ERMI 25 ILE COPY COlIj7P7^*T. I TE nRi.ATIONAIL 3,A1TT FOR TIOITST.RUCTIOY AFD DEVThr 1 SUTE.LUXY EI CT IC 1O`'ITR PR-J ()CTS -S IiHC L-JJTD IN. THE IXICAT L07 APPLICZ IOfTS Washington, D.C. October 29, 1948. ,:. C O N T E N T S Paragraphs PART I . . . . . . . . ... l-,-17 PART II . . . . .... .... . 18--58 PART III ..... , 59--74 PA-RT IV, ................. 75-84 Schedule I Appendices A--D It N O T E This report is not final i.n the sense that, while it contains an appraisal of the electric powxer projects in llexico for which Bank financing is pro- posed, it is not wet possible to include certain data still under discussion wiith the Lexican Government and the liexican Light and Power Company. 0-0-0-0-0 _MEXCO STAIMARY OF MMVLOPICIETT PROJFCTS PART I 3lectric Power in Tlexico - General Information 1. The needs of the mining and textile industries for a source of cheap power led to the creation of the electric power industry in Mexico in 1881. The electricity industry grew ranidly, and by 1900 had a total installed generating capacity of 200,000 kir. By the end of 1947 there were 963,000 kzf of installed capacity throughout Mexico. 2. Because of the scarcity of a suitable grade of coal and the relatively high cost of petroleum on the one hand, and the low cost of labor and availability of water resources on the other, most of the earlier generating plants were hydroelectric. In July, 1947, approximately 54 per cent of the total installed generating capacity was hydroelectric, 27 per cent steam, and 19 per cent internal combustion. At that date 53 per cent of the in- stalled capacity was in 60-cycle plants, 45 per cent in 50-cyrcle, and the remainder in frequencies of 42 to 25 cycles. Public util- ity plants accounted for approximately 75 per cent, plants in private service 18 per cent, and plants in service for both public and private purposes 7 per cent. 3. There has been a fairly constant increase in lkwh generation since 1933, although installed capacity shows a slowrer growth. Schadule 1 show, s the annual electric power generation throughout MIexico by all types of service,, both public and private. 4. There are five principal interconnected electric rower s-stems in Me-ico. The follolwring table indicates their location and principal suppliers: System Principal Supplier Location 1947 Generation and Purchase of Power 1. Torreon-Chihuahua American & North 325,593 m1kwh Foreign Power Co. Central 2. Puebla-Veracruz East 230,148 Central 3. Guanajuato Central 189,271 Total A & F Fowrer Co. _745 0l12 4, Mexico City Mexican Light & Central 1,548,607 Powrer Co. 5. Chapala iTueva Cia. West 163,305 Chapala Central Small isolated systems and -olants generated about 1,000,000 mkwh in 1947. 5. Power is supplied to some of these systems by a govern- mental agency, the Federal Electricity Commission. This agency was created by law (August 14, 1937, published in Diario Oficial on August 24, 1937) for the purpose of organizing and directing a national system, on a nonprofit basis,for the generation, trans- mission and distribution of electrical energy. The Commission consists of the Minister of I;Tational Economy, wrho acts as President, and one Executive Director and one Director (who acts as Secretary), both aypointedl byr the Federal Executive. The Commission is empowered, among other things, to plan a national system of electrification; to effect all operations in con- nection with the establishment of such a system, including acquisition of property and of shares and securities in the electric industry; to organize companies for the generation, transmission and distribution of electricity and for the manu- facture of equipment required by the industry; to organize cooperatives of consumers, and to supervise proposed electrifi- cation activity of official, semi-official or private enterprises. 6. The Commissionts plants are locatea in the first, second and fourth of the above listed systems. It sells the out- put to the distributing companies. The princi-oal purciasers are the Mexico City system and the Puebla Veracruz system. Total installed capacity of plants belonging to the Commission amounted to 92,168 wr at the end of February 1948. 7. The following table show;rs the investments in electric power facilities in Mexico, grouped according to the nationality of the ownership: (million of pesos) Cormany Investment* Percentage Nationality Julay 1947 of Total of C orroany Mexican Light & 445.0 43-3 Belgian Powrer Co., Ltd.., and. and subsidiaries . Canadian American & Foreign 294.0 28.5 American Power Co., Ltd. subsidiaries Monterrey Railway, 38.0 3.8 Canadi^aa Light & Power Co. Nueva Cia. Chapala 47.0 4.6 Mexican Comision Federal de 184.0 17.9 Menican Blectricidad Others 20.0 1.9 Mexican and other 1,028O 100)O * Determined by app1ication of rules of the IMexican Law for the Electric Industry, exce-ot for the Federal Comision which rep- resents book value of investments as of September 30, 1947. Mexican Light and- Power Com-QanY Limited 8. The Company was originally organized. under the law;s of Canada in 1902. Its principal w1holly-owned subsicliaries are uhe Mexican Electric Light Company, Ltd., which has water rights on the Monte Alto River in the District of Cuautitlan; The Compania de Lux v. Fuerza de Pachuca, S.A. ovming iwrater rights in the dis- trict of Zumpango and in the State of iHidalgo; the Compania Menicana Meridional de Fuerza, S.A. which has water rights on two important rivers in Contral ::exico; the Comrinnia de ?auerza del Suroeste de Mexico, S.A. which has wvater rights in the State -5- of Michoacan; and the Compania de 'ux v. Fuerza Electrica de Toluca, S.A. which has water rights on the Verde, San Simonito and San Pedro Zictepec rivers. 9. The Mexican Light and Power Company and its sub- sidiaries serve the Federal District (in which ltle::ico City is located) and parts of the States of MeXico, EFidalgo, Puebla, Morelos, Guerrefo and Michoacan. The population served is approximately 2,260,000, or 10 per cent of Me.xicols total, eand the rate of population growth is about 2.3 times that of the country as a lwhole. The Federal District accounts for about 35 per cent of the total production of manufacturing industries of MIexico. Moreover, substantial new incdustrial developments are being undertaken in the State of IEexico. High tension in- dustrial customers take about 47 per cent of tle entire out'-put of the Company. 10. The Companies operate 15 hydroelectric plants havirg a total of 223,650 kwr installed capacity, 1 steam plant of 55,000 1m, a total of 278,650 kw. Tlhis, together with the intercoridected 55,800 in,t installed canacity at the Ixtanantongo plant of the Mexican Federal Power Commissioni, the entire output of w,?hich is -purchlased by the Companies, gives a total available capacity of 334,450 1,kw. Including 219,759 mkwh -ourch.ased from the Federal Electricity Commission, the Company distributed, in 1947, a total of 1,548, 607 mkwArh. The Company plans further additions to its own generating capacity and its oTrn distribution s-stem, but in order to meet future demand it also counts upon purchasing at wholesale the output of additional plants to be constructed by the Federal Electricity Commission. 11. The nrincipal generating units of the Company are INecaxa (hydro), Lerzma (hydro) and Nonoalco (steam). The iTecaxa plant is located about 90 miles northeast of 1.lexico City, the Lerma plart 78 miles northwest and the iTonoalco plant in the City itself. Company plants generated approxcimately 46.5 per cent of all electric power in Miexico and the Company purchased for dis- tribution about 60 per cent of power generated by the Federal Electricity Commission. American and Fore iSn Power Company 12. The American and Foreign Power Company controls the activities of 20 subsidiaries which comprise its system in Mexico. Fifteen are operating subsidiaries comprising three major interconnected systems and eight smaller nonconnected systems. The operating subsidiaries su-pply electric power and light to a population of 2,150,000 in north, central and south- ern Mexico and on the east and west coasts, representing about 9X of the total. 13. In the Torreon-Chihuahua system, power is supplied to those two cities and in addi.tion to the irrigation district of Laguna and the mining areas in San Francisco del Oro, Santa Barbara and ?aral. The other important system of the Company is that of Puebla-Veracruz wrhich includes the industrial cities of Puebla, Veracruz, Orizaoa ard Cordoba. The remainder of tne Company's operations consist of the interconnected system of Guanajuato and the eight isolated systems in vario-us states. 14. The Company has pre-ared an expansion -program which will increase its generating capacity by approInately 66,000 kw (or 37 per cent over the installed canacity at the end of 1947) to a total of 246,000 kw. Other, Private Utility Companies 15. Other utility companies in Mexico play a much less important role than those above mentioned. A small companyj ESPEMSA, owned by American capital, operates seven isolated plants in the northwest of Mexico. This Company plans certain improvements in its distribution system but is dependent upon the Commissionts projected generating plants for meeting future demand. COoiclusion 16. The relative importance of the electric power industry in Mexico may be gauged from the following table: Years Installed capacity Power generation per. cTapita,in watts rer capitj in kth. Mexico 1947 41.5 158 Chile 1947 (est..) 95 505 Brazil 1946 Z9 109 Argentine 1946 92 200 U,S.A. 1947 367 1,759 17. The economic development of the country in the last few years has substantially increased the demand for power. It could not have been satisfied in spite of new facilities provided by the cormpanies and the Commission. Spaxe generating capacity has beer gradually utilized, so that, at the present time, no interconrected system has sufficient firm capacity to ta!:e care of its contracted load. As a result of this, power rationing has had to be intro- duced in the periods of peak demand. *99- PART II Development Projects of Federal Eloctricity Commission and L.exican Light and Powver Company A. FEDERAL EL.CTRICITY C01I,.SSION 1l. The five-year electric power development program sub- mitted by the Federal Electricity Commission to the Bank in 1948, calls for - (a) construction of hydro- and thermoelectric plants of an aggregate capacity of 1,018,280 kw; (b) construction of transmission lines, distribution and communication systems, ruial electrification plants; and (c) aid to small private plants. 19. The cost of this program was estimated at .212,h21,OOO. Of this ..i121,929,0O wvere to be spent over a period of five years for imported equipment and materials. The folloiwing table outlines the domestic and foreign financing already disbursed and that still required to carry out the over-all program: -10w- (in thousands of U.S. Dollars) Type of Total Disbursed or Future Percenta-e Expenditure Disbursements Committed up Disbursements of or Cor.mmitments to 12/31/47 1948-52 Fro£rranj Required b'inan-ced Foreign ,; 121,929 ,; 12,579 109,350 loi"- Local 90,492 17,958 72,534 20% Total, all expenditures $"d 212,421 $ 30,537 v 181,884 1l4% 20. The facilities to be constructed are located mostly in developed areas, particularly the industrialized and agricultural central section of the country. The projected -i'orty-one new plants, of a total capacity of 1,018,280 kIn, would generate annually a total of 4,343,2o0 fikwh. 21. The Bank has been asked to finance $'109,350,000, the balance of the foreign cost of construction to be applied as follo;Is: (in thousanads of U.S. Dollars) Projects Niumber Cost 1. Hydroelectric Plants: Of the Commission 17 $ 29,520 Of the Iinistry of Hydraulic Resources 15 9,690 2. Thermoelectric Plants 9 21,549 3. Transm.ission Line Systems 12 21,337 4X Distribution Systems 6 2,304 5. Cormmunication System 1 1,237 6. Rural Electrification Plants 100 8,247 7. Aid to Private Companies 15,h66 $109,350 (in thousands of U.S. Dollars) Type of Total Disbursed or Future Percenta,e Expenditure Disbursements Committed up Disbursements of or Conmmitments to 12/31/L7 1948-52 Profrrai~. Required £Financed Foreign 7 121,9292 n 12,579 109,350 1O' Local 90,492 17,958 72,534 20% Total, all expenditures , 212,421 $ 30,537 $ 181,884 14% 20. The facilities to be constructed are located mo2tly in developed areas, particularly the industrialized and agricultural central section of the country. The projected Torty-one new plants, of a total capacity of 1,018,280 lrw, vwould generate annually a total of 4,3 43,2h0 akwh. 21. The Bank has been asked to finance :"'109,350,C00, the balance of the foreign cost of construction to be al,plied as follomus: (in thousands of U.S. Dollars) Projects INu.mber Cost 1. Hydroelectric Plants: Of the Commission 17 'i 29,520 Of the I,inistry of Hydraulic R.esources 15 9,690 2. Thermoelectric Plants 9 21,549 3. Transmission Line Systems 12 21,337 4. Distribution Systems 6 2,30L 5. Communication System 1 1,237 6. Rural Electrification Plants 100 8,247 7. Aid to Private Companies 15,466 .2"109, 350 22. Although preliminary market studies have been made, the need for the entire proposed increase in capacity has not yet been fully established. Hoiever, the postponement of consideration of any financing until all marketing and engineering studies are completed would result in consi-erable loss of time to the detriment of urgently needed projects. Consequently, the Bank has notified the L.exican authorities that it vwould consider, at this time, specific projects of particularly urgent character only. 23. As a result of the Bank's attitude, the Federal Electricity Commission has resubmitted a nunber of selected specific projects. Discussions by the Bank's Engineering Adviser viith the representativres of the Federal Electricity Commission, the Lexican Light and Power Company, the American and Foreign Power Company and Empresa de Servicios Publicos de los Estados hexicanos, (ESPLEi.) resulted in the accept- ance of several projects. The foreign expenditure over the four year period of construction involved in these projects amounts to $23#.925,378 and the local cost to the equivalent of?3o,'o7,I0ooo. The Bank's Engineering Adviser is, at this tir.e, making a further chec1; of the projects and of their costs. This final check may result in some revisions of the projects described below. Selected Projects (a) Mexico City System 24. The first area in which urgent projects of the Commission are located is the Lexico City system, the economic impQrtance of which has already been described, The original proposal of the Uominission vwas to install 428,100 krw of generating capacity and complermentary transmission lines in the Lexico City area at a total foreign exchange cost of `22,935,000i In the opinion of experts, the forecast of future demand was not sufficient to justify the entire program at this time. 25. Discussions betaeen the Bank and the Commission led. to the selection of four projects, in: Santa Barbara 63,600 kw Ixtapantongo 52,o00 kw San Bartolo 20,900 El Durazno 18,400 which wvould add to the existing system 154,900 kw. The projects also provide for construction of transmission lines, Tlhe foreign exchange cost of these projects wrould be as follows: Generating stations and substations o3 2,978,000 Civil engineering works (imported materials) 3,686,000 Transmission lines 1,863,000 Electric communications 14,430 Total foreign exchange cost $ 8,541,1430 (b) Torreon-Chihuahua System 26, At the present time, subsidiaries of the American and Foreign Power Company operate in this system in the States of Durango, Chihuahua and Coahuila, one of the most important mining and agricultural areas of Lexico, Large-scale mining and smelting of zinc, lead and copper is carried on by the subsidiaries of American and English mining con- cerns. Another important demand for power comes from irrigation pumping in the Laguna irrigation district, the largest single irrigated area in Lexico and one in which large quantities of cotton and wheat are gro'wn. Ilanufacturing -is somewhat less important but includes a number of cement and flour mills. The original plans of the Conmission contemplated the addition of 80,000 kw of capacity in the Torreon_ -13- Chihuahua district, the estimated foreign exchange costs of which would amount to 12,156,00o. 27. Discussions between the Bank and the Commission have resulted in the selection of t-wo 25,00o kw thermoelectric installations which are urgently needed. Subsidiaries of the American and Foreign Power Company serving this area would distribute the power. The foreign exchange expenditures would be as follows: Generating plants '3,372,OOO Civil engineering works (imported materials) 200,000 Total foreign exchange cost S3,3572,000 (c) Puebla-Veracruz System 28. This system is also served by subsidiaries of the American and Foreign Power Company, and the region contains some of the oldest industrial establishments of Lexico. The city of Pueb'la is the center of the cotton te;:tile industry, the most important llexican transforming industry. In addition there are shoe factories, cement mills and breweries. Other principal users of power are Petroleos Miexicanos, operators of an oleoduct between the Gulf Coast and L,exico City, the National Railways, operators of the electrified mountain division on the Lexico City-Veracruz railway line, and the municipal wvater and transportation systems. Agriculture, while significant, is not pre- sently of major importance. The original program of power plants, transmission lines and substations proposed by the Commission for this area, would add 74,280 kw of installed capacity and would cost $6,296,000 in foreign exchange, 29. It has been agreed to reduce the program to 35,200 kw, the foreign exchan-e cost of which, including necessary transmission lines and substations, would be as follows: Generating stations and substations 3534 Q00 Civil engineering ;orks (imported materials) 431,000 Distribution substations 267,668 Distribution lines 109,169 Transmission lines 268,050 Electric communications 229.2920 Total foreign exchange cost 'l,839,907 The revised program would permit the completion of three hydroelectric plants, with appurtenant substations, and the construction of -trans- mission and distribution lines to link the new plants with the American and Foreign Power Company system. 15,000 lkw vill be reserved for towns and cities located outside the American and Foreign Power Company's network. One of the plants will operate only during the dry season when water is released from the Valsequillo dam (now under construction) for irrigation purposes. (d) Sonora Project 30. The expansion of power production in the State of Sonora (including the towns of Guaynas and Ciudad Obregon) is justified by the potential increase in agricultural production. Some of the prin- cipal irrigated areas of' Lexico are located in the northwest,which is a leading producer of tomatoes, chile and rice for export,.and of wheat for domestic consumption. At the end of 1946 there were approximately 288,000 acres of irrigated land under cultivation, soMe parts of which are not centrally irrigated but supplied writh water from wells drilled by owners who use internal combustion engines. In those parts, demand for additional po-wer at reasonable rates comes from those who want to avoid investment in internal combustion engines and from those desiring to have a more reliable supply of power. The yield from the irrigated land in this area is relatively higher than in other parts of 1..exico -15- and the outDut of the area directly affects the country's vol- ume of irm,orted and ex.ported foods. Industrially the area is not yet imnortant, but already a number of food processing plants, textile mills and cement polants have been established. A rel- atively rapid growth in population of this area will favor in- dustrial expansion. The fishing industry along the Gulf of Lower California centers about Guaymas and is another source of foreign exchange for the co-untry. The growth of this industry has been appreciable over the last ten years, but has been handicamped by the lack of storage and nrocessing facilities clue to shortage of power. 31. The Commission desires to complete steam plants lo- cated in the cities of Guaymas and Ciudad Obregon. The power would be distributed by ain American-owned company, Empresas de Servicios Fublicos de los stados :.exlcanos, S.A. (ESEZ'SA). The supply of power to Hermosillo, the State capital, would be assured from the Guaymas nla-nt over an 80-mile transmission line. Originally the Commission requested financing for a 75,000 kwi plant at Guaymas and the 15,000 lkr plant at Ciudad Obregcn, as well as additional transmission lines to link a number of towns and cities now served by isolated plants or not served at all, The total foreign exchange cost of all of these pro- jects would amount to $13,580,000. 32. As a result of discussions with the Bank,it is pro- posed to build a 25,000 kw plant in Guaymas and the 15,000 kvw in Ciudad Obregon, deferring the construction of a number of pro- jected transmission lines. The reduaced foreign exchange cost is as follows: Generating stations and substations $1,794,430 Transmission lines 650,ooo Civil Engineering works (im-oorted materials) 200,000 Electric Communications 204000 Total foreign exchange cost $2,664,480 (e) Ciudad Juarez Project 33. The Commission originally proposed to construct a thlree-unit, 15,000 kw steam plant at Ciudad Juarez in the State of ChihuEahua. This city,r of apProximately 55,OCO population is now being supplied wiith nower from El Paso, Texas. The load, has reached a i:oint where the construction of a nlanit ir Junrez is justified. A small -exican comnOany wrhich now distributes power in and around Juarez will also distribute the now7er from the -oro- posed plant. The Coimmission forecasts that the entire 15,000 kwv of capacity will be contracted for bar 1951. The average annual growth in the use of power in Ciudad Juarez over the past ten years has exceeded 10 per cent. A portion of the additional pow,er will be used for irrigation purposes in a fertile valley outside of the city whiclh produces w^rheat and cotton. The urgency of the project is evidenced by the fact that the Com- mission has already installed a 1,000 kw mobile generator in the valley to encourage agricultural development. 'Moreover, there is a need to assure continuit- of electric sower service. Recently -17- the power su-ply of several MIexican border cities w.^as threatened by a possible shut-off of powor from the sup-lying companies in the TJnited States. Though technical and administrative diffi- culties were overcome, without power interruptions, the possi- bility of a shut-off in the future still exists.. The construction of the plant would. also eliminate purchase of power for dollars, estimated at $173,000 annually. 34. The foreign exchange expenditures for the proposed. plant are as follows: Generating station $ 740,480 Tem-porary substation at Vralle Juarez 6,627 Electric co.mmunications 10,000 Total foreign e-change cost $ 757,107 (f) 3ombana'Pro,ject 35. The Commission proposes to complete a 2,600 kw-i hydro- electric plant in the State of Chiapas in southi;rest tenico, which has been under construction since 1042. In addition, a transmission line 47 miles in length is required. Over half of the total investment has already been made, but due to the lack-1 of funds the plant could not be completed. Th4e area pro- duces tropical agricultural products such as coffee, hardwoods, etc. The population to be served is 27,000, largely in and near the State Capital. In the entire State of Chiapas there is no public utility company and tlhe only electric service now available for distribution is the excess capacity of small privately-owvned generators. 36. The foreign exchange recuired to comn-lete the project is as follows: Generating plant andc substations $3 25,000 Distribution substations 5,300 Distribution lines 47,000 Transmission lines 20.000 Total foreign exchange cost $ 97,300 (g) Aldama Project 37. The pro'oosed plant at Aldama, Chihuahua, is located 30 miles from the City of Chihuahua, which is served by a sub- sidiary of the A.merican and Foreign Power Company. In view of the heavy load in the Torreon-Chihuiahua system, the American and Foreign Power Con-any coula not undertake to provide 7ower for Aldama. The projected. nlant, consisting of three 6,000 klw; steam generated units, will be located in an agricultural valley wAhich requires irrigation now obtainable only from individually-ow-ned poi,rer units. 33. The foreign exchange expenditure would be as follo.rs: Pow.rer plant $1,055,160 Tem-oorary substation in Valla Aleiama 13t9-2 Total foreign exch.ange cost 01,069,082 (h) Rural Electrification 39. The Commission is contributing to an evtensive rural electrification program involving the installation of 17,858 1kw of generating cap city and proposes to build pow,;er plants in thirty locations, The State of Vera Cruz would be thle principal -19- beneficiar of this program Twrhere fourteen olants writh a total installed. ca:pDacity of 8,500 kI! are to be construieted. The re- maining sixteen olants w-ith a Capacity of 9,358 lni are to oe located in six other states. The largest single -plant would be 3,000 kwrt wrhile the average of the rem.aining tweinty-nine w6uld. be 512 kw. 40., The foreign exchange cost of this program would be as follows: Power plants t3,030,783 Distribution lines 211,616 Electric comniunications 1 700 Total foreign excha.nge cost $3,257,099 (i) tIiscellaneous ProJects 41. The Commission also reauested the Bankis assistance in the development of certain minor distribution systems, trems- mission lines and e7isting oower plants, the foreign eXchange ex-)enditure of which would. be as follows: Enlargements to po)rer -olants $ 407,250 Distribution lines 117,859 Distribution su'bstations 101.864 Total foreign exchange cost $ 626,973 (j) Loans to Private Comnwnies 42. The Commission has requested $1,500,000 to be used to assist small private electric companies in the purchase of machinery and equipment necessary for the maintenance and irm- provement of their facilities. As a result of this program, fourteen small companies along the United States border would cover their onm -power needs, thus reducing import of power from the United States. Details of this program are now being dis- cussed on the technical level. 43. The proposed financing of the Federal lectricity Commission projects can be summarized as followus: Foreign Cost to be financed by the Bank (a) i.,exico tity System W 8,541,430 (b) Torreon-Chihuahua System 3,572,000 (c) Puebla-Veracruz 6ystem 1,839,907 (d) Sonora Project 2,o64,4dO (e) Ciudad Juarez Project 757,107 (f) Bombana Project 97,300 (g) Aldama Project 1,0699,082 (h) Rural Jlectrification 3,2579099 (i) uiscellaneous Projects 626,973 (j) Assistance to Private Companies 1,500,000 ,,23,925, 378 The above amount represents 44% of the total cost of the projects to be financed wvith the aid of a Bank loan. The estimated local currency commitments for civil engi- neering works and preparations for the installation of equipment over the period of construction are as follol-ms: > (at rate of 6.85) 194v 5,,47,000 19L49 9,3b1,000 1950 7,517,000 1951 5,441,0o0o 1952 2,708,000 lotal local cost 30,074,000 (i.e. 206,003,000 pesos) -21- It is impossible at this stage to give a relia1ble esti- rnate of the rate of disbursement of the foreign exchan,e costs of the projects, since this will depend on the time taken to fulfill orders for equipment. Orders to the extent of about $10 million could be placed as soon as a loan was gfranted, and the balance would be committed in the course of 1949 for the earliest possible delivery. -22- 44. The foreign financing requested will be used for the followzing -purposes: 1. Generating stations and substations 13,937e253 2. Civil engineering worlkcs (imnorted Materials) 4,517,000 3. Transinission lines 2,8010050 4. Electric communications 289f050 5. Distribution substations 395,381 6. Distribution lines 485,644 7. Aid to -private companies l,500 ,00 $23 t925 Y378 B. IrXICA1U LTIGHT A1)D I'0W:R CCOIi?A-J'T*Y 45. In Anril,1948, the lMexican Light and Powrer Co=pany7r sub- mitted to the Bank an application for a loan of .?23,689,0oo u.S. to finance the purchase of imported equipment involved in a four- year construction program. At the end of July, 1948, tie Company advised of price increases of 10 per cent on electrical eauipment and consequently the estimated foreign exchaange cost of the proj- ect has been revised to $26,058,200. A further checkc of prices is being made at present by the Bank's Engineering AdviseO 46. Local expenditures were estimated at the time of prepa- ration of the ajiplication at 106,037,500 Mexican pesos (or the equivalent of U.S. $21,843,725 at the old exchange rate of 4.35 pesos to the dollar).. The recent depreciatior of the peso is exoected to increase the cost of JIexican materials and labor over the construction -period. An estimate is row being prepared by the Company. -23- 47. The Comnany's program contemplates the addition of 139,000 1VJ generating capacityr, the construction of a 110-mile transmnission line; and the imorovement of the existing trans- mission and distribution systemo The foreign exchange cost of the program .-is as follows: Item Imported Materials 1. lNecaxa, additional 16,000 3k.w hydro- U.S.$ 1,062,600 electric generator and auxiliary equi_ment 2. Lerma, additional 28,000 lkw hydro- 1,248,000 electric generator and. auxiliary equipment 3. Patla, new 45,000 i,f hydroelectric 2,928,200 generator and auxiliary equipment 4. Lecheria, new 50,000 ]kr thermoelectric 4,569,400 generating plant 5. Transmission line, Eiecaxa-Ilexico City 5,044,600 6. Other transmission lines, substations, 11,205,400 distribution facilities,meters, etc. Total foreigr. exchange cost $26,05 0200 48. The Company now has under construction a diesel electric Plant of 30,900 !kw at Tacubayc4a which will come into operation in 1948-1949. Financing for this -olant lhas already been arranged by the Comnjany with the Federal Flectricity Coimmission. 49. The Necaxa and Lerma additionial generators are for the purnose of adding peaking capacity to the system. Since all. civil works have been completed, relatively small peso invest- ment is required for this project. 50. The new Patla PlAnt involves the construction of a 45,000 lkr hydroelectric station downstreami from the existing ffecaxa plant. It will be necessary to construct roads, in- clined railways, tunnels, penstocks, etc., in addition to in- stalling three 15,000 kw generators. Local costs are relatively heavy, amounting to approximately 70 per cent of total cost. The new plant is expected to operate on a year round basis producing, in an average year, about 250,000 mkwrh and 200,000 mkwh in a dry year. This would represent, in an average year, additional power available to the i.exico City system of the Company of about 16 per cent over 1947. 51. The construction of the Patla plant makOes the con- struction of a new transmission line from ITecaxa to Mexico City essential. The present line, in operation since 1910, is se- verely overloaded,which results in heavy power losses. The four existing 85 kv circuits are carrying the combined output of the Tecaxa Division generating stations, amounting to am'rox- inately 150,000 1:w at a peak hour, and it is planned to build two new 187 lkv transmission circuits on a partial replacomen.t basis. The loss in energr transmission would by this means be reduced to 4 per cent from thie ;,resent 15 per cent and the saving would be eq7aivalent to the addition of a 11,500 lw generator to the system at peak load. 52. The Lecheria thermoelectric pl,nt wrill consist of twfo 25,000 kw steam turbine generators to be located in the new -25- industrial area near the Federal District* Particular impor- tance is attached to this plant by the Company because of the present heavy preponderance of hydroelectric -power in this area which rwould be :trengthened by the addition of steam generators. In the past, electric power service has been continuously im- nerilled and often reduced in dry years, At preseint, the cap- acity of hydroelectric installations in the Mexico City sy stem is 279,400 kw while thermal power vlants account for only 55,000 kw, 53, The remainder of the Company's -orogram covers sub- stations, distribution and transmission lines, powrer bank-s, switchgear, transmission line insulators, public lighting transformers, condensers, transformer vaults, metering equip- ment, hydroelectric spares and cont ingenacies, RelationshiP of the M7exican Light and Fower Program to that of the Federal "Electricity Commission 54. The expansion progra.m of the Commission will provide additional power for distribution by the iMexican Light and Power Company in the Mexico City area, where the latter operates. As a result of discussions betweeni the Banl and the Federal Elec- tricity Commission, the Conmission's construction program in this area will be only of a suoplementary nature and will assure an adequate supply of electricity to this market. 55. The following table outlines the estimated future gen- er.atin- capacitv of M1exico City's s--stem and the pea'- loe,d of the year which fXalls in January. The table takes into account -26- power which will be available to the Comnanvr from the prooosed newr plants of the Federal Electricity Commission. Year Hourly Peal- Load System's Installed Canacit-r. 1949 368t000 358,000 1950 4142000 412,000 1951 46o0000 448,000 1952 5100ooo 581,000 56. The Bank's investigations have led to the conclusion that the exynansion program of the Company is technically and. economically feasible. However, the financial condition and the capital structure of the Company are such that any loan made directly to the Cormpany by the man- in its *present condition could not be adequately secured, and wlvrould tend to per-etuate existing fundamental financial weakness. The Bank made studies in order to determine whfaether an urgent and meritoriou3s -program of nower development in a principal area of lexico could be financed. within reqnired time limits without entailing the risIZs inherent in the present financial condition of the Compnany. In Jur.e 1948, the Banl informed the Company of its willin ~ness to consider an interim dollar loan. This loan would be made to the Federal Electricity Commission and the Nacionlal Financiera whlici wiould relend the dollars to the Com-pany at a maturity not later than December 31, 19l49, to meet current foreign exchange payments on orders for equi½ment placed before December 31, 1949. 57. The Company -was further informed that, in the event of its carrying out a financial reorganization before the end of -27- 1949 along lines satisfactory to the Bank, the Bank wzould be prepared to consider sympathetically a long term loan in the amount of about $26,000,000. At prevailing prices this am-ant would be sufficient to carry out the remainder of the Company's program and to repay the interim loan. 58. The Company has estimated that to finance - ,i:ts on orders for equinment placed and to be -olaced before the end of 1949, an amount of $11,500j000 would be required. This amount would be used as follows: (In thousands of U.S. Dollars) Item (1) (2) Payments in foreign Total foreign Per- exchange for orders excharge cost centage to be placed before of nro.ject . 1 of 2 December, 1949. a. NTecaxa generator (hydro) and auxiliary equipment 937.9 1,062.6 88 b. Lerma generator (hydro) and auxiliary eqaipment 1,216.0 1,248.0 97 c. Patla Plant (hydro) 1,297.2 2,928.2 44 d. Lecheria Plant (steam) 1,014.2 4,569.4 22 e. ITecaxa-INexico City transmission line 1,252.6 5,044.6 25 f. Transmission lines, sub- stations, distribution facilities, meters and contingencies not re- lated directly to items mertioned above 5,629.2 11,205.4 50 Total $ 11,347.1 $ 26,058.2 43 - 2d - PART III The Financial Situation of the Federal Electricity Comm-iission and of the Nacional Financiera THE FEDERAL ELECTRICITY C-,TII3SION 59. The Federal Electricity Commission of l.exico has five sources of revenue: (1) borrczings, (2) 10 per cent tax on elec- tricity consumption, (3) sale of its power production, (h) Federal Government budretary appropriations and (5) miscellaneous sources. In 19h7, these amounted to the following: (equivalent in U.Q. Dollars at 4.85 pesos per dollar) Source Amount Borrowings 4 20,286,000 Ten per cent tax on electricity consumption 3,256,000 Sale of power 1,782,000 Budget allocation 5,56h,000 Ihiscellaneous 636,000 Total $ 31,524,000 60. On the basis of the past growth of revenues from the 10 rer cent tax on electricity consumption, and taking into account the proposed additional generating capacity which the Bank has under consideration for financing, the Commission has estimlated that in 1952 this tax will produce 24,800,000 pesos, equivalent to about U.3. 03,620,000 at 6.85 pesos per dollar. This estimate of the Commission apparently does not take into account the incrcise in electric power rates which, it is expected, will occur and will thus increase the tax pro tanto. - 29 - 61. The following table illustrates the actual rate of growth of the proceeds of t.his tax since its imposition in 1939 and the Commission's estimates through 1952: U.S. dollars (in thousands at 6.85 pesos Per cent increase Year of pesos) per dollar over previous year 1939 4,288 - - 1940 5,572 _ 29.94 1941 6,318 _ 13.39 1942 7,127 - 12.65 1943 8,2h3 - 15.58 19h4) 8,882 - 8.97 1945 10,901 - 22.73 1946 13,117 _ 20.33 1947 15,793 - 20.4O 1948 (est,) 16,800 - 6.38 1949 " 18,500 2,701,000 10.12 1950 " 20,300 2,963,000 9.73 1951 22,300 3,255,000 9.85 1952 24,800 3,620,000 11,21 62. It is estimated that the increased power -;hich vwould re- sult from the construction financed by the Bank's proposed loans to the Commission and for L,fexlight, together with the expansion program of the American and Foreign Power Company' will insure the past rate of growth of consumption tax revenues at least through 1954. The revenues would probably tend to level off after that year unless additional power facilities are constructed with the aid of new financing. 63. Presently, the only lien against the consumption tax revenues is in favor of the U.S. '20,000,000 loan to the Commission from the Export-Import Bank, wrhich it is estimated will be entirely drawn down by the end of 1949. The table following paragraph 67 shows the estimated service charges on this loan through 19)4. - 30 - 64. The second i-mportant and equally staole item of inconre ls the proceeds from the sale of power from the Cormission's o.wn plants. These revenues tend to increase as additi;onal generatin- facilities are completed. The follo,nng table illustrates the past growth of gross revenues, before operating charges, derived from the sale of pow-er: Equivalent in thousands of u.S. dollars at 4.85 pesos per dollar Year Amount 19h3 53 19hh 312 1945 914 1946 1,259 19?7 1,732 19h8 (estimate) 2,h74 * * This estimate v11 be some,hat reduced by virtue of the depreciation of the e::ii neso in July 19h0. 65. The Commission estima.tes tiat, lith the add,ition of the plants and facilities nov.r under construction and those for w1hich a Bank loan to the Cormnission is no, sought, its net revenues from the sale of pow-er, after operating costs, maintenance, reti.re- ments and reserves, will rise from the equivalent (at 6.85 pesos per U.S. dollar) of v900,000 in 1949 to .w5,C30,OJO in 19514. 66. The Co.m.iission's entire revenues from the sale of povrer are subject to a lien in favor of the ixport-lmport Bank loan mentioned in paragraph 63; this lien, in turn, is sidject to a lien in favor of the 7'estinghouse Company on the revenues from the sale of po.ver frorq the Commission's Ixtapantongo gener- ating plant, securing a 12-year 3 per cent loan by 'estinchouse, of which U.S. '4;,050,000 is presently outstanding. 31 - 67. On the basis of information obtained from representa- tives of the Commission and Nacional Financiera, the following table has been compiled to show, for the period 19h9 to 1954 in- clusive, the estimated over-all interest and amortization charges on the Commission's debt presently outstanding and to be outstand- ing in 1949 and thereafter until 1954, including the proposed loan of U.S. .i,24,ooo.,000 and the proposed loan of U.S. 411,500,000 for tne benefit of *.exican Light and Poower Company. Set against these, in each year, are the estimated returns to the Commission from its two principal recurring sources of revenue, namely, the 10 per cent electricity consumption tax, and the sale of po'xer. - 32 - Estimated Interest and Sinking Fund Charges and Principal Revenues of the Mexican Federal Electricity Commission (OOO of U.S. dollars or equivalent) 1949 1950 5191 1952 153 195_4 Estimated Interest and Sinlking Fund Chiarges 1, Eximbank Loan i/ 20-Yr.,4>41,$20,000,000 1,587 1,749 1,709 1,669 1,629 1,589 2. Westinghouse Company 12-Yr.,3 g,$5,010,000 476 476 476 476 476 476 3. General Electric Int'l. Corp. 5-Yr.,3%,$2,607,000 600 600 600 600 600 600 4. Aluminwn Export Coro. 3-Yr.,3e,$638,000 216 216 216 _ _ 5. Electric Industry Bonds 2/ 10-Yr.,6',$30,000,000 576 576 576 576 576 576 6. I3RD a/ 25-Yr.,)48,$24,000,000 300 740 1,080 1,7208 1,728 1,728 7. IBRM (for Mexiight)4/ l-Yr.,2j3,$ll,500,000 298 788 788 788 788 788 Total Estimated Interest and SinkingC Fund Charges $3,053 $4,145 $5,445 $5,837 $5,797 $5,757 Estimated Principal Revenues 8. 10g Electricity Consump- tion Tax (6.85 Pesos = $1.00) 2,701 2,963 3,255 3,620 4,0l4L 4,4527 9. Sales of Power (net) (6,85 Pesos = $1.00) 900 1,410 2,622 3,651 4,786 5,036 Total 3stimated Principal 1Zevenueg $3,601 $4,373 $5,877 A7,271 $8j80o $9,488 Times Covered 1,14 1.05 1.08 1.24 1.52 1.64 Source: Based on data submitted by Mr. Cortina of Naciona). Financiera and M¢r. Paez of Federal Electricity Commission. 1/ Assuming remaining $8,000,000 will be fully drawn by end of 1949. 2/ Assuming cumulative sikcing furd sufficient to retire issue by maturity. 3/ Assuming the loan wtill be repayable in 25 years,the sinking fund oper- ation to start in 1952,the rate off interest will be LJ1 and the ;proceeds of the loan wrill be drawm down gradually over 3 years. 4/ Assuming the interim loan will be at 2/ and assuming that it will be converted into 25-yr., 4 loan at end of 1949. J Assuming approximately 10X annual increase. - 33 - 68. As is shown in the preceding table, financial charges of the Commission, on the bases assumed, are just covered in the early years, and coverage increases gradually after 1951. It should be noted that item 7 in the Table assumes no income from the T4exican Light and Power Company on the interim financing in 1949 and also assumes that such interim financing may not be paid back by the iviexican Light and Power Company at the end of 1949, but may have to be extended by the bank into a 25-year 4-1/2 per cent loan. If the lonG-term loan to the 1Mdexican Light and Powrer Company now under consideration is made, and if it is made directly to the Mexican Light and Povwer Company, it will relieve the Comnmission from the burden of the debt service shown in item 7 and will, to that extent, increase the estimated debt coverage shown. As has been mentioned in paragraph 60, the estimates of revenues to the Commission from the 10 per cent consunption tax on electricity nake no allowiance for rate increases in the period under review. Some rate increases have already been accorded to the L'exican Li,ht and Power Company and to other utility companies, and the '11exican -Light and Power Company has applied for substantial additional increases. To the extent that increases are granted, the Commission's revenue from the tax will be correspondingly increased. 69. As mentioned in paragraphs 63 and 66, the Commission's revenues are pledged to secure certain previous financin. In view of this, the question of adequate protection for the proposed loans by the bank will be discussed during the negotiations. The covera-e of financial charLes shown in the Table following para- graph 67 is based on the assumption that the bank's loan will rank pari passu with the other debt of the Commission. - 34 - NACTOINUAL FiIA*NCERA 70. Nacional Financiera was created in ipril 1934 to finance the development of 'Yexican industry. In December 1947, by resolu- tion of the iUexican Congress, it was made the sole agency to nego- tiate loans on behalf of the iifexican Government from foreign, yov- ernmental and inter-governmental institutions, 71. According to information submitted, Financiera's capital stock consists of 100,000,000 pesos, fully paid, of which Serles A-l, consisting of 500 shares of 100,000 pesos par value, are owned directly and must be retained by the - exican GovcrnrLent; Series A-2, consisting of 417,244 shares of 100 pesos par value, are presently held by governmental agencies but can be sold to private investors; Series B, consisting of 81,756 shares of 100 pesos par value, are presently owned by private investors. The Board oe Directors con- sists of 7 proprietary directors and 5 alternates. Series A-l and i-2 shares nominate 3 proprietary directors and 2 alternate direc- tors, whereas Series B shares nominate 4 proprietary directors and 3 alternates. The privately held stock therefore controls the Board of Directors and is dominant in matters of administration and manage- ment. Financiera's sole source of income is from investments, as it receives no grants or subsidies from the Federal Government. 72. Financiera appears as co-obligor with the Federal Electri- city Commission in loans, gluaranteed by the .exican Government, made for developrment of the iexican po-^er industry by the E. ort-Import Bank, and it is proposed that these agencies be the (lirect borrov- ers in the loan to the Commission now under discussion -rith the 35 - International Bank as well as the interim loan for the benefit of the iaiexican Light and Power Company, also to be g-uaranteed by the i1Iexican Government, Representatives of Financiera have stated that Financiera's statutes enable it fully to bind the credit of the !Iexican Government, on which the IBRD would expect to rely in making such loans. This matter is being studied by the Legal Department of the Bank. 73. Financiera's representatives also state that the >exican Government is responsible at all times for acts of Financiera, such as the handling of certain types of deposits, the operations carried on by Financiera with foreign, private, -overnmental or inter-overn- mental institutions and operations of Financiera bearing the guaranl- tee of the Government. Financiera is thus able to act in a trust capacity in handling deposits of other government agencies arid in the receipt and disbursement of revenues, for example, those of the Federal Electricity Commission on which the Export-Import Bank has a lien. 7h. Since the proposed loan will be a direct obligation of the Federal zlectricity Commission, guaranteed by the IuMexican Govern- inent, there would be no need, from the credit standpoint, to join Financiera as a co-obligor, particularly as Financiera's financial position cannot be considered liquid by norrmial commercial standards. aiowever, since Financiera is the sole Government agency charged with the negotiation and administration of foreign loans and since it will be the agency which will guarantee the loans on behalf of the Government and will provide local currency financing for the projects under consideration, its signature to the loan agreement will be of use to the Bank. - 36 - PART IV The Financial Situation of the Mexican Light and Power Company and Reorganization Proposals Financial Situation 75. The present capitalization of the Mexican Light and Power Co=many, Limited, is sholin in Appendix NA." The principal parent company of the Mexlight companies is SOFINA, a large holding corporation of Belgian nationality with utility in- terests throughout the rorld. Two of SOI1A's subsidiaries are SIDRO, wrhich is about 60 per cent owned, and SCVALIES, vwhich is betwreen 10 per cent and 15 per cent owmed, the balance in each case being publicly ol-med. Owrnership by thle SOFIITA group of the 1Iexlight securities shown in Appendix "Af' is distributed as follows: SOFI:T.A SIDRO SOVAILI2S First Mortgage Bonds none none none Second M1ortgage Bonds none 29.0% 13 , 615, Income Debenture Stock 1.8%o 35.6io none 7c% Preference Shares none 19.4% 1.7/ 4% Preference Shares 4.37% 32.3% *9/d Ordinary Shares .1 V 64.2% none 76. To preference dividends have been paid since 1931 and arrearages on the 7K0 shares amount to 119, and on the V4% shares, 68/% No dividends have been -'aid on the ordinaryr shares since - 37 - 1913. Arrearages of interest on the 65, Income Debenture stock total 54-1/2%, and. while this stoc!- has a sinking fund, con- tingent on earnings, no payments have ever been made thereon. 77. The comparative consolidated income account for the years ended December 31, 1943-1947, inclusive, is shown in Appendix tB."t No earnings estimates are included for 1948, but date, submitted by the Company indicates that, owing to the devaluation of the p)eso in July 1948 and. the necessity of additional provision out of 1948 earnings to cover the in- creased peso costs of dollar requirements, it will be unable to meet all financial charges for that year and expects to defer interest on the 6j Income Debenture stockc under the terms of the 1941 Plan of Arrangement. If the rate increase applied for by the Mlexican Light and Power Company on October 9, 1948, as described below, becomes effective by April 1, 1949, the Com,any expects to meet current financial charges accruing in 1949? 78. The comparative consolidated balance sheets as of December 31, 1943-1947, inclusive, are shown in A-opendix "C." It should be explained that the balance sheet item fDeferred Liabilities" represents the Comp)anyls pension and retirement funds. The item "'inking 7 mnd Reserve" shows, for accounting purposes, the discount on bonds rurchased from time to time for sinking funds at less than par. - 38 - Reorg7anization Proposals 79. On June 26, 19h8, the Loan Director wrote to Ir. ilessersmith, (llairrnan of the Company, a letter, attached as Appendix "1D,1" setting forth the Bank's views as to the necessity of a financial reorganization of the Company before the Bank could consider a loan to the Comnpany. 80. un July 28, 19h8, the Board of the uWexican Light and Power Company passed a Resolution authorizing Tr. Mlessersmith to continuie negotiations with the Bank, and expressing the in- tention of the Company to use its best efforts to bring about a reorganization of the Company's capital structure along the lines of the Loan Director's letter. It is expected that if such a reorganization is acceptable to the holders of the Company's securities, it can be carried out by December 31, 1949. ilr. Iiessersmith understands that, before a loan can be considered, the reorganization must be carried out on terms satisfactory to the Bank. 81. The First Boston Corporation of Aielw York, retained by the Company to advise it on the reorganization, submitted to the Bank suggestions regarding such reorgranization vwhich are now under discussion. It appears that, if carried out along the lines indicated, the reorganization would put the Company in a sound financial condition. I - 39 - Comnany's Estimates of Future Earnings 82. During the weelk ending October 16, 1948, the 7ienican authorities granted to the Mexican Li.ht and Pover Company an adjustment of rates, to wlhich it was entitled under the IIexican Law for the Electricity Ind.ustry, to comllpensate it for in- creased wage rates established in IIay 1948. Such adjustment, as reported by the Company, was equivalent to an average in- crease in consumer rates of 18.8 per cent, exceot for power sold to certain large mining companies in Mexico, to wrhich the increase was 69 per cent. 83. The Company also applied on October 9, 1948, for a definitive rate increase w;hich, including the compensatory adjustment mentioned above, would permit a fair return on its capital investment, as provided in the Mexican law. The def- initive rates applied for were based, firstly, on discussions just prior to the peso devaluation of July, 1948, during lwhich, according to officers of the Company, the need for an allowable rate of return of 10 per cent on the Companyls rate basis had been accepted in principle by the lexican authorities and, secondly, on the adverse effect of the peso devaluation on the Company's ability to meet its foreign debt and to import - ho - maintenance and replacement equipment, The Company, in its, application, sought an allowable return of 14.4 per cent on its rate base, which would give it a net return of 6.4 per cent on its capital investment. 84.. The Comipany has estimated the over-all increase in consumer electricity rates necessary to produce the higher revenues applied for, at 41.2 per cont.The incidence of such a consumer rate increase, however, would vary with the class of consumer. For example, as sho-in in the follolwing Table sub- mitted by the Company, rates to "metered lightingt" consumers would be decreased by 5.5 per cent, whereas rates to govern- ment consumers wrould be increased by 43 per cent, to high- tension nower industrial consumers by 37.8 per cent, ani to government-o7.med tramways by 62.5 per cent. - 1 - Mexican Liaht and Po,wer Pompanr. Limited. % of Total 1947 Average Earnings u Increase Sales in Kwh evos . (3) over(2) 1947 Adjusted Proposed Rates Definitive Pates (1) (2) (3) Government 1-1.3 5b05 6.o 8.56 43.o Flat rate lighting 1X1 2065(xx) 24.3 30.6 (xt) 26.0 iMetered lighting 0.3 33.6 39.8 37.6 -5.5 Domestic and commercial services 23.5 17.8 21.1 29.0 37.2 L.e. industrial power 6.o 13.8 16.4 18.2 11.0 Corn mills and irrigation 2.0 8b5 10.1 12.6 24.9 H.T. industrial 36.o 5.67 6.72 9.27 37.8 Provisional service 0.1 27.6 32.7 41.4 26.5 Public lighting - 10.9 12.9 12.0 -7.0 Large mines 11.9 4.5 7.6(x) 7.6 - Tramways 743 2.59 3.o6 5.0 62.5 Resale o.4 5.85 6.93 9.35 34.9 Recovered through 1/ inspection 0X1 17.1 20.3- 27.6 36.o 1/ Increase 18.8% except for (x) - 69% (x) Rates in U.S. currency (xx) 40 W and 80 W in 1947 80 W according to new rates. SCREDUE I A21TtUAL EISCTRIC GE , AT ION IIT T' REPLIPC OF MEXICO. Kwh. P:-BLI4 SERV- PRIVATE PLA'iTS T 0 T A L S ICES PIdANTS. PLAIfTS. X-'LOW 50 KW. 1933 1t318,265,834 202,686,678 7,604,762 1,528,557,274 1934 1,575,576,821 2L49,413,751 %124,953 1,83,1P115,525 1935 1,743,839,879 309,890.299 10,268,650 2,063?998,828 1936 1,836,344,644 3472517,075 11469,308 2,245,031,027 1937 2,082,056,797 385,547,245 12,338,020 2,479,942,062 1938 2?108,935,293 390,400,297 12,496,677 2,511,832,267 1939 2,055,086,565 394,674,908 12?,248,807 2,462,010,280 1940 2,125,089,031 391,223,962 12,581,565 2,528,894,558 1941 2,090,975,905 420,689,630 12,558,326 2,524,223,86} 1942 2,159,907,102 452,084,043 13,059,955 2,625,051,100 1943 2,248,202,437 476,742,653 13,624,724 2,733,569,314 1944 2,263,223,287 473,439,016 13,683,309 2,750,345,612 1945 2,486,443,522 566,741,687 15,265,923 3,068,451,132 1946 2,696,632,120 604,182,135 16,504,070 3,317,318,325 1947 2,856,851,541 723,735,821 17,902,935 3,5)83,490,297 Source: Federal Flectricit, Commission, Mexico. APPEIDIX "A" THE MEXICAN LIGHT & POWER COMPANY, LTD. AND SUBSIDIARY COMPANIES C A P I T A L I Z A T I O N As at December 31, 1947 (In Canadian Dollars) Authorized and Issued Outstandinz tunded Debt. at par of exchanwe The Mexican Light & Power Company, Ltd. 5% First Mortgage Bonds, due February 1, 1950 $ 12,000,000 $ 6,576,ooo 5% Second Mortgage 50-year sterling Bonds and Debenture Stock, due 1968 14,600,000 8,218,363 (13,000,000) (11,701,650) 6% Cumulative Income Debenture Stock (a) $ 11,850,757 $ 11,850,600 The Mexican nlectric Light Company, Ltd. 5% First Mortgage Bonds, due February 1, 1950 $ 6,ooo,ooo $ 2,888,300 Pachuca Light & Power Company 5% 50-year First Mortgage Bonds, due 1967 (Authorized i1.200,000) $ 3,893,333 $ 2,080,305 (L8oo,o00) (1427,460) Capital Stock 7% Cumulative Preference Shares, par value $100, 60,000 Shares $ 6,ooo,ooo $ 6,ooo,ooo 4% Redeemable Second Preference Shares, par $5, 1,140,000 Shares $ 5,700,000 $ 5,700,000 Ordinary Shares. no par value Authorized 250,000 Shares Issued 179,600 Shares $ 17,085,000 $ 17,085,000 (a) Interest accumulated to December 31, 1947, 60-1/2% or $7,169,613. 6%, or $711,036, paid July 1, 1948 leaving arrears unpaid of 54-1/2% or $6,458,577. A Plan of Arrangement modifying the rights of the holders of the bonds and debenture stock of The Mexican Light & Power Company, Ltd., and The Mexican Electric Light Company, Ltd., was approved at meetings of the bondholders held during 1941 and became effective October 22, 1941. The pro- visions of the Plan were given effect to in Supplemental Trust Deeds dated November 14, 1941, and included, inter alia, the extension of the maturity of the First Mortgage Bonds of both companies to February 1, 1950, gnd increased sinking funds for these issues, part of which, as well as the intetest and sinking funds on the Second Mortgage and Income issues, and any unpaid accumulations thereof, is payable to the extent of available earnings in accordance with the terms of the Trust Deeds. Payment of interest on the Income Debenture stock is, however, limited, under the Plan of Arrangement, to 6% in any year as long as any of the First Mortgage Bonds of either Company remain outstanding. (Source: Companiest Annual Report for 1947.) A?PENDIX 11B1 THE MEXICA.N LIGHT & POWER COMPANY. LTD. Comparative Consolidated Income Account, years ended Dec. 31 (a) (In 000's Canadian Dollars) 1947 1945 1944 1922 Light & Power, government $ 1,370 $ 1,318 $ 1,149 $ 944 $ 890 Light & Power, private & commercial 18,526 16,892 14,447 11,666 11,462 Miscellaneous revenues 28 27 27 18 13 Gross Earnings 19,924 18,237 15,624 12,628 12,365 Operating expense, maintenance, taxes 15,023 13,636 10,176 8,472 7,149 Depreciation 1,844 1,813 1,782 1,616 1,635 Deferred liabilities (b) (b) 749 754 560 Administration & general expenses (b) (b) 147 153 140 Net Earnings 3,057 2,787 2,770 1,632 2,880 Other income 70 84 69 66 65 Gross Income 3,127 2,872 2,839 1,698 2,945 Interest on Boncs IMlexican Light & Power, 1st 5's 335 348 359 368 382 Mexican Light &'Power, 2nd 5's 342 352 410 410 461 Mexican Electric Light, 1st 5's 148 155 161 166 176 Pachuca, lst 5ts 1o6 109 117 119 123 Mexican Light & Power, Inc. Deb. 6's 711 711 711 711 711 Sinking funds 605 791 437 1,132 610 Exchange diff. on interest and sinking fund payments - 10 54 58 61 Miscellaneous profits ._- - 37 33 Net Profit $ 879 $ 396 $ 589 $ 1,229 $ 455 (def.) Times Interest and Sinking Funds earned (c) 2.04 1.63 1.84 0.76 1.67 Earned Surplus (deficit) $ 5,023 $ 5,902 $ 6,297 $ 6,887 $ 5,657 (def.) (def.) (def.) (def.) (def.) (a) Additions will not necessarily check due to rounding to nearest thousand. (b) Not separately reported. (c) Not including interest on Income Debenture 61s. (Source: Moody's Utilities and Company's Annual Report for 1947.) APPENDIX "C" THE MEXICAN LIGHT & POWER COMPANY. LTD. Comparative Consolidated Balance Sheet, as of Decezpber 31 (a) (Company and Subsidiaries) (In 000's Canadian Dollars) 1947 1946 1945 1944 1943 ASSETS Properties, Plant, etc. $ 88,490 $ 84,017 $ 81,296 $ 79,231 $ 76,305 Rights, Franchises, Contracts, Goodwill 19,443 19,443 19,443 19,443 19,443 Investments and Advances 47 36 29 18 17 Current Assets Cash, etc. 5,028 6,083 7,095 4,909 6,539 Accounts Receivable, net 2,942 2,581 2,444 1,922 1,613 Marketable Securities (b) 3,564 4,520 3,801 3,198 2,899 Materials & Supplies 2.82S 2.172 1.790 2.707 3.773 Total Current Assets 14.359 15.356 15.130 12.736 14.824 Due from Mexican Government (c) 4,428 4,456 4,845 4,811 4,644 Deferred Charges, Sundry Deposits 411 366 411 394 812 Sinking Fund, Cash Balances 2 1 55 114 98 TOTALS $ 127,180 $ 123,675 $ 121,209 $ 116,747 $ 116,142 LIABILITIES 7% Preference Shares ($100 par) $ 6,ooo $ 6,ooo $ 6,ooo $ 6,ooo $ 6,ooo 4% Preference Shares ($5 par) 5,700 5,700 5,700 5,700 5,700 179,600 Ordinary Shares (no par) 17,085 17,085 17,085 17,085 17,085 Funded Debt 31,677 32,402 33,371 33,942 35,332 Accumulated Int., Income Deb, 6's 6,459 6,459 6,459 6,459 5,748 Current and Accrued Liabilities Accrued Int. on 2nd 5's & Inc. Deb. 6's 1,319 1,339 1,434 737 1,153 Accounts Payable, Accrued Charges and Provision for Taxes 3.110 2.825 2.848 2.121 2.229 Total Current Liabilities 4.429 4.164 4.282 2.858 3.382 Sinking Fund Reserve 13,770 13,051 12,133 11,634 10,204 (d) General Depreciation Reserve 40,852 39,175 37,788 36,327 34,831 Exchange Reserve - - 233 323 400 Deferred Liabilities 6,233 5,541 4,456 3,306 3,118 Earned Surplus (deficit) (def.) 5.023 (def.)5.902 (def.)6.297 (def.)6.887 (def.)5.657 TOTALS $ 127,180 $ 123,675 $ 121,209 $ 116,747 $ 116,142 (a) Additions will not necessarily check due to rounding to nearest thousand. (b) At lower of cost or market; market value: 1947, $3,576,000; 1916, $4,538,000; 1945, $3,837,130; 1945, $3,227,986; 1943, $2,915,215. (c) For supply of light and power and sundry indebtedness due by the Mexican Governments, Federal, State, and Municipal. (d) After writing off $6,256,674 bond discount, share and bond issue expenses. (Source: Moodyls Utilities and Companiest Annual Report for 1947.) APPENDIX "D" INTERNATIONAL BANK FOR RECONSTRIJCTION AID DEV7'LOP1E..lT :rashington, D. C, 24 June 19h8 Thir. George 1Iessersnith Chairman of the Board I.exican Light and Power Company, Ltd. Iiietropolitan Club 17th and H Streets, Northvwest llashington, D.C. Dear i.lr. Lessersmith: Vlith reference to the conversations that we have been carrying on with you during the past few days, I now write to give you some particulars of the character of the financial reorganiza- tion which we should expect the Pv.exican Light and Power Company to carry out before we could consider investing Bank funds in the undertaking. I attach a brief memorandum setting out the lines that any such reorganization should follow. You will, of course, under- stand that this memorandum purports to do no more than set out in layman's language the steps that the Bank would expect the Company to take in order to afford adequate protection to any loan that the Bank right eventually make, to enable the Company to rid itself of some of the embarrassments and hindrances which stand in the way of its obtaining finance for its programm.e of expansion, and to facilitate further borrowings by the Company in future, As both ir. LcCloy and I explained to you, the Bank is not pr.pared to consider the long-term financing which your present programme of expansion would entail until a financial reorganization on the lines which I have indicated has been carried out. If., however, we have an assurance from the Company that a financial reorganization on these lines would be put in hand forthwith and carried through to completion, say within one year from now, then the Bank., in the light of that assurance, would be prepared to give the most sympathetic consideration to arrangements providing for interim financing of your expansion programme for the year during which your financial reorganization is being carried out. This interim financing would have to carry the guarantee of the Government of M1exico and, in the light of the Company's situation as we see it at the moment, would have to be in the form of a Bank loan to a liexican Governmental Agency (probably the Nacional Financiera) who would re-lend to the Company. The amount of the interim financirg would, of course, depend on a further examination by the Bank of the probable needs of the Company to meet any foreign exchange commitments approved by the 3ank and lik.ely to fall due in respect of expenditure on your expansion programme during the period to which the interim finance vwould relate. The provision of funds by the Bank, whether on an interim basis or on a long-term basis, must, of course, depend upon other considerations as vrell as a financial reorganization by the Company. For example, the Bank will wish to be satisfied: -- (a) that the Lexican economy is capable of supporting the dollar guarantee in respect of any loan that the Bank might make; (b) that the Company has been able to secure from the 1M1exican authorities the establishment of rates adequate to provide a satisfactory earning basis for the Company; (c) that the programme of expansion of the Company will not run ahead of uhat demand is likely to be, having regard to the probability that substantially higher rates for power are likely to rule in future in Lieexico. These three points are not, of course, exhaustive, and I do not wish you to construe this letter as in any sense a commitment by the Back to lend either on a lonC-term or on an in-terim basis, as the Bank wvill have to consider all the relevant circumnstances existing when the question of making a firm co=.aitment arises. i feel, however, as does Lr. lcCloy, that we should at this stage at least, point out to you how one insuiperable obstacle to any loan from the Bank to the Company can be got out of the way. Sincerely yours, th.A.B. Ili"f Loan Director MEXICAN LIGHT AND P0 ER COLPANY Scheme of Financial Reorganization 1, The purpose underlying the financial reorganization is threefold: (a) to enable any loan from the International Bank to be adequately secured, vis-a-vis any other funded debt of the company or its subsidiaries; (b) to ensure adequate coverage of the company's fixed charges; and (c) to establish a capital and debt structure lhich would facilitate the company's access to further financing, 2. In order to achieve the above objectives the reorganization should satisfy the following criteria: -- (a) the security and servicing of any International Bank loan should rank not junior to the security and servicing of any other funded debt of the Compar.y or its subsidiaries, (b) the security and servicing of any International Bank loan should rank senior to the security and servicing of any other funded debt of the Company or its subsidiaries, except first mortgage obliga- tions, (c) apart from any International Bank loan and any existing, first mortgages of the Company or of its subsidiaries, no other existing obligation of the Company or any of its subsidiaries should be accorded the status of funded debt. 3. The reorganized capital and debt structure of the Company should make provision for the following: (a) Any International Bank loan to be secured by a first mortgage on the properties of the Company and its subsidiaries. (b) The existing first mortgages on the properties of (i) ILexican Light and Power Company (ii) 1.exican Electric Light Company (iii) Pachuca Light and Power Company (iv) .eridional Power Company, to be refunded through the issue of nelw first mortgage bonds of the Company which would have not more favourable treatment with respect to security, maturity and sinking fund provisions than the corresponding treatment extended to any International Bank loan. (c) Fixed charges on the Company's consolidated earnings to consist only of interest and amortization on (i) any International Bank loan and (ii) refunding issues referred to in (b) above. (d) After the fixed charges specified in (c) above have been met, a priority charge on earnings to be established which vrill provide funds for future expansion in such reasonable amounts as may from time to time be ceter- mined to be necessary by the Company's Directors. (e) The existing second mortgage bonds and debenture stock (due 1968) of the Company to be converted into preferred stock, (g) Both of the existing issues of preferred stock of the Company to be converted into common stock. (h) All arrears of interest and dividends on the existing cumulative income debenture stock and the existing preferred stocks to be eliminated. (i) Service on the newly created preferred stocks to be made contingent on earnings after the fixed charges under (c) above have been met, and after provision of ftnds for future expansion under (d) above has been made. 4. The reorganization plan should also provide for: -- (a) The abrogation of the 1941 Agreement, and (b) Consent to the arrangements set out in paragraph 3 above, on the part of (i) all the parties to the 1941 Agreement (ii) the holders of the Pachuca mortgage bonds (iii) the Federal El'ectricity Commission, in respect of the 7l.eridional mortgage, and (iv) holders of existing preferred and coammon stocks, as these were not parties to the 1941 Agreement. 5. The Bank would also wish to review the existing contract between Sofina and the Company in order to determine whether a.ny revision of this contract is necessary so as to carry out the above- mentioned objectives of the re-organization.