of the value of the bid being given a 15% margin of preference or the applicable import duties, whichever is lower. Special imported .metering and system protection equipment (about US$1.8 million) and mis- cellaneous imported equipment required in small quantities (about US$0.8 million) will be purchased directly. Rate of Return: 20% for COPEL's overall investment program. Appraisal Report: Report No. 1028b-BR of April 22, 1976. IBRD 12133 54- 11" 52'~~~~~~~~~~~~~~~~o 5cr 40- APPIL 976 5c- P m- S a o P o ulI o BRAZ I L 00a o d a u I o State of Parana -Power System 7-.lfur S'. SuI.- Aerri 5toAntonio ts'ponopol. ''t;' IIP \-SERVICE AREA AND MAIN INSTALLATIONS Companhia Paronoeense de Energia Electrico - COPEL X pormsodpNolt*< Fl S perongn 19udeO s p Settoenpet Nos Fre A I El AU tsig d~~~~ -p. d I T. C)~~~~~~~~~~~~~~eon A 0I) ' / < C.dud t CX dO Iva S + N~~~~~~~~~~~~~~~~~~~~~onO pwodo 'reo< prooereen~ A * 2 U .-} \<~~~~~~(dj Ma debe n a/3j Morsodi o Amopegr I edoonbeds / .....b... .fet eendto IDtI nrer.nlbur,ndre )e torbe n u (retr Noe ,s M -ortrno Pntt_ _ ctebonor2 l t P / || ° " \ u i-2x3 t; \ ? 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Ae0 Fooeh Ab 26 ep enr (ernprdo~~~~~~~~ I~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~cHesCp er 04J .eg Siesedee~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. ... db S a n a C a a r n a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~S eoer H 52 50 ( To Chorend~52 5.0