R E S T R I C T E D Report No.T.O. 84-a This document was prepared for internal use in the Bank. In making it available to others, the Bank assumes no resnonsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF ITALIAN INDUSTRIAL, IRRIGATION AND POWER PROJECTS May 24, 1955 Department of Technical Operations CURRENCY EQUIVALENTS U. S. $ 1 - 625 lire 1 lira = 0.16 U. S. cents 1 million lire = U. S. $ 1,600 1 billion lire = U. S. $ 1.6 million APPRAISAL OF ITALIAN INDUSTRIAL IRRIGATION AND POWER PROJECTS TABLE OF CONTENTS Paragraphs Summary & Conclusions ,., ...... - viii Introduction .......... , . ..... 1 - 9 Industrial Projects: GXeneral........... ,.. **,****....... ..... 10 21 Features of the Project .................. 22 - 30 Conclusion ............. ... 31 Individual project appraisals: Cementerie Siciliane ........ 32 - 42 Siculazoto ........... , 43 - 53 Sincat .......... , 54 - 65 S.F.A.S......... 66 - 78 S . I .L....... ...o........ 79 - 93 Farmedi...... ,* ,* *... ....... 94 - 106 hanitex .. .......... *. .,. . * *.... 107 - 107(j) Irrigation Project General ........................... o108 - 109 Present State of Agriculture in the project area.... ... o.o ..... ,.110 - 116 The project ................ , .....*.*..... 117 - 122 Availability of water. ........ ....... 123 - 125 The transformation of agriculture in the project area... . ... . .o... ....o ... .126 - 133 Status of works & Construction Schedule..134 - 141 Organization and management,...o .......l42 - 143 Cost Estimates ....... .... ,. .... 144 - 149 Sources of finance and owqnership of works . . . . . * a * . . . * . . . . . . . . . . . . .. . . . . .150 - 154 Benefits ........ , .. 5 - 162 Conclusions ...... _.,163 - 165 Power Projects General.... ... 0...... ... . ....*&o.. .166 - 170 2/ - 2 - TABLE OF CONTENTS CONT'D. Paragraphs SME: The Company .............. ,ee# 171 - 179 Existing facilities of the SEE Group... 180 - 189 The Power Market ........ . . ., 190 - 193 The investment program of the SHE Group 194 - 196 Projects roposed for Bank financing. The Luzzi Hydro Power Plant ............ 197 - 208 The Mhatese Hydro Power Plants ........,.. 209 - 218 The Mucone-Rotonda-Fratta transmission 219 - 225 Iviethod of financing................. 226 - 230 Financial forecasts .................... 231 - 235 Pugliese: The Company ............. , . 236 - 241 The power market, ............ .....**** 242 - 244 Investment program .................... 245 - 247 Pro.jects proposed for Bank financing: Coscile hydro power plant........,.,.0 248 - 257 Bari Thermal power plant .......... ...... 258 - 264 Method of financing.....,... ......,., 265 - 266 Financial forecasts,,#,, ........... 267 - 271 UNES: The company..............,,,,*, 272 - 280 The power market .......... 281 - 282 Investment program.................. 283 - 286 Projects proposed for Bank financing: Capodiponte Tronto hydro power plant,,. 287 - 290 Capodiponte Castellano hydro power plant 291 - 294 Ascoli hydro power plant............O.. 295 - 298 hethod of financing .....,.......... 299 - 300 Financial forecasts ............ 301 - 304 Power production costs and power rates ........ 305 - 317 Security and financial arrangements....se...... 318 - 321 Conclusions ..................,.. 322 - 325 Ll-T OF A1\K ES INDUSTRIkL PROJiECTS No. 1 Map showing location of projects 2 Cementerie Siciliane: Letter of Agreement 3 " " Financial forecasts 4 SICULAZOTO Letter of Agreement 5 II Financial forecasts 6 SINCAT Letter of Agreement 7 " Financial forecasts 8 SFAS Letter of Agreement 9 It Financial forecasts 10 SIL Letter of Agreement 11 it Financial forecasts 12 FAR14EDI Letter of Agreement 13 tU Financial forecasts 14 MANITED Letter of Agreement 15 n Financial forecasts IRRIGATION PROJECT 16 lMap of Catania Irrigation project POWER PROJECTS 17 14ap showing location of power projects 18 SM!E Details of subsidiaries 19 Condensed balance sheets, 1952-54 20 Condensed income statements 21 Past generation, purchases and losses 22 Sales by categories of consumers 23 Details of investment program 24 Chart: capacity - peak load 25 Chart: generation - demand 26 Construction cost, Luzzi Plant 27 it " M atese Plants 28 i" transmission line 29 Pro forma balance sheet, 1957 30 Estimated income statements, 1955-59 31 Forecast of receipts and expenditures, 1955-59 -2- Pugliese 32 Condensed balance sheets, 1952-54 33 Condensed income stateinents 34 Sales by categories of consumers 35 Construction cost, Coscile plant 36 "" Bari Plant 37 Pro forma balance sheet, 1957 38 Estimated income statements, 1955-59 39 Forecast of receipts and expenditures, 1955-59 UNES 40 - Condensed balance sheets, 1952-54 41 Condensed income statements 42 Past generation, purchases and losses 43 Sales by categories of consumers 44 Details of investment program 45 Chart: capacity - peak load 46 Chart: generation - demand 47 Construction cost, Capodiponte-Tronto plant 48 " Capodiponte-astellano plant 49 i t Ascoli plant 50 Pro forma balance sheet, 1957 51 Estimated income statements, 1955-59 52 Forecast of receipts and expenditures, 1955-59 APPRAISAL OF ITALIAN INDUSTRIAL, IRRIGATION AND POWER PROJECTS I. INTRODUCTION 1. In May and June 1954 a Bank mission visited Italy, and the Italian Government asked the Bank to make a loan of $70 million equi- valent in further support of the 12-year program for the economic develop- ment of Southern Italy under the auspices of the Cassa per il Mezzogiorno for which the Bank had already made two loans in 1951 and 1953, for $10 million each. 2. After the Bank mission had reported favorably on the countryts creditworthiness, the Bank informed the representatives of the Italian Government in September that it was agreeable in principle to consider the loan request favorably, and asked them to submit a list of projects which might be used as a basis for the proposed loan. 3. Two Bank staff members went to Italy at the end of November to collect preliminary data on the projects which the Italian Government wished to submit and to examine the general effects of the Cassa program on the Italian economy. Preliminary data on the projects were brought back to Washington towards the end of December. 4. These data related to five irrigation projects with a total estiiated cost of about $300 million equivalent; 23 power projects with an estimated cost of $153 million equivalent; and 28 industrial projects with an estimated cost of $112 millicn equivalent. 5. The preliminary data were examined in WYJashington in January, and questionnaires were prepared in order to obtain the information needed to select from among the projects submitted those most suitable for Bank financing. These questionnaires were taken to Rome early in February by staff members who collected the answers and relayed them back to Washington. On the basis of this information, a tentative selection of projects was made. These projects were then investigated and analyzed in more detail in the field and a final selection was made consisting of seven industrial projects, one irrigation project, and three power projects. 6. The seven industrial projects are: Cementerie Siciliane (cement) SICUWLAZOTO (fertilizers) SINCAT (fertilizers) SFAS (citrus fruit processing) SIL (paper) FARMEDI (pharmaceutical) MANITEX (woolen yarn) - 2 - 7. The irrigation project is the Catania scheme in Sicily. 8. The three power projects are those of: Sta. Meridionale di Elettricita (SME) Sta. Generale Pugliese di Elettricita (Pugliese) Unioni Esercizi Elettrici (UNES) 9. These eleven projects are described and appraised in the follow- ing sections of this report. INDUSTRIAL PROJECTS GENERAL 10. The Cassa submitted loan applications totalling about $52 million equivalent for 28 privately owned industrial plants with an estimated total cost of about lpl]2 million equivalent, in order that the Bank might choose from among them those best suited for Bank financing within the amount to be earmarked for financing industrial projects. It was thus necessary to study all the projects. The most important factors taken into account in making the selection were the expected benefit to the Italian economy, the financial soundness of the project, and its state of preparation. 11. Some projects under construction and some proposed plant sites were visited. Discussions were held with the promoting groups in order to obtain information and to form a judgment of their capabilities. 12. Seven projects with a total cost of $43 million equivalent were finally selected which could serve as a basis for loans totalling $18.41 million equivalent. The amount proposed for the industrial sector is $20 million equivalent. The unallocated balance of A1.59 million equivalent could serve as a contingency fund or be available for the inclusion of one or more further projects at a later date. 13. The seven selected projects tie in well with the general economic development of Southern Italy and should help to realize the Cassats goals of increasing agricultural and industrial production in this region. They cover several fields: one plant will produce cement and two fertilizers; two will process agricultural and forest products; and two are light indus- trial plants. 14. The plants will have competent and experienced management and, with their modern equipment, will be relatively low cost producers. The total annual sales are estimated at L. 16 billion (U.S. t25A4 million) when full production is reached by all. Of this amount, it is estimated that L. 7.0 billion (U.S. 211.0 million) will represent foreign exchange earnings and/or savings. When in normal operalion, the plants will employ about 2,000 persons. - 3 - 15. The projects selected are the following: Estimated Total Cost Proposed Lcan L. million L. million $million ______ _ eq~uivalent Cementerie Siciliane (cement) 3,100 1,060 1.70 Siculazoto (complex fertilizers) 3,200 1,500 2.40 Sincat (complex fertilizers) 9,000 3,600 5.76 S.F.A.S. (citrus juices) 2,271 1,171 1.88 S.I.L. (paper) 4,750 2,600 4.16 Farmedi (pharmaceutical) 2,010 1,000 1.60 Manitex (wool yarn) 1,380 570 .91 Sub totals 11,501 18.41 Unallocated 999 1.59 Totals 25,711 12,500 20.00 16. Except in cases where the individual project appraisals contain specific remarks to the contrary, the following co; ents apply to all the projects: (a) The cost estimates are reasonable and include adequate allowances for working capital, interest during construc- tion and contingencies. (b) The construction schedules are realistic. (c) The projects are carefully planned and well engineered. Their construction will be supervised either by the parent company or by consulting firms. This should ensure good construction and proper installation of equipment. (d) Estimates of production costs, the volume of sales, and selling prices are reasonable. (e) Depreciation allowances have been conservatively calculated. (f) h1hen the term 11100% production" is used, it means production at the normal rated capacity of the plant.(In any of the projects, production could be forced above the normal capacity). 17. The establishment and maintenance of a sound financial position has been discussed with the management of each of the companies. Agreements have been reached on the amount of share capital, the treatment of share- holders' advances, the ratio of long-term debt to equity, the limitation of - 4 - dividend payments, the maintenance of adequate working capital, etc. These agreements, the terms of which vary from company to company, have been embodied in letters, copies cf which are included in the annexes. 18. In most cases, an equity-debt ratio of 1:1 has been required. Some of the projects have a more favorable ratio. In one case, the ratio of equity to debt is 5:8, but the merits of the project and the high rate of expected profit justifies this ratio. In general, the required ratios are conservative, and more favorable than is usual in Italian practice. 19. In those projects where the share capital is supplemented by shareholdersr advances, these advances have been subordinated to the pro- posed loans from Bank funds, and are in effect to be treated as share capital; they cannot be withdrawn during the life of the loan. 20. For purposes of calculation an interest rate of 6% has been assumed on the proposed loans from Bank funds. The various terms suggested for these loans are based on the probable economic life of the equipment and on the expected generation of funds. The grace periods suggested correspond approximately with the construction periods. The terms on which these loans will be made by the Cassa may differ in some cases from those suggested, but will in all cases be subject to Bank approval. 21. No allowance has been made in the cash flow estimates for the payment of dividends. Funds will be available for dividends in each case, but it will be a matter of management policy how far these funds are paid out in dividends and how far they are used to accumulate reserves, to in- crease working capital, to retire debt, to make additional capital invest- ments, etc. The funds available have been shown as accumulated surplus, with a corresponding entry shown as "additional assets". FEATURES OF THE PROJECTS 22. The location of the projects is shown on the map attached (Annex 1). 23. The Cementerie Siciliane will produce about 120,000 tons of cement annually, which can be wholly consumed in Sicily. The present annual produc- tion in Sicily is 360,000 tons as compared with a consumption of 740,000 tons. Consumption is expected to grow by about 100,000 tons annually for the next few years so that the market should be more than adequate for several new plants. 24. Over 40% of the total amount allocated to industry is to be used for Siculazoto and Sincat to make complex fertilizers in Sicily. Consumption in Southern Italy (including the Islands) has been increasing by about 25% annually in recent years but is still well below the level reached in the North. Use of fertilizers will be stimulated over the next several years by the Cassa program for agriculture. 25. The consumption of complex fertilizers in Italy is still far below the corresponding rate for most other countries in Western Europe and is expected to grow rapidly in the future. Only half of the fertilizer con- sumed in the South is now produced there. The availability of raw materials (natural gas and sulphur) and low transport costs for imported raw materials and for finished products makes Sicily a logical choice for the location of fertilizer plants. 26. Fertilizer will be made available to the farmers at prices under those presently prevailing, since the plants will be located close to the center of the consuming area and freight costs will be greatly reduced. 27. The S.F.A.S. project will process Sicilian citrus fruit, largely for the export market. This will be the first plans in Europe, equipped with modern machinery, to produce high quality concentrated and frozen citrus juices and essential oils. Lemon juice can be exported to the United States where the increase in consumption is rapidly outstripping production. A very large proportion of the production is intended for export with foreign exchange earnings estimated at between $22 and $3 million annually. 28. The S.I.L. paper mill is to be located in the Fucino Basin and will use timber and straw grown in the valley. The new use for these agri- cultural by-products will considerably augment the income of the local farmers. Italy is now a net importer of paper and the new mill will help reduce foreign exchange expenditures. 29. The Farmedi Company will manufacture pharmaceuticals and agri- cultural chemicals for Southern Italy. The use of agricultural chemicals (pesticides, veterinary supplies, feed supplements) is relatively new in Italy. There is a demonstrated need for these materials in Southern Italy due to the high incidence of animal and plant diseases. The control of pests and diseases will thus contribute directly to the Cassals agricultural program by increasing production and farmer income per unit of land under cultivation. 30. The Manitex project will produce wool yarn for sale to the knitting and weaving industry. Although the company will not export directly, the indirect exports may be expected to be high since Italy is an important and competitive exporter of woolen fabrics. CONCLUSION 31. The projects selected are suitable for financing out of the proceeds of the proposed Bank loan, in the amounts and on the terms set out in the individual project appraisals which immediately follow. - 6 - CMENTERIE SICILIANE Borrower 32. The proposed borrower would be Cementerie Siciliane, a new com- pany which would erect a cement plant at Isola delle Femuaine, near Palermo, Sicily. This firm is a iwholly owned subsidiary of the Italcementi Company which operates 24 cement plants in Italy. The total cost of the plant would be about L.3.1 billion ($4.95 million) out of which it is proposedthat aboutL.l.l billion ($1.7 million) should be financed out of IBRD funds. Description 33. The plant, using the dry process, would have a capacity ef 130,AD tons of cement per year. It would be located on an existing railroad and on a national all-weather highway. Limestone deposits ad- join the factory site, and clay deposits are only about 10 kilometers away by road. The plant would burn fuel oil from Italian refineries. It would purchase its power from the Elettrica della Sicilia whose trans- mission line passes close by the works. Houses would be built for key personnel. No special housing has to be provided for the rest of the personnel, since there is no shortage of labor locally. Present Status 34. The company has thus far spent about 18 million lire on land, etc. Construction could start as soon as financing has been arranged, and would take an estimated two years. YManagement 35. Key operating personnel will come from Italcementi, the parent company, which has substantial experience in the successful operation of cement plants in Italy. Financing 36. The share capital, corresponding to about one-half of"the in- itial investment requirements, has already been paid in cash. The pro- posed loan from IBRD funds would cover another third, while the remainder would come from shareholders' advances and short-term borrowings. The estimated pro forma balance sheets as of the date of completion of the plant and after three years of operation are shown below (million lire): June 30, June 30, June 30, June 30, 1957 1960 1957 196C Fixed Assets 2,800 2,800 Share Capital 1,500 1,500 Mlinus Depreciation - 534 Surplus - 376 Net Fixed Assets 2,00 2,266 IBRD Debt 1,060 808 Current Assets 300 560 Shareholders Advances 440 250 "Additional Assets"t - 388 Current Liabilities 100 250 3.100 3,214 3.100 3,214 37. The letter embodying tte financial.agreement with-the company is attached (Annex 2). Markets 38. Due mainly to the rapid upsurge in consu-.ption, Italy has become a net importer of cement in recent years. A regional shortage is strongly felt on Sicily where only 360o,000 tons were produced in 1954 as contrasted with a consumption of 740,OO tons. Although other cement mills are under construction or planned on Sicily besides the Cementerie Siciliane, the estimated output by 1957 would be only 735,000 tons as compared with a probable minimum demand of 890,000 tons (our conservative estimate) and a possible demand of 1.1 million tons, according to Italcementi's own optimistic forecast. Barnings end DThTt Sizvi:cg Cv_e_Q a 39. Cementerie Siciliane's earnings forecast shows a net return on share capital rising from about 5% after taxes for the first year of operation when the plant would operate at 85% of rated capacity to 11.8% for the third year, when full capacity output would be attained. (See Financial Forecasts, Annex 3). 40. The coverage for debt service on the proposed loan would be about 1.6 - 1.9 times, corresponding to operations at respectively 90% and 100%0 of rated capacity. As shown in Annex 3, the company should be able to support a simultaneous 20% reduction in sales and 15% reduction in selling prices (with no reduction in raw materials,prices or wages), and though operating at a loss would still be able to service its debt. -8- Economic Justification 41. Sicily offers great advantages for cement plants, such as sea- side locations and good availabilities of raw materials, fuel, and labor. The market prospects are also good. Under the present Italian price structure (uniform prices f.o.b. cement plant), the new plant would mean substantial savings to Sicilian consumers through lower transport charges. The estimated total employment would be about 150 workers. Conclusions and Recommendations 42. The Cementerie Siciliane cement project is sound and o u1d be made the basis for a loan of about L.1.1 billion ($1.7 million) including interest during the grace period for a period of 12 years including two years' grace period. - 9 - SICULAZOTO Borrower 43. The proposed borrower would be Siculazoto, S.p.A., a newly established comnany, which would erect a fertilizer plant at Catania, Sicily. The total cost of the project is estimated at L. 3.2 billion ($5.1 million), of which it is proposed that L. 15 billion ($2.4 million) should be financed through IBRlD funds, and the rest through an increase in share capital. Siculazotols present authorized share capital is L.l.0 billion, of which one-half is held by the Societa Generale Mobilaire in Turin and 40,fo by Dr. Ernanno Gurgo Salice, who is also a major share- holder in the Sta. Generale Mobiliare. The company has agreed to increase this to L. 1.5 billion. Description 44. Siculazotots plant would have a daily capacity of 150 tons of compound fertilizer and 10 tons of FLOTAL (an additive for clay soils). They would make their own ammonia, based upon local natural gas, and sulphuric acid, based upon Sicilian sulphur fines. Potassium sulphate would be imported from France, or ultimately from Sicilian deposits located about 150 km from the plant, and phosphates would be obtained from North Africa. The plant will be located in the Catania industrial zone which has adequate power, water and transport facilities. Present Status 45. The Rumianca Company, Turin, in which the controlling interest is held by the Sta. Generale Mobiliare, has submitted an offer to con- struct the plant on a turnkey basis at a firm price, to be completed within 16 months from the date the order is placed. Although the cost estimate contains a contingency allowance, one additional item (gas cleaning equipment) may be required which is not included in the estimate. The agreement with Siculazoto stipulates that the company supply, as equity, 50% of any investment requirement above tIe present estimate. The magnitude of the possible increase is such that it will not appre- ciably affect the earnings outlook. Management 46. Management and key operating personnel will come from Sta. Generale Mobiliare and Rumianca. The latter company already operates two fertilizer plants in Northern Italy similar to the one now planned for Siculazoto, and also holds certain patents for complex fertilizers which are being made available to the new plant. Financing 47. The estimated pro forma balance sheets as of the date of completion of the plant and after three years of operation are shown below (million Lire): - 10 - June 30 June 30 June 30 June 30 1957 1960 1957 1960 Fixed Assets 2,600 2,600 Share Capital 1,500 1,500 Less Depreciation - 780 IBIRD funds 1,500 1,145 Net Fixed Assets 2,600 1,820 Current liabilities 200 400 Current Assets 600 800 Surplus - 649 "Additional Assets" - 1,074 Total Assets 3,200 3,694 Total liabilities 3,200 3,694 48. The letter embodying the financial agreerient with the company is attached (Annex 4). Markets 49. The consumption of fertilizer in Sicily and in Southern Italy has been growing at very rapid rates in recent years, but is still far below the national average. Assuming a very moderate increase of about 25% in the total consumption of plant nutrients in this area, during the next 3 - 4 years, the combined production of Siculazoto and Sincat (the other fertilizer plant proposed for Bank financing) would cover only about one-half of the sum of present imports, mainly from Northern Italy, plus the increase in consumption. Although only a small portion of the present consumption is in the form of compoundfertilizers, the use of such fertilizers is growing rapidly. Since Siculazotols product would be marketed through the Consorzi Agrari Provinciali, farmerts cooperative organizations represented in every important agricultural center, they should have no difficulty in disposing of their total output. Earnings and Debt Service Coverage 50. The earnings forecast shows a net return after taxes equal to about 14% on share capital. (See Financial Forecasts, Annex 5). 51. The coverage for debt service in a normal year would be about 2.8. The company should be able to face a 20% reduction in output and a 1516o decline in selling prices, and through operating at a loss would still be able to meet its debt service. Economic Justification 52. The new plant should provide Italian farmers in the South and. in Sicily writh fertilizer at prices about l0j' less than present prices. It would also make substantial use of local raw materials (natural gas, sulphur and eventually perhaps also potash). Conclusions and Reconmendations 53. The Siculazoto fertilizer project is sound, and could be made the basis for a loan of about L. 1.5 billion ($2.4 million), including interest during the grace period, with a term of 12 years including a 2 years grace period. - 11 - S I N C A T Borrover 54. The proposed borrower, Societa Industriale Catanese S. p. A., Palermo (a company constituted in ITTay 195h) would erect a fertilizer plant at PTelilli-Augusta, north of Syracuse, Sicily. The total esti- mated cost of the project is L. 9.0 billion (P 14.4 millio'n) of which it is proposed that L. 3.6 billion (P 5.76 million) would be financed from IBRD funds. The share capital would be held exclusively by com- panies belonging to the Edison Group, which is the largest power concern in Italy and which has extensive industrial holdings. Description 55. The plant would have an initial production of 100,000 tons per year of double and triple compound fertilizers, but general and auxi- liary facilities as well as sulphuric acid and phosphoric acid plants would have capacity which wiould permit the doubling of the initial pro- duction rate of fertilizers at some future date with a very low addi- tional investment (about L. 1.5 billion). As raw materials it would use liquid ammonia shipped from an Edison subsidiary near Venice, local Sicilian sulphur fines, and potash salts and phosphates from the Tv!edi- terranean area. The plant will be located on the shore and will have good harbor facilities as mell as rail and road transport facilities. Power will be generated at the plant and water will be obtained from wells on the property. Present Status 56. The company has already purchased the site on which the future plant will be located. Construction, which could start as soon as the necessary financing has been arranged, would take an estimated three years. Management 57. The Edison Group which has very important interests in the chemical field would supply the necessary key management, personnel, and technical know-how. Financing 58. The Edison Group would supply L. 2 billion as share capital and L. 2.6 billion in loans under covenants which would make them equiv- alent to equity, while L. 3.6 billion would come from the proposed IBRD - 12 - Loan. The estimated pro forma balance sheets as of the date of comple- tion of the plant and after three years of operation are shown below (million lire): June 30, June 30, June 30, June 30, 1958 1961 1958 1961 Fixed Assets 7,500 7,500 Share Capital 2,000 2,000 IMIinus Depre- Shareholders Ad- ciation - 22250 vances 2,600 2,600 Net Fixed As- IBRD funds 3,600 2,7h8 sets 7,500 5,250 Current liabi- Current Assets 700 1,656 lities - 750 "Additional As- Surplus - 1)070 sets" - 2,270 8,200 9,176 8,200 9,176 59. The letter embodying the financial agreement with the company is attached (Annex 6). Markets 6o. The consumption of fertilizer in Sicily and in Southern Italy has been growing at very rapid rates in recent years, but is still far below the national average. Assuming a very moderate increase of about 25% in the total consumption of plant nutrients in this area during the next 3 - h years, the combined production of Sincat and Siculazoto (the other fertilizer plant proposed for Bank financing) would cover only about one-half of the sum of present imports, mainly from northern Italy, plus the increase in consumption. Although only -c small portion of the present consumption is in the form of corpound fertilizers, the use of such fertilizers is growing rapidly 61. Sincat's output will be marketed partly through the Consorzi Agrari provinciali, farmers' cooperative organizations represented in every important agricultural center, and partly through their own sales organization. An opportunity also exists to export about one-third of the output, so they should have no trouble in disposing of their total output. Earnings and Debt Service Coverage 62. According to our calculations which differ slightly from the company's original estimates (higher depreciation allowvances and a low- er purchase price for ammonia), Sincat's net income after taxes will be about 8%. (See Financial Forecasts, Annex 7). This is calculated on the total share capital and shareholders' advances and assumes opera- - 13 - tions at 80% of capacity, representing normal ope:dtions for the present. This is partly due to conservative assumptions on the growth of the market and partly because some of the components of the plant are over- size to allow a future doubling of production with a low additional in- vestment of L. 1.5 billion ($ 2.4 million). One of the factors which will affeet the profitability of the new venture is the price at which ammonia and nitric acid will be invoiced by other members of the Edison Group. The Bank has received assurance that those prices will be equita- ble. 63. The debt service coverage would be 2.7. In a temporary de- pression, the company should be able to operate at 70% of capacity with a 15% reduction in their assumed normal selling prices and though oper- ating at a loss could still meet full service on the IBRD debt. Economic Justification 6h. Sicily offers great natural advantages for fertilizer produc- tion, such as seaside locations and local raw materials, such as natu- ral gas and sulphur, The delivered price to consumers should be at least 1C% lower than that of present purchases from northern Italian plants. Conclusions and Recommendations 65. The Sincat project is sound, and could he the basis for a loan the equivalent of L. 3.6 billion ($ 5.76 million) including in- terest during construction, for a term of 13 years, including 3 years grace period. S.F.A.S. Borrower 66. The proposed borrower would be the Succhi Frutta Agrumi siciliane (S.F.A.S.), incorporated in 1954, which would erect a citrus fruit juice concentrating and freezing plant at Catania, Sicily. The major stock- holders are local businessmen who are also growers of citrus fruits. The American equipment supplier, Blaw-Knox Company, has agreed to participate in the company to the extent of 15-20% of the cost of the plant. The total cost of the project is estimated at about L. 2.27 billion ($3.63 million) of which it is proposed that L. 1.171 million ($1.58 million) would be financed from IBRD funds. Description 67. This will be a new industry, located at Catania, Sicily, to process atnually 22,500 tons of citrus fruits to obtain about 800 tons of concentrated orange juice and about 632 tons of concentrated lemon juice and related products; 3600 tons of tomatoes for juice and paste; and 3600 tons of grapes for juice. The citrus juice can be prepared in either frozen or unfrozen concentrated form. The plant is to be equipped with the latest machinery, which will be installed and initially operated under the supervision of the American suppliers. The plant is to be located in the Catania industrial zone which has adequate power, water and transport facilities. Catania is a major center of citrus cultivation so that col- lection of fruit will present no problem. Cans will be supplied by Italian manufacturers. Present Status 68. The site has been purchased and preliminary design work completed. Construction could start soon after financing is assured and could be completed in about 10 months. Management 69. This is a new industry for Italy and whi'a the management does not have experience in the marketing of the proposed products, it does have experience in marketing fresh fruit. For technical operation, the company will rely on personnel from the United States until local person- nel can be trained. -15- Financing 70. The proposed financing and company position upon completion of the project is shown below, with probable position after four years of operations (million lire): June 30 June 30 Assets 1956 1960 Fixed Assets 1,371 1,371 Less Depreciation - 540 Net Fixed Assets 1,371 831 Current Assets 900 900 "Additional Assets" - 1,004 Total 2,271 2.735 Liabilities Capital 700 700 Surplus - 971 IBRD loan 1,171 664 Current liabilities 400 AW Total 2,271 2,735 71. In this project the current assets are high in relation to the fixed assets. This is due to the seasonal processing and the large stocks of finished goods which will be sold over a period of time. 72. The draft letter embodying the financial agreement with the company is attached (Annex 8). 73. The cost estimates contain a 15% contingency item and there is rea- son to believe that the final cost of the project may be less than the total estimate. Therefore the draft letter of agreement provides that any reduction in cost up to L. 121 million will reduce the loan by that amount. Further reductions beyond this point will reduce the loan by 60% of the savings. Markets 74. The company plans to export a very large proportion of its output, selling lemon juice in the U.S. and orange juice in the United Kingdom and northern Europe. Due to rapidly rising demand and limited domestic supply, prospects are favorable for lemon juice in the U.S.A. Market prospects also appear good in northern Europe and the United Kingdom for orange juice because of increasing consumption in these areas. 75. The success of the project depends upon the ability of the company to maintain quality standards and to market its products in the quantities at near the prices assumed in the estima vs. The management is aware of the importance of the marketing aspect. They have had dis- cussions with agents in several countries and have letters from these agents offering to handle the products if quality specifications are met. - 16 - Since no firm arrangements have been made for the 44sposal of the out- put, there is a certain element of calculated risk in this project which we recommend the Bank accept. Earning prospects and debt service coverape 76. Based on reasonable estimates the plant should reach normal production in the second year after construction is completed, and sales should total L. 2.28 billion per year. The plant should then earn an annual net income of about 45% on share capital, and earningpbefore inter- est or depreciation should amount to about 2.7 times debt service. It is estimated that the company would be able to withstand an unexpected decrease of 10% market prices or more than a 10% increase in operating costs and still maintain debt service and earn a 10% dividend on equity. (See Financial Forecasts, Annex 9). Economic Justification 77. If export sales are made at the expected level, the plant will earn between $2 and $3 million in foreign exchange annually, and will provide a profitable outlet for citrus fruit helping to balance increased Italian citrus plantings and increased competition in the European fresh fruit markets. The project will also provide a use for off-grade fruit not acceptable on the fresh fruit market and will convert heretofore waste or low value fruit into a high value product. The project fits in well with the Cassa program of promoting increased agricultural production. The project will also provide employment for about 110 people. Conclusiorn and Recommendations 78. The project should be able to show excellent earnings provided that it markets the products in the quantity and at near the prices used in the estimates. These estimates are based on reasonable assumptions. Subject to the marketing aspects, the project is sound and could be the basis for a loan in the amount of L. 1.171 million ($1.88 million) for a period of 9 years including 1 year of grace. - 17 - S. I. L. Borrovwer 79. The proposed borrower would be the Societa Idroelettrica Liri (SIL), a company presently operating a hydro-electric station in the Liri Valley supplying seasonal poawer. This station vould be completely integra- -te, vith a new pulp and paper mill near Avezzano in the neighboring Fucino Basin wihich would make full use of this seasonal power. The total cost of the project, including the written down value of the power plant, is estimated at L.4.75 billion (W7.6 million) of which it is proposed that L.2.6 billion ($0.16 million) should be financed from IBED funds. 80. The SIL is controlled by the Torlonia Group, which also owmns other enterprises, including flour mills, sugar factories, agricultural and urban land. Description 81. The mill wrould have an annual capacity of 25,000 tons of paper (6,000 newsprint, 8,000 magazine, 7,000 medium and 4,000 fine papers), and the project will include a groundwood mill producing 12,000 tons of mechanical wood pulp and a stravpulp mill producing 6,000 tons of bleached sulphite pulp annually. Another 6,000 tons d' chemical pulp would be imported. The plant would include equipment for the production of caustic soda and chlorine required in the mill. 82. As previously stated most of the povrer requirements would be covered by the existing hydro-electric station. During the period of seasonally low water supplies, some thermal powqer would be available from a sugar factory in the same region, also belonging to the Torlonia Group. The balance of power required would be supplied by a small thermal plant, which is to be constructed as part of the project, and which will also provide process steam. Raw Materials Supply 83. The pulp rood and straw required by the plant woul come from the Fucino Basin About 600,000 poplar trees planted as wind breaks in the basin will supply a perpetual annual yield of 33,000 tons of pulp wood. The Fucino Valley is also a source of large quantities of -wv'heat straw which are not utilized industrially and ivould be more than adequate for the needs of the plant. Present Status 84. Construction could start shortly after financing has been arranged, and wrould require about three years. - 18 - Management 85. Management personnel would be provided from the Torlonia Group. Technical personnel and knowr-how!, dur-ng the early operation of the plant, would be provided by the consultants, Sindicato Cellulose Pomilio, riith worldwide experience in the design and operation of paper mills. Financing 86. The Torlonia Group -rould supply L.1.05 billion as share capital. This includes the pooser plant at a value of L.437 million as of the beginning of the first operating year. In addition, they would contribute L.l.l billion in loans under covenants which w-ould make them equivalent to equity. The amount of the proposed loan from IBRD funds would be L.2.6 billion. The estimated pro forma balance sheets as of the date of completion of the plant and after three years of operation are shown below (million lire): June 30, June 30, June 30, June 30, 1958 1961 1958 1961 Power Station 437 437 Share Capital 1,050 1,05)0 Paper Mill 3,813 3,813 Shareholderst Minus Depreciation - 1,050 Advances 1,l0 1,100 IBRD Debt 2,600 2,119 Net Fixed Assets 4,250 3,200 Current Current Assets 500 1,074 Liabilities - 537 "Additional Assets" - 1,227 Surplus - 695 h,750 5,501 4,750 5,501 87. The letter cabodyini- the financial agreement ;with thc company is attached. (Annex 10.) Markets 88. The paper would be sold within Italy. The present Italian imports of newsprint and magazine paper are about equal to the proposed production of these types in the new mill. Since Italian consumption of paper is growing and imports are controlled with a view to encouraging domestic paper produc- tion, SIL may be expected to find a ready market for their products. Existing customs duities of 9-18% will also help the company. Earnings and Debt Service Coverage 89. During the first year of operations, the paper mill would probably only reach about 60% of capacity, and the operations would break even with no appreciable profit or loss. The situation should improve rapidly however and in the third year the company should reach full capacity with earnings after taxes equal to about 18% on share capital and shareholders advances. (See Financial Forecasts, Annex 11.) - 19 - 90. The debt service coverage should imp)rove correspondingly from 1.6 times for the first .year to 2.7 times for the third year. Even on the assumption of a 10 fall in prices, the coverage durin- the latter year would still be sliahtly above 1.5 times which would leave some margin in the event of exceptional price falls or cost inflation in Italy not paralleled in major paper exporting countries. Economic Justification 91. The mill's production vTill replace paper imports by l1,000 tons of newsprint and magazine papers and should effect a new saving in future pulp import of 6,000 tons. The net foreign exchange savings are estimated at about L.3.0 billion (4h.8 million) annually. 92. The mill would use regional sup.lies of wood and straw which, in its absence, would have a very low economic value. In addition to providing new sources of agricultural income and labor, the mill 1ould create about 375 direct employment opportunities for industrial labor. Conclusions and Recom-.endations 93. The SIL project is sound and could form the basis for a loan equivalent to L.2.6 billion (h4.16 million), including interest during the grace period for a term of 15 years including 3 years grace period. - 20 - FAR.TMI Borrower - 9h. The proposed borrower would be the Istituto Farmacoterapico del Mediterx¢eo, (FARMiIDI), a new privately owned company which would erect a plant near Palermo, Sicily for the production of pharmaceuticals and agricultural chemicals. The shares in the company will be owned by Consorzio Neoterapico Nazionale (80%) and by Cav. del Lavoro Dante Altieri (20%), the major shareholder of CNN. The total cost of the project is estimated at L. 2.01 billion (.3.22 million), of which it is proposed that L. 1.0 billion ($1.60 million) would be financed from IBKD funds. Description of the Project 95. The plant would produce a large number of pharmaceuticals for human and animal use, using both local materials and imported antibiotics. It would be located in the industrial zone of Palermo, with adequate trans- port and utility facilities. It will include a le'e plant site. Feed water will be obtained from the municipal mains. 260. The design and engineering of the plant were carried out by the engineering staff of S.M.E. and are based on proposals made by European and U. S. manufacturers of thermal generating eouipment. The plans are sound. Present Status of Engineering and Schedule of Construction 261.- Preliminary bids have been received from European and U. S. manufac- turers on major pieces of equipment. Construction work will start in July 1955 and is scheduled to be completed by the beginning of 1958, based on the delivery tines quoted by the manufacturers. The schedule is realistic. Estimated Cost 262. The total estimated cost of the plant amounts to L. 11.5 billions eouivalent to $18.L-million. A breakdown showing the cost of principal items is given in Annex 36. The estimate is based on the preliminary bids re- ceived, and present wages and prices. Reasonable allowances hrve been in- cluded for engineering, supervision, overhead, interest during construction and contingencies. The estimate is considered to be realistic. 263* The cost per installed kw amounts to the equivalent of wlSh, which is below average for thermal installations of this type. Schedule of Expenditures -264. The schedule of expenditures is estimated as follows (in millions of Lire): Year 1955 1956 1957 Total Expenditures 2000 3000 6500 U1,500 METHOD OF FINANCING 265. The Companyts expansion program for the three year period 1955/57 involves expenditures estimated at Lire 22.1 billion ($35 million). This figure includes L. 12.6 billion ($20.2 million) for the two projects se- lected for Bank financing. The remrainder of L. 9.5 billion ($15.2 million) would be reouired to complete the other projects of the Companyts program to the end of 1957. 266. It is rroposed that 60% of the estimated costs of the three Bank projects selected, or L. 7.5 hillion, which is equivalent to $12 million, be financed out of the proceeds of the proposed Bank loan to the Cassa. The balance of the capital reouirenents during the three year period, estimated - 52 - at L. 14.6 billion ($23.3 million) would be financed as follows: Billions of Lire Sale of capital stock 34 2 Borrowing (long and medium term) 8.61 Own resources (depreciation funds) 2.6 14.6 This financing plan is a part of the consolidated financing plan for the S.14.E. group shown in paragraph 228 above. FINANCIAL FORECASTS 267. The estimated financial position of the Company at the end of the three year period 1955/57, after carrying out the financing plan covered above, is given in the pro-forxa balance sheet in Annex 37. The net beok value of the fixed assets by that time is estimated to amount to approximate- ly L.*30.6 billion (C19 million), after deducting a reserve for depreciation of L. 14 billion ($22.4 million). Share capital and reserves, including the capital surplus remaining from the revaluation of assets already discussed in this report, would amount to Lire 12.7 billion ($20.3 million). Total long and medium term indebtedness is estimated to amount to L. 17.2 billion ($27.5 million). The debt/equity ratio on the basis -of the figures in the pro-forma balance sheet at the end of 1957 would be 56A4. The capitaliza- tion at the end of 1957, as compared with the position at present, is shown in the following table: Capital Structure 1951 1957 increase (/) (Actual) (Forecast) decrease (-) (in billions of Lire) Share capital 5.08 10.22 , 5.14 Reserves .21 .21 Revaluation surplus 3.97 2.24 1,73 Equity 9.26 12.67 1 3.41 Long term debts .58 17.18 / 16.60 Total 9.84 29.85 $ 20.01 1/ Of which already subscribed L. .4 billion. 2/ Net proceeds of total borrowing of about L. 9.6 billion; the difference represents discounts. - 53 - 268. The increase of L. 5.14 billion in share capital during the period 19555/7 is expected to come from sales of capital stock of L. 3.4 billion and a capitalization of L. 1.73 billion of the Revaluation Reserve through the issuance of bonus shares. Future Earnings 269. A forecast of future earnings for the five year period 1955/59 is given in Annex 38. The estimates for gross revenues are based on the assump.- tion that certain rate increases, as discussed in paragraphs 305-317 below$ will be obtained. After providing for adeouate depreciation and interest charges on all debt, moderate net earnings would remain, which would be suf- ficient for the paymant of an annual dividend of about 8% on the share capi- tal. Forecast of Cash Flow 270. A forecast of receipts and expenditures for the period 1955/59 is given in Annex 39. In this forecast, no cash accruals are shown since it is assumed that total receipts will eoual total expenditures af*r payment of an 8% dividend. As in the case of S.M.E., new financing is adjusted to this basis. Debt Service 2719 It has been assumed that the Cassa would lend Pugliese $12 million eouivalent out of Bank funds for 20 years, including three years of grace at an interest rate of 5-112. 'On these assumptions, the annual debt service would amount to about $1,098,000, equivalent to L. 684 millions. Debt service on the Cassa loan and all other debts wrould be covered by cash gen- eration on the average about 2.2 times. - 54 - UiNIONE ESERCIZI ELE'.TRICI (UNIS) THE COHPANY 272. UNES was founded in 1905 as a private company and its operations were gradually expanded until the economic depression of 1931. IRI took control of the company at that time, but sold its holdings to SlE in 1937. The facilities of the company were badly damaged during the war, but were fully reconstructed by 1947. In 1950 a substantial expansion program was started and the company is gradually being transformed from a distribution company into an integrated utility. The company operates in the East Central section of Italy (see Annex 17). only half of its operations are within the Cassa area. It serves about 4 million people. 273. In 1954 the company had 103,000 kw installed, all in hydro plants. Its transmission facilities consist of 1,150 km of high tension lines which are interconnected into the Italian grid. It has 36 substations with a total capacity of 480,000 kva. Low tension lines and distribution facilities form the most important part of the company's investment, since the company depends upon purchased power for a high percentage of its supply (49%), which is obtained through agreements with SIv2E and Terni. In the immediate post-war period losses were running at the high rate of about 34% of the total power available in the system. Since then they have been progressively reduced, and had fallen to about 20% in 1954. The facilities of the company are well maintained according to sound utility practice. 274. At the end of 1954, the balance sheet of the company showed total assets of Li-e 48.1 billion ($78 million). These were mainly represented by fixed assets which, after deducting the reserve for depreciation of Lire 18 billion ($29 million), amounted to Lire 35.5 billion ($57 million). Long- term debt amounted to Lire 6.4 billion, giving a debt equity ratio of 18/82. (see Annex 40). 275. Successive revaluations of the company's assets have taken place during the post war years according to law which have resulted in a net write-up of assets of about Lire 26 billion ($41.5 million), of which about Lire 9.8 billion ($15.6 million) has been used to increase the company's share capital. The remainder is carried in a revaluation reserve. 276. The company's share capital of Lire 14 billion was held by about 10,000 shareholders, but the majority (59%) was held by SIE. 277. About 95% of the long-term debt was represented by borrowings from ICIPU. In 1955 the company obtained an additional loan from ICIPU amounting to Lire 3.5 billion ($5.6 million). These loans generally have 20-year terms with interest ranging from 6.5 to 8%. They are secured by mortgages on existing properties of the company. The company has recently obtained a 5-year Bank loan of Lire 1 billion ($1.6 million) which is unsecured. - 55 - 278. The company has no net working capital and is operating on Bank credits. Its normal overdraft facilities amount to about Lire 1.5 billion (02.4 million). Due to heavy construction requirements, however, this limit has recently been raised to Lire 5 billion (s8 million). 279. The company's earnings' record for the past 20 years shows net profits in each year with the exception of the last two war years. During the post-war period, the company has been paying a dividend of 8%. During this period, interest charges on all debts have been covered about five times by net incoine. Condensed income statements for the past three years are shown in Annex 41. 280. Although the company is controlled by SME, it is organized on an independent basis with a Board of Directors which includes the ge,neral irianagers of Finelettrica and IRI and two representatives of SIE. The total personnel amounts to about 1,500. The management and staff have a long and successful experience in power operations. The organization and management of the company are good. THE P0'kIvR MARKET 281. The maxinum load on the INES system has increased gradually from 97,000 kw in 1946 to 151,000 kw in 195a, an average annual increase of about 8.5%. Sales of energy have increased from 215 million kwh in 1946 to 536 mil- lion kwh in 1954, an average annual increase of about 12%. During this same period, generation by the company has increased from 80 million kwh to 355 million kwh. The load factor on the system is about .5 . Industrial con- sumption represents about 61% of total sales. (See Annexes 42 and 43.) 282. Mlarket projections indicate increased sales of from 536 million kwh in 1954 to 1,012 million kwh in 1964, giving an average annual increase of 6.3%. This estimate is considered to be conservative. The peak load is expected to increase from 151,000 kw to 279,000 kw in the same period equiva- lent to an amnual increase of 6%. The amount of power purchased is expected to decrease due to the increased needs of the companies supplying energy and to transmission limitations. The proportion of purchased energy is expected to decrease from about 49% in 1954 to 19% in 1964. Projections of load and energy requirements are given in Annexes 45 and 46. INVEiT8IENT PROGRAM 283 The investment program of UNES has been formulated for the period 1955-60. Like the program of the SEE Group, this program can be divided into two parts. The first part includes projects to be executed during the period 1955-57 and which could form the basis for a Bank Loan. This part will add about 74,000 kw of hydro generating capacity, about 184 km of new transmission lines and about 13,000 kva of substation capacity to the system together with the necessary expansion of distribution facilities. - 56 - 284. The estimated cost of this part of the program (including a margin of 20% for interest during construction and contingencies) is as follows: 1955-57 Million Lire Generating Plants 10,380 Transmission Lines and Substations 1,850 Distribution 3,000 Total 15,230 285. The second part of the investment program, to be carried out in 1956-60 will probably include additions of 38,000 kwv of hydro and 100,000 kw of thermal capacity along with about 66 km of transmission lines and 4,000 kva of substation capacity and necessary extension of the distribution system. The estimated cost of the second part is as follows: 1956-60 Million Lire Generating Plants 21,650 Transmission Lines and Substations h90 Distribution 3,000 Total 25,1)40 286. For details of these programs see Annex 44. ITIhen related to estimated loads and production requirements, the proposed investment program is barely sufficient to provide facilities to cover the increase in peak load and production will be about equal to the requirements in a dry year. The program appears to be fully justified on the basis of need. PROJECTS PROPOSED F'OR BAIK FIAA`CTNG A. CAPODIPON E TRONTO PROJECT 287. This project and the Ascoli project described below will utilize the regulated flow of the Tronto river provided by a large existing upstream reservoir having a capacity of 12 million hI3. 288. It consists of a concrete diversion dam 25 meters high which will create a reservoir for daily regulation having a capacity of 300,000 r,.3. Water will be conducted from this reservoir through a concrete lined pressure tunnel about 6,000 meters in length connecting through a surge tank to a 220 meter penstock. - 57 - 289. Generating capacity will consist of two units of 7,400 kw and 3,600 kw operating under a head of 98.5 meters. The average annual water flow is 7.2 m3/sec., corresponding to an annual generation of 35 million kwh at a load factor of about .35 . The works are nearly comprleted and both units will be in operation by the end of 1955. 290. The total cost of this project (including interest during construc- tion) is estimated to be Lire 2.4 billion ($3.8 million). (See Annex 47). On this basis the installed cost per kw amounts to the equivalent of $323, which is reasonable for an installation of this type. The estimates on this project can be considered as firm due to its advanced stage of construction. Adequate allowances have been included to cover engineering supervision and contingencies. Of the total cost of Lire 2.4 billion, about Lire 1.8 billion had been spent prior to January 1, 1955. The balance of Lire 600 million will be spent entirely in 1955. B. CAFODIi O:iTE CASTELLhJC F ROJECT 291. This project consists of an 80 meter high dam which rill create a reservoir of 12 raillion k3 on the Castellano River, a tributary of the Tronto. A temporary barrage 20 meters high is being built to provide some storage before the main dam is completed. The reservoir vrill connect through intake works to a tunnel approximately 3,000 meters long leading to a surge tark and a penstock. 292. The power installation will consist of one unit of 14,000 kw operating under a head of 300 m,leters. This unit will be installed in the Capodiponte Trorito powerhouse. The average annual water flow is 2.7 m3/sec., corresponding to an annual generation of 30 million kwh at a load factor of about 0.25. The project is scheduled to be finished in 1957. 293. The esuimated cost of this project is Lire 4 billion (.6.4 million) of wnich the dam represents the major part. (See Arnnex 48). Since the storage will serve also for the regulation of the kscoli project, described below, the cost can be considered as divisible between the two projects. Ihe above estimates include adequate! allowances for engineering, supervision, interest during construction and contingencies and are considered to be realistic. 294. The schedule of expenditures on this project is as follows: Pre-1955 1955 1956 1957 Total (in million lire) Capodiponte Castellano 200 1,800 1,00 60o 4,000 - 58 - C. ASCOLI PROJECT 295. This project consists of a barrage 9 meters high built across the Tronto which will divert water into a tunnel 5.5 km in length. This tunnel will discharge into &rugulating basin fror,e which a 56 r'tter long vertical pressure shaft will take water to two units of 7,200 kw each and a third unit of 3,300 kw, all operating under a head of 77 meters. The average annual water flow is 12.5 m3/sec., corr_sponding to an annrual generation of 60 million kwh at a load factor of' about 0.25. The project is scheduled for completion at the end of 1956. 296. The estimated cost is Lire 3 billion ($4.8 million). (See Annex 49). This estimate contains adequate allowances for contingencies, supervision, interest during construction and engineering. hen co-nsidered with the Capodiponte Castellano project, the cost per kw amounts to %340, which is reasonable. 297. The schedule of expenditures on this project is as follows: Pre-1955 1955 1956 Total (in million lire) Ascoli 300 1,700 1,00 , 3,000 298. The design and supervision of the above three projects are being carried out by the engineering staff of Uh4ES. Construction work is being done by Italian contractors. The quality of the work is good. %ETH0D OF FI-NhqklCIivlG 299. Total capital expenditures during the three year perlod 1955-57 are estimated at Lire 25.9 billion ($41.4 million). Of this amount Lire 7.1 billion ($11.4 million) is estimated to be required to complete the three projects selected for Bank financing. It is proposed that 80% of this amount or Lire 5.6 billion ($9 million) will be financed out of the proceeds of the proposed Bank loan to the Cassa. This would represent 60% of the total estimated cost of the projects. The company plans to obtain the balance of its financial requireruents, estimated at Lire 20.3 billion ($32.5 million), from the following sources: Billions of Lire i) sale of capital stock 6.7 ii) borrowing 7.4 iii) own resources (depreciation funds, retained earnings) 6.2 20.3 300. in addition to Lire 7.4 billion to be bor-owed locally for capital expenditures, the company intends to borrow an additional amount of Lire 2.3 billion on a long-term basis in order to refund its short-term bank debts. - 59 - Total local borrowing would therefore amount to about Lire 9.7 billion. Of this amount the company has already raised Lire 4.5 billion. It is not expected that either the borrowing or the sale of share capital will present serious difficulties. FI7A JCIAL FORECGES TS 301. The pro forma balance sheet at the end of 1957 is given in Annex 50. The net book value of the fixed assets of the company is expected to amount to approximately Lire 48.6 billion ($77.8 million) after deducting a reserve for depreciation of Lire 25.6 billion ($40 million). Share capital and reserves, including the balance of the capital surplus created through the re- valuation of assets, is expected to amount to Lire 37.3 billion ('59.7 million). Total long-term indebtedness will amount to about Lire 2c).5 billion ($32.8 million) giving a debt equity ratio of about 35/65. Future Earnings 302. A forecast of future earnings is given in Annex 51. The estimates for gross revenues are based on the assurption that several rate increases would be obtained, as discussed in paragraphs 305-317 below. With these rate increases the company would be able to maintain an annual dividend of 8%. Forecast of Cash Flow 303. A forecast of receipts and exoenditures is given in Annex 52. This forecast ass;umes an investment program of about Lire 37.7 billion ($60.3 million) during the period 1955-59, of which about Lire 26 billion will be spent during the first three years. After payment of debt service and an annual dividend of 8%, moderate cash accruals will result during the early years vihich would amount to about Lire 1 billion ($1.6 ?million) by the end of 1957. Cash accruals would increase to about Lire 1.4 billion ($2.2 million) by the end of 1959. Debt Service 304. It has been assumed, for the purpose of calculation only, that the Cassa would relend the equivalent of $9 million to UNES on a term of 20 years which would include a three year 'period of grace with an interest rate of 51%. On these assumptions, the annual debt service on the Cassa Loan would amount to about $821,000, equivalent to Lire 513 million. Debt service on the Cassa loan and all other debts -ovould be covered by receipts from operations, about 2.5 to 3 times on the average. - Go - POWER PRODUCTION COSTS AND POWER RATES 305. All of the power plants considered in this report will be used for peaking purposes, with the exception of the Bari thermal plant and the Coscile hydro plant to be constructed by Pugliese. It is estimated that these two plants will deliver power to the consumer at a cost of about L. 22 per kwh. The costs of power delivered from the SME and UNES plants are estimated at L. 26 and L. 25 per kwh respectively. 306. The present average production costs of power per kwh delivered to the consumer are: L. 6.61 for SME, L. 15.15 for Pugliese and L. 15.90 for UNES. SME has a low production cost because it sells 70-80% of its power wholesale to subsidiary companies and large industrial consumers. 307. As a result of increasing fixed charges and operating costs, average production costs are bound to increase. In 1958, when the projects considered for Bank financing have been completed, it is estimated that the average costs per kvwh will amount to L. 8.56 for SME, L. 16.48 for UNES and L. 17.22 for Pugliese. 308. These average production costs have to be cczpared with the present average selling prices per kwh, which are L. 7.11 for SME, L. 16.74 for Pugliese and L. 17.80 for UNES. 309. While for UNES the increased production cost will remain below the present average selling prices, the increased cost for SEE and Pugliese would exceed present selling prices. 310. The regulation of power rates in Italy is the responsibility of an inter departmental price committee which has the authority to make rate changes without the need for parliamentary action. During the post-war period, a number of general rate increases have been authorized to compensate for the general increase in costs. The rate system is based on the 1936 rate level and increases are authorized by the application of a coefficient by which all 1936 rates may be multiplied. The present coefficient is 24 and has been in effect since 1948. The general price level has increased about 60 times since 1936. 311. Since the permitted rate increases are based on 1936 operating conditions, which have changed to a considerable extent, they bear no con- sistent relation to the increases in operating expenses of the individual power companies. On the average, companies' earnings are more favorable than the comparison of the increase in rates to the general increase in prices would indicate. The most important reason for this is the relative- ly larger increases of sales to categories of consumers paying higher rates. In addition more economical operations have been accomp'lished by a more extensive integration of power systems in different parts of Italy, which makes possible the exchange of surplus power and reduces overall require- ments for reserve capacity. Losses in the system have also been reduced by improvements of transmission and distribution facilities. - 61 - 312. Since 1948 the operating costs of Italian power companies have been steadily increasing, mainly because the fixed costs of new plants are higher than those of old plants. To avoid a further general rate increase, the price committee in 1953 established an equalization fund to make good to the companies part of the higher cost of power produced in plants completed since 1949. The source of this fund is a fairly substantial surcharge payable by industrial consumers. The fund has been running since the middle of 1954 at a deficit, wfhich so far has been covered from the balance of a thermal power equalization fund which was abolished in 1953. 313. As more new plants are coming into production, the equalization fund will continue to show a deficit in 1955, and it is understood in Italy that the present position can only be improved by a new general rate in- crease. The price Committee is expected to authorize such an increase during 1955. 314. In the financial forecasts prepared by the three power companies, they have assumed an increase in the official coefficient from 24 to 32 effective Jsnuary 1, 1956, and a simultaneous reduction in the contribution from the equalization fund of 75%. Furthermore, the companies have assumed an additional increase in the coefficient to 40 in 1958, together with the abolition of the equalization fund. 315. The companies show that on these assumptions their financial si- tuation would be satisfactory. 316. Unless rate increases of this order of magnitude are granted in the next few years, the financial positions of the three companies, and of all other power companies in Italy, will deteriorate to a point at which they will be unable, either by borrowing or by raising additional equity, to obtain the funds needed to finance the construction programs wrhich they xust continue to carry out if the constantly growing demand for electric power is to be met. 317. In thc circumstances, consideration has been given to the ques- tion whether the Bank should ask the Italian Government for an undertaking with respect to its future policy on electric rates. In view, however, of the fact that in the past (with the exception of the years in which war damage reduced available capacity) rates have always been adequate to enable the companies to earn a reasonatle profit, and that there is no reason to suppose that the Government is likely to change its policy, it has been con- cluded that it is not necessary to obtain such an undertaking. The power companies concerned, -with whom the question has been discussed, share this view. - 62 - SECURITY AND FINANCIAL ARRANGEIENTS 318. Two problems involving the set-up of the proposed loans were comnon to all three companies. The first was the need for funding part of the short-term bank indebtedness in order to improve their liquidity position, and the second was the type of security which the Bank or the Cassa should take on the projects. If the properties financed by the Bank loan were to be secured by a mortgage, this would make it difficult for the companies to fund existing short-term debt. 319. In lieu of the usual mortgage arrangements, the companies pro- posed that the necessary security provisions be satisfied in the form of a suretyship from two of the principal shareholders of the companies, Finelettrica and the Bastogi group. Finelettrica, which is an electric utility holding and financing company, controlled by the Government through IRI, and Bastogi, which is a privately owned investment group (with a net ::orth of ov-r _$5 1'11ilcr equivalent) arc both in a very strong financial position. 320. They are willing to guarantee jointly and severally all of the undertakings given to the Bank in the Project Agreements and the obligations of the companies to the Cassa in the Subsidiary Loan Agreements. These obligations include not only the financial covenants of repayment of the loans to the Cassa but the covenants of completion, maintenance and opera- tion of the projects during the life of the loan. 321. In these circumstances, the proposed arrangements are satisfactory. CONCLUSIONS 322. The projects which it is proposed to finance by loans from the Cassa to SNIE, Fugliese and UNES out of Bank funds are sound. Suitable arrangements have been made for their execution and subsequent operation. The estimated costs and the construction schedules are reasonable. The companies are well managed and organized. The debt-equity ratios of the companies are satisfactory. Their liquid positions are characterized by large short-term borrowings. However, their financial plans are designed to correct this situation. 323. Their earnings records are good. Provided that the Government grants reasonable rate increases during the next few years, they should continue to earn enough to maintain reasonable dividends and to service their debt, and should thus be in a position to raise the funds needed for further expansion. 324. Since Finelettrica and the Bastogi group will guarantee the companies' obligations to the Cassa and to the Bank (under the Project Agreements), the proposed projects form a suitable basis for Cassa loans to the three companies in the following amounts: - 63 - SME $ 9 million equivalent Pugliese $ 12 million equivalent UNES $ 9 million equivalent TOTAL $ 30 million equivalent 325. The useful life of the structures and equipment would justify a term of 20 years for these loans; and the construction schedules a grace period of three years. IN Q+ROME AVEZZANO - FROSINONE -' NAPLES INDUSTRIAL PROJECTS PRODUCTS MAINLAND G Idroelettrico del Liri Paper (29 Manitex Wool yarn < tS SICILY - ® Formedi Agricul/turol chemicals 8 phormaceuticals (D Cementerie Sicilione Cement (9 S. F A S. Citrus processing ®jw Sicu/ozoto Complex fertilizer ® Smncol Complex fertilizer 6a CAfiTANIA LOCATION OF AUGUSTA I NDUSTRIAL PROJECTS SYRACUSE I N SOUTHERN ITALY 02550 MILES MAY, 1955 ANNEX 2 CEMENTERtE SICILIANE Palermo May the 12th, 1955 International Bank for Reconstruction and Development 1818 H Street N.W. Washington 25, D.C.. U.S.A. ( This will confirm certain understangings which have been reached during recent discussions between representatives of the International Bank for Recon- struction and Development (hereinafter referred to as the Bank), and Cementerie Siciliane. (a) You have informed us that the Bank is considering a loan to the Cassa per Opere Straordinarie di Pubblico Interesse nell'Italia Meridionale (the Cassa) and that part of that loan will be specifically allocated for loans by the Cassa for various industrial undertakings in the area of its competence. (3) We have proposed that there should be financed out of the proceeds of the loan our project to construct and operate at Isola dellaFemnine near Palermo a cement plant with a capacity of 130,000 tons per year. The pro-forma balance sheet on completion of the project which we have discussed, would be as follows: Assets Liabilities Net current Assets 200,000,000 Capital 1,500,000,000 Fixed Assets 2,800,000,000 IBRD Loan 1,060,000,000 __________ =. Shareholders Advances LL0 0000.000 lire 3.000.000.000 lire 3,000.000.000 (4) You have said that before you could approve favorable consideration by the Cassa of the proposed loan, you would require certain undertakings from Cementerie SiciLiane in respect of the treatment of shareholders' advances and working capital. (5 The assurances and undertakings which you have requested to be effective while the loan from the Cassa would be outstanding are that: the undersigned would not without the approval of the Bank and the Cassa pay dividends cr make other payments to shareholders, or adopt any policy, which would result in: (i) the excess of current assets over current liabilities to be less, at any time, than 200,000,000 lire, or (ii) the raticnof current assets to current liabilities to be less, at any time, than 2:1. ANNEX 2 Page 2 (6) For the purpose of the preceding paragraph we have agreed that "tcurrent assets" should be considered as cash and assets readily convertible to cash and all other assets which would, within one year in the o7'inary course of the under- signedts business be converted into cash or assets readily convertible into cash; and that "current liabilities'"should be considered as liabilities due and payable and all other liabilities which would be payable or could be called for payment within one year. (z) The undersigned hereby gives you the assurance set forth in paragraph (5) above to be effective on the condition that you make a loan to the Cassa and that from the proceeds thereof the Cassa grants a loan to the undersigned for the con- struction of said plant in the approximate amount which we have discussed, namely 1,060,000,000 lire. (8) It is understood that the terms and conditions of any such loan from the Cassa will be set forth in an agreement to be negotiated and entered into between the undersigned and the Cassa and that the substance of the assurances and under- takings given in this letter will be incorporated therein. Yours truly. S.p.A. CEMENTERIE "ICILIANE 11 Consigliere Delegato (dr. ing. Carlo Pesenti) ANNEX 3 CEMENTERIE SICILIANE Financial Forecasts (Million Lire) Operating Period 1959/60 ,onstruction Period Under Unfavorable 1955/56 1956/57 1957/58 1958/59 Normal Conditions 1/ I. Earnings Statement Production (% of capacity) 90 go 100 83 Operating costs 748 828 905 696 Interest IBRD debt 64 59 54 5 Depreciation 178 178 178 178 Taxes 16 25 35 12 Total Costs 1,006 1,090 1,172 940 Net sales 1,080 1 214 10350 918 Net income after taxes 74 12 17- ____ Net income (% of share capital) 4.9 8.3 11.8 -14: II. Sources and Application of Funds Equity 1,500 595 2/ IBRD debt 515 545 Other long-term debt - 440 Current liabilities - 103 120 20 40 - Detpreciation - - 178 178 178 178 Net income before IBRD interest - 138 183 232 32 Total Sources 2__3 -381l - 0-3 21) Fixed assets 1,420 1,380 - - - Current assets 595 300 140 55 65 - I!BRD debt service - - 143 143 143 143 fLetirement shareholders' advances - - 59 63 68 68 '"Additional assets"t - 94 120 174 .-I Total Applications 201 -- 381 -72 ANNEX 3 Page 2 Operating Period 1959/60 Construction Period Under Unfavorable 1955/56 1956.57 1957/58 1958/59 Normal Conditions III. Balance Sheets (as of the end of the period) Fixed assets 1,420 2380) 2,800 2,800 2,CCOO Minus accumulated depreciation - - 178 >56 534 Net fixed assets 13420 2,800 2,622 2,444 2,266 Current assets 595 300 440 480 560 "Additional assets" - - 94 229 388 Total Assets 2,1L 3,100 _3__ 3,53 3,214 Equity (share capital and surplus) 1,500 1,51)0 1,574 1,698 1,876 IBRD debt 515 1,060 981 897 808 Shareholders' advances - 440 381 318 2Ef0 Current liabilities - IA0 220 240 280 Total Liabilities _201 3,500 3,214 1/ Assuming a temporary recession resulting in a 20% cut in sales volume and 15% cut in prices with no reduction in the price level for labor or raw materials. 2/ Balance of equity not spent on construction in previous year. ANNEX 4 S ICULAZOTO Palermo, May 11th, 1955 International Bank for Reconstruction and Development 1818 H Street N.W. Washington 25, D.C., U.S,A. Gentlemen, 1) this will confirm certain understandings which have been reached during recent discussions between representatives of the International Bank for Recon- struction and Development (hereinafter referred to as the Bank), and SICUIAZOcO.- 2) You have informed us that the Bank is considering a loan to the Cassa pro Opere Straordinarie di Pubblico Interesse nell'Italia Meridionale (the Cassa) and that part of that loan will be specifically allocated for loans by the Cassa for various industrial undertakings in the area of its competence.- 3) We have proposed that there should be financed out of the proceeds of the loan our project to construct and operate a fertilizer plant at Catania with daily capacity of 150 tons of compound fertilizers and 10 tons of Flotal. The pro-forma balance sheet on completion of the project which we discussed, would be as follows: Assets Liabilities Fixed Assets 2,600o000o000 Share Capital 1.5004000.000 Net Current Assets QOO.000.000 IBRD Loan 1,500.000.000 3,000000 3.000.000.000 4) You have said that before you could approve favorable consideration by the Cassa of the pronosed loan, you would require certain undertakings from SICUIAZOTO in respect of the treatment of shareholders' advance and working capital.- 5) The assurances and undertakings which you have requested to be effective while the loan from the Cassa would be outstanding are that: (a) valid arrangements be made under which, except as the Bank and Cassa shall otherwise agree: the ratio of long term debt to share capital should not be more than 1:1l (b) the undersigned would not without the approval of the Bank and the Cassa pay dividends or make other payments to shareholders, or adopt any policy, which would result in: ANNEX 4 Page 2 (i) the excess of current assets over current liabilities to be less, at any time, than 400.000.000 lire, or (ii) the ratio of current assets to current liabilities to be less, at any time, than 2:1. - S) For the purpose of the preceding paragraph we have agreed that "current asset-s" should be considered as cash and assets readily convertible to cash and all other assets which would, within one year in the ordinary course of the undersigned's business be convertes into cash or assets readily convertible into cash; and that "current liabilities"' should be considered as liabilities due and payable and all other liabilities which would be payable or could be called for payment within one year. - 7) The undersigned hereby gives you the assurance set forth in paragraph 5) above to be effective on the condition that you make a loan to the Cassa and that from the proceeds thereof the Cassa grants a loan to the undersigned for the con- struction of said plant in the approximate amount which we have discussed, namely L..500.000.000 lire. - 8) It is understood that the terms and conditions of any such loan from the Cassa will be set forth in an agreement to be negotiated and entered into between the undersigned and the Cassa and that the substance of the assurances and under- takings given in this letter will be incorporated therein. - SICULAZOT0 Societa' per Azioni LtAmministratore Unico ANNEX 5 SICULAZarO Financial Forecasts (Million Lire) Operating' Years Construction Years Under Unfavorable 19$5/56 1956/57 1957/58 1958/59 Normal Conditions 2 I. Earnings Statement Production (% of capacity) 100 100 100 80 Operating costs 1,324 1,332 1,332 1,132 Interest IBRD debt 90 83 76 76 Depreciation 260 260 260 260 Taxes 43 41 .* 15 Total Costs 1,717 1,716 1,712 1,483 Net Sales 1.932 14.932 1,32 1.41L Net income after taxes 215 216 220 __-62 Net income (% of share capital) 14.3 14.4 14.6 -4.6 II. Sources and Application of Funds Equity 650 850 - - - - IBERD funds 650 850 - - - - Current liabilities - 200 200 - - - Depreciation - - 260 260 260 260 Net income before IBRD interest - - 305 299 _ 296 7 Total Sources 1.3C0 1 -5O 76 __267 Fixed assets 1,300 1,390 - - _ - Current assets - 6bO 200 - - - IBRD debt service - - 202 202 202 202 "Additional assets" - - 363 357 35 65 Total Application 1.300 .900 765 _ 5 267 ANNEX 5 Page 2 ODerating Years _ 1959/60 Construction Years Under Unfavorable 1955/56 156/57 1957/58 1958/59 Normal onditions 1 III. Balance Sheets (as of the end of the period) Fixed assets 1,300 2,600 2,600 2,600 2,6)00 Deduct depreciation - - _260 520 780 Net fixed assets 1,300 2,600 2,340 2,080 1,820 Current assets - 600 800 800 800 "Additional assets"_ - 363 _720 1.074 Total assets 1.300 3.200 1-252 3.600 6 Equity (share capital plus surplus) 650 1,500 1,715 1,930 2,149 IBRD funds / 650 1,500 1,388 1,270 1,145 Current liabilities 200 W 400 400 Total liabilities 300 .200 I 3.600 "6 j/ Ass.uming a fall in output the 80% of full capacity and a reduction in selling prices by 15% with no corresponding reduction in raw material prices or wages. 2/ Includes interest during the grace period. ANNEX 6 SINCAT Milano, 12 maggio 1955 International Bank for Reconstruction and Development lSl H Street N.W. Washington 25. D.C., U.S.A. Gent-lemen: This will confirm certain understandings which have been reached during recent discussions between representatives of the International Bank for Recon- struction and Development (hereinafter referred to as the Bank), and SINCAT. You have informed us that the Bank is considering a loan to the Cassa per opere Btraordinarie di pubblico interesse nell'Italia Meridionale and that part of that loan will be specifically allocated for loans by the Cassa for various industrial undertakings in the area of its competence. We have proposed that there should be financed out of the proceeds of the loan our project to construct and operate at Augusta a fertilizer plant with a production oapacity of 100,000 tons per year of double and triple compound fertilizers. The pro-forma balance sheet on completion of the project which we have discussed, would be as follows: ASSETS LIABILITIES Current assets 1,500,000,000 Capital 2,000,000,000 Fixed assets 7,500,000,000 Shareholders' advances 2,600,000,000 IBRD Loan 3,600,000,000 Current liabilities 0O0.000.000 9.000.000,000 9.000.000.000 You have said that before you could approve favorable consideration by the Cassa of the proposed loan, you would require certain undertakings from SINCAT in respect of the treatment of shareholders' advances and working capital. The assurances and undertakings which you have requested to be effective while the loan from the Cassa would be outstanding are that: (a) Valid arrangements be made under which, except as the Bank and Cassa shall otherwise agree: 1. The share capital of the Company shall be at least 2,000,000,000 lire, paid in as required, 2. Shareholderst advances (which, on completion of the Plant, will total at least the difference between 4,600,000,000 lire and paid in share capital) would not be withdrawn, ANNEX 6 Page 2 3. Shareholders' advances would be subordinated to all debts of SINCAT, and 4. Interest or any other remuneration would be payable and paid on shareholders' advances only out of net profits and only to the extent that dividends would be payable thereon if such advances had been converted to share capital. (b) The undersigned would not without the approval of the Bank and the Cassa pay dividends or make other payments to share- holders, or adopt any policy, which would result in: 1. The excess of current assets over current liabilities to be less, at any time, than 700,000,000 lire, or 2. The ratio of current assets to current liabilities to be less, at any time, than 2:1. For the purpose of the preceding paragraph we have agreed that "Current Assets" should be considered as cash -nd assets readily convertible to cash and all other assets which would, within one year in the ordinary course of the under- signed's business be converted into cash or assets readily convertible into cash, and that "Current Liabilities" should be considered as liabilities due and payable and all other liabilities which would be payable or could be called for payment within one year. The undersigned hereby gives you the assurance set forth in paragraph (5) above to be effective on the condition that you make a loan to the Cassa and that from the proceeds thereof the Cassa grants a loan to the undersigned for the con- struction of said Plant in the approximate amount which we have discussed, namely 3,600,000,000 lire. It is understood that the terms and conditions of any such loans from the Cassa will be set forth in an agreement to be negotiated and entered into between the undersigned and the Cassa and that the substance of the assurances and undertakings given in this letter will be incorporated therein. Yours very truly, S INCAT Societa' Industriale Catanese il Consigliere Delegato (dott.Ing.Carlo Ciriollo) ANNEX 7 SINCAT Financial Forecasts (Million Lire) _ Operating Period Construction Period Under Unfavorable 1955/56 1956/57 1957/58 1958/59 1959/60 Normal Conditions 1/ I. Earnings Statement Production (% of capacity) 80 80 80 7t) Operating costs 2,442 2,458 2,458 2,228 Interest IBRD debt 216 200 183 183 Depreciation 750 750 750 75) Taxes 36 36 42 15 Total costs 3,444 3 444 3,433 3,176 Net sales 3,800 3,800 3 800 2 826 Net income after taxes 36367 Net income (% of share capital and shareholders' advances) 7.7 7.7 8.0 -7.6 II. Sources and Application of Funds Equity 15000 1,000 - - - - - Shareholders' advances 1,300 6v0 7CO - _ _ _ IBRD debt 1,300 1,200 1,100 - - - - Current liabilities - - - 75) - - - Depreciation 750 750 750 750 Net income before IBRD interest - - - 572 556 550 _-167 Total Sources 3,600 2o72 1,306 1,3C0 583 Fixed assets 3,600 2,800 1,100 _ _ _ _ Current assets - - 700 898 32 26 26 IBRD debt service - 484 484 484 484 "Additional assets1 - - _ 690 790 790 73 Total Applications 3,600 2,800 1, 00 2,072 1,306 513 ANNEX 7 Page 2 Construction Period Operating Period 1960/61 Under Unfavorable 1955/56 1956/57 1957/58 1958/59 1959/60 Normal Conditions 1/ III. Balance Sheets (as of the end of the period) Fixed assets 3,600 6,400 7,500 7,500 7,50D 7,500 Deduct depreciation - - - 750 1 500 2 2r0 Net fixed assets 3,600 6,400 7,500 6,750 Current assets - - 700 1,598 1,630 1,656 "Additional assets" - - - 690 1,46O 22270 Total Assets 3,600 6,400 =,200 9,03 9 ,7d Equity (share capital plus eurplus)l1100 2,000 2,000 2,356 2,712 3,078 Shareholders' advances 1,300 1,900 2,600 2,600 2,600 2,600 IBRD funds 2/ 1,300 2,500 3,600 3,332 3,048 2,748 Current liabilities - - - 750 750 75D Total Liabilities 3,00 6 9,03110 1/ Assuming a fall in output to 70% of capacity and a reduction in selling prices by 15% with no correspondinig reduction in the price level for raw materials or labor. the 2/ Includes interest duzing/grace period. AflNEX 8 S.F.A.S. Catania, 12 May 1955 International Bank for Reconstruction and Development 1818 H Street N.W. Washington 25, D.C.. U.S.A. (I) This will confirm certain understandings which have been reached during recent discussions between representatives of the International Bank for Recon- struction and Development (hereinafter referred to as the Bank), and SFAS. (2) You have informed us that the Bank is considering a loan to the Cassa per Opere Straordinarie di Pubblico Interesse nell'Italia Meridionale (the Cassa) and that part of that loan will be specifically allocated for loans by the Cassa for various industrial undertakings in the aera of its competence. (3) We have Droposed that there should be financed out of the proceeds of the loan our project to construct and operate at Catania a plant to process annually about 22,500 metric tons of citrus fruits for orange juice and lemon juice; 3,600 metric tons of tomatoes for juice and paste, and 3,600 metric tons of grapes for juice. The pro-forma balance sheet on completion of the project which we have discussed, would be as follows: Assets Liabilities Fixed Assets 1,371,000,000 Share Capital 700,000,000 Net Current Assets 900,000,000 IBRD Loan 1,171,000,000 _=__________ Current Liabilities LOO.000.000 2,271,000,000 2,271,000,000 (4) We have explained that it would be possible to reduce the estimated cost of the plant without reducing either its efficiency or its productivity, and have inquired what would be the effect of such a cost reduction on the above pro-forma balance sheet. (5) You have said that before you could approve favorable consideration by the Cassa of the proposed loan, youswould require certain undertakings from SFAS in respect of the treatment of shareholders' advances and working capital. (6) The assurances and undertakings which you have requested to be effective while the loan from the Cassa would be autstanding are that: (a) the undersigned would not without the approval of the Bank and the Cassa pay dividends or make other payments to shareholders, or adopt any policy, which would result in: ANNEX 8 Page 2 (i) the excess of current assets over current liabilities to be less, at any time, than 500,000.000 lire, or (ii) the ratio of current assets to current liabilities to be less, at any time, than 2:1. (b) The undersigned would not without the apnroval of the Bank and the Cassa: (i) effect reductions in the cost of the plant which would adversely affect the production capacity or profitability of the project; (ii) in future maintain a ratio of long-term debt to share capital plus undistributed profits of more than 1:1; (iii) permit at any time until 700.000.00f lire of share capital has been paid in, the sum of its applications for withdrawals under the loan to exceed 150% of the share capital so paid in. (7) For the purpose of the preceding paragraph we have agreed that "current assets"should be considered as cash and assets readily convertible to cash and all other assets which would., within one year in the ordinary course of the undersigned's business be converted into cash or assets readily convertible into cash; and that "current liabilities"f should be considered as liabilities due and payable and all other liabilities which would be payable or could be called for payment within one year. (8) The undersigned hereby gives you the assurance set forth in paragraph (6) above to be effective on the condition that you make a loan to the Cassa and that the proceeds thereof the Cassa grants a loan to the undersigned for the construc- tion of said plant in the approximate amount which we have discussed, namely 1,171,000.000 lire. (9) It is understood that the terms and conditions of any such loan from the Cassa will be set forth in an agreement to be negotiated and entered into between the undersigned and the Cassa and that the substance of the assurances and undertakings given in this letter will be incorporated therein. SUCCHI FRUTTA AMMMI SlCILIANI S.p.A. IL FRESIDENTE (Dr.Giuseppe Vincenzo Paterno Castello Principe di Biscari) IL CONSIGLIERE DELEGATO (Dott.Placido Spadaro) AINEX 9 SUCCHI FRIUTTA AGRULI Financial Forecasts (Million Lire) Construction Period 1955/56 1956/57 1957/58 1958/59 1959/60 I. Earnings Statement Production (% of capacity) 75 100 100 100 Operating costs 1,h60 1,717 1,717 1,717 Interest 70 63 56 48 Depreciation 135 135 135 135 Taxes 9 57 68 70 Total Costs 1,674 1,972 1,976 1,970 NJet Sales 1,711 2,2814 2,284 25284 Net income after taxes 37 312 308 314 Net income (% of share capital) 5.3 44.5 44.0 45.0 II. Sources and Application of Funds Net income - 37 312 308 314 Depreciation - 135 135 135 135 Paid in equity 700 - - - - IBRD loan 1,171 - - - - Short-term loans 400 - - - _ To-tal Sources 2.271 172 447 443 449 Fixed assets 1,371 - - - - Current assets 900 - - - - Debt repayment - 116 123 130 138 "Additional assets" - 56 324 313 311 Total Applications 2,271 172 447 443 449 Debt service coverage - 1.3 2.7 2.7 2.7 III. Balance Sheets (as of the end of the period) Fixed assets 1,371 1,371 1,371 1,371 1,371 Less depreciation - 135 270 405 540 1,371 1,236 ,101 966 831 Current assets 900 900 900 900 900 "Additional assets" - 56 380 693 I,OOh Total Assets 2,271 2,192 2,381 2,559 2,735 Capital 700 700 700 700 700 Surplus - 37 349 657 971 IBRD loan 1,171 1,055 932 802 664 Current liabilities 400 400 400 400 hoo Total Liabilities 2,271 2 192 2,381 2,559 2,735 ANNEX 10 SIL Roma, li May 13rd 1955 International Bank for Reconstruction and Development 1818 H Street, N.W. shingto C.U.A. (L) This will confirm certain understandings which have been reached during recent discussions between representatives of the International Bank for Reconstruction and Development (hereinafter referred to as the Bank), and SIL. (2) You have informed us that the Bank is considering a loan to the Cassa per Opere Straordinarie di Pubblico Interesse nell'Italia Meridionale (the Cassa) and that part of that loan will be specifically allocated for loans by the Cassa for various industrial undertakings in the area of its competence. (2) We have proposed that there should be financed out ofthe the proceeds of the loan our project to construct and operate near Avezzano a paper mill to produce about 25,000 tonS of paper per year, integrated with a groundwood mill to produc6 12,000 tons of wood pulp per year, and a straw pulp mill producing 6,000 tons of bleached sulphite pulp. There would be an electrolysis plant for the production of caudtic soda and chlorine. The existing power plant of the Company would Trovide about 3/4 of the power needs of the plant. The pro formea balance sheet on completion of the project which we have discussed, would be as follows: Assets Liabilities Power Plant . . . . . . 437,000,000 Capital . . . . . . 1,050,000,000 Paper Mill . . . . . .3,813,000,000 Shareholders' LTet Current Assets. . . 500,000,000 Advances 1,100,000,000 IBRD Loan . . . . . 2,600,000,000 4,750,000,000 L4750.000. 000 (4) You have said that before you could apoprove favorable consideration by the Cassa of the proposed loan, you woule require certain undertakings from SIL in respect of the treatment of shareholders' advances and working capital. (5) The assurances and undertakings which you have requested to be effective while the loan from the Cassa would be outstanding are that: - 2 - (I) the share capital of the Company shall be at least 1,050,000,000 lire, paid in as required; (II) shareholders' advances (which, on completion of the plant, will total at least the difference between 2,150,000,000 lire and paid in share capital) would not be withdrawn; (III) shareholders' advances would be subordinated to all debts of SIL; (IV) interest or any other remuneration would be payable and paid on shareholders' advances only out of net profits and only to the extent that dividends would be payable thereon if such advances had been converted to share capital; and (V) any further long term borrowing shall be undertaken only concommitantly with an increase in share capital in a ratio of 1:1. (b) the undersigned would not without the approval of the Bank and the Cassa pay dividends or make other payments to shareholderst, or adopt any policy, which would resault in: (i) any payment of dividends before, or out of earnings accrued before, the completion of the paper mill. (II) the excess of current assets over current liabilities to be less, at any time, than 500,000,000 lire: or (III) the ratio of current assets to current liabilities to be less than 2:1. (6) For the purpose of the preceding paragraph we have agreed that "current assets" should be considered as cash and assets readily convertible to cash and all other assets which would, within one year in the ordinary course of the undersigned's business be converted into cash or assets readily convertible into cash; and that "current liabilities" should be considered as liabilities due and payable and all other liabilities which would be payable or could be called for payment within one year. (z) The undersigned hereby gives you the assurance set forth in paragraph (5) above to be effective on the condition that you make a loan to the Cassa and that from the proceeds thereof the Cassa grants a loan to the undersigned for the construction of said mill in the approximate amount which we have discussed, namely 2,600,000,000 lire. (8) It is understood that the terms and conditions of any such loan from the Cassa will be set forth in ar agreement to be negotiated and entered into between the undersigned and the Cassa and that the substance of the assurances and undertakings given in this letter will be incorporated therein. SCCIETA' IDROEIETTRICA LIRI S.p.A. LtAmministratore Delegato Annex 11 SOCI3TA IDROE3LTTRICA LIRI Financial Forecasts (million Lire) Construction Period Operating Period 1954155 1955/56 1956/57 1957!58 1958/59 19S9/60 1960/61 I. Earninas Statement Prodaction (% of capacity) 60 90 100 Operating costs 1,519 2,203 2,431 Interest IBRD debt 156 147 137 Depreciation 350 350 350 Taxes 9 55 73 Total Costs 2,034 2,755 2,991 Net Sales 2,034 3,0S1 3.390 'get income after taxes _-- 296 Net income (% of share capital and shareholders' advances) 0,0 13.7 18.5 II. Sources and A-nlication of Pands Equity 102.5i - - Snareholderst advances 299.5- 32O.0 2 320.5 1 _ _ _ I3RD debt 870.0 815.0 915.0 _- - Current liabilities - 36.7 -- 185 288 64 Depreciation 36.o 35.0 35.0 350 350 350 Net income before I3RD interest 80.0 2 80 2 80.0Pj. 443 Total Sources L50L- 1250.0 1,3O0.5 691 L.081 25z Fixed assets 1,351.3 1,250.0 1,200.0 Current assets _ - 150.5 185 288 101 IBRD debt service _ - 307 307 307 "Additional assets" - - 199 486 542 Total Applications 1,351.3 1.2S0.0 1,350.5 691 1.081 950 (Conttd) Annex 11 Construction Period Operating Period TII. Balance Sheets- (as of end 1955/56 1956/S7 1957/58 1958/59 1959/60 1960/61 of period) Fixed assets 742.7 2,094.0 3,3414.0 4,544.0 4,544.0 4,5414.0 4,544,0 Deduct accumulated depreciation 188,0 224.0 *259.0 294.0 644.0 994.0 1,344.0 Net fixed assets 554.7 1,870.0 3,085.0 L',250.0 3,900.0 3,550.0 3,200.0 Current assets 349.5 349.5 349.5 500.0 685.0 973.0 1,074.0 "Additional assets' _____ _ _ _ 199.0 685.0 1,227.0 Total Assets 204.2 2,219.5 3,434.5 l,750.0 4,784.0 5,208.0 5S501.0 Eqcuity (share capital plus surplus) 867.5 1,050.0 1,050.0 1,050.0 1,050.0 1,346.0 1,745.0 Sharehollerst advances - 299.5 699.5 1,100.0 1,100.0 1,100.0 1,100.0 IBRD debt - 870.0 1,685.0 2,60o.o 2,449.0 2,289.0 2,119.0 Current liabilities 36.7 - - _ 185.0 479.o 537.0 29C4. 2,219.5 3,434.5 4.7S0.0 4,784.0 5.208.0 5,501.0 / According to the draft loan agreement, the compoany would regard earnings from the power station used in the construction of the paper mill as shareholdersl advances rather than as accumulated surplus. ANITEX 12 FAPMEDI May-12-1955 International Bank for Reconstruction and Development 1818 H Street, N.W. Washington 25, D.C., U.S.A. (1) This will confirm certain understandings which have been reached during recent discussions between representatives of the International Bank for Reconstruction and Development (hereinafter referred to as the Bank), and FARMEDI. (2) You have informed us that the Bank is considering a loan to the Cassa per Opere Straordinarie di Pubblico Interesse nelltItalia Meridionale (the Cassa) and that part of that loan will be specifically allocated for loans by the Cassa for various industrial undertakings in the area of its competence. (3) We have proposed that there should be financed out of the proceeds of the loan our project to construct and operate at Palermo a plant to produce a wide range of pharmaceutical products, antibiotics, supplementary feeds, anti-parasiticides, disinfectants and eosences. The pro-forma balance sheet on completion of the project which we have discussed, would be as follows : Assets LiaMiblfities Current Assets . . . . . . 640,000,000 Current Liabilities . 110,000,000 Fixed Assets . . . . . . 1370,000,000 IBRD Loan . . . . . 1000,000,000 Capital . . . . . . 900,000,000 2010,000.000 2010,000,000 (4) You have said that before you could approve favorable consideration by the Cassa of the proposed loan, you would require certain undertakings from FARMEDI in respect of the treatment of shareholderst advances and working capitale. (5) The assurances and undertakings which you have requested to be effective while the loan from the Cassa would be outstanding are that: a) valid arrangements be made under which, except as the Bank and Cassa shall otherwise agree : - 2 - the share capital of the Company shall be at least 900,000,000 lire, paid in as required; b) the undersigned would not without the approval of the Bank and the Cassa pay dividends or make other paylents to shareholders, or adopt any policy, which would result in : (J) the excess of current assets over current liabilities to be less, at any time, than 400,000,000 lire, or (ij) the ratio of current assets to current liabilities to be less, at any time, than 2:1. (6) For the purpose of the preceding paragraph we have agreed that "current assets" should be considered as cash and assets readily convertible to cash and all other assets which would, writhin one year in the ordinary course of the undersigned's business be converted into cash or assets readily convertible into cash; and that "current liabilitiest' should be considered as liabilities due and payable and all other liabilities which would be payable or could be called for payment within one year. (7) The undersigned hereby gives you the assurance set forth in paragra-nh (5) above to be effective on the condition that you make a loan to the Cassa and that from the proceeds thereof the Cassa grants a loan to the undersigned for the construction of said plant in the approximate amount which we have discussed, namely 1,000X000.000 lire. (8) It is understood that the terms and conditions of any such loan from the Cassa will be set forth in an agreement to be negotiated and entered into between the undersigned and the Cassa and that the substance of the assurances and undertakings given in this letter w.rill be incorporated therein. We remain with kind regards yours sincerely FARMEDI Istituto Farmacoterapico del Mediterraneo S.p.A. I1 Presidente Annex 13 ISTITUTO FAR1XACOTERAPICO DEL PEDITERANEO (FARIEDI) FINANCIAL FORECASTS (million Lire) Construction Partial Production Full Production 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 I. Earnings Statement Operating costs - - 654 1,078 1,403 1,729 Depreciation (8%) - - 40 107 107 107 Interest IBRD Loan - - - 60 54 48 Taxes - - 11 10 13 16 Total 705 1,255 1,577 1,900 Net Sales 750 1,300 L,63 1,967 Net Income - I 5 Net Income (% of Share Capital) 5.0% 5.0% 5.9% 7.5% II. Source and Application of Funds Net Income - - 45 45 53 67 Depreciation - - 40 107 107 107 Equity 200 200 300 200 - - IBRD Loan 100 500 400 - _ Short term debt - - 110 - - Total Sources 300 700 895 352 160 174 Fixed assets 182 598 590 - - Current assets 118 102 305 115 - Repayment IBRD Loan - - - 99 105 111 "Additional Assets" - - - 138 55 63 Total applications 300 700 895 352 160 174 Debt Service Coverage 1.3 1.3 1.4 III. Balance Sheet (at end of each fiscal year) Fixed assets 182 780 1,370 1,370 1,370 1,370 Less depreciation allowance - - -40 -147 -254 -361 Current assets 118 220 525 640 640 640 Additional assets - - - 138 193 256 Total Assets 300 1,000 1,855 2,00.. 9,949 1,905 Capital 200 400 700 900 900 900 Surplus - - 45 90 143 210 IBRD Loan 100 600 1,000 901 796 685 Current Liabilities - - 110 110 110 110 Total Liabilities 300 1.000 1,855 2.001 1,949 L202 A NNEEX 14 kA NI TEX Frosinone, May 11 st 1955 International Bank for Reconstruction and Developrr.ent 1818 H Street, N. W. ¾lashington 25, D. C., U. S. A. (1) This will confirm certain understaydings which have been reached during recent discussions between representatives of the International Bank for Reconstruction and Development (hereinafter referred to as the Bank), and Manitex. (2) You have informed us that the Bank is considering a loan to the Cassa per Opere Straordinarie di Pubblico Interesse nelltItalia Pieridionale (the Cassa) and that part of that loan will be specifically allocated for loans by the Cassa for various industrial undertakings in the area of its comletence. (3) lie have proposed that there should be financed out of tle proceeds of the loan our project to construct and operate at Frosinone a woolen mill to produce 360.000 Kg. of wool yamnper year. The pro-forma balance sheet on completion of the project which we have discussed, would be as follows: Assets Liabilities Current AIssets . . . . 40.00O000 Current Liabilities. . . 180.000.000 Fixed A.-ssets . . . . 950.000,000 IERD Loan . . . . . . . 570000000 'hareholders Advances. . 300.000.000 Capital. . . . . . . . 300.000.000 1.350,000.000 1.350.000.000 (4) You have said that before you could approve favorable considera- -tion by the Cassa of the propcsed loan, you would require certain under- takings from i4anitex in respect of the treatment of shareholders? advances and workin- capital. (5) The assurances and undertakings vhich you have requested to be effective while the loan from the Cassa would be outstanding are that: (a) Valid arranLemefits be made under which, except as the Bank and Gassa shall otherwise agree: (i) the share capital of the Company shall be at least 300.000.000 lire, paid in as required; (ii) shareholders' advances (which, on completion of the plant, will total at least the difference between 600,000.ooo lire and paid in share capital) would net be withdrawn; - 2 - (iii) shareholdei s' advances would be subordinated to all debts of Ivianitex; and (iv) interest or any other renumeration would be payable and paid on shareholders, advances on'ly out of net profits and only to the extent that dividends would be payable thereon if such advances had been converted to share capital. (b) the undersigned would not without the approval of the Bank and the Cassa pay dividends or make other payments to share- holders, or adopt any policy, which would result in: (i) the excess of current assets over current liabilities to be less, at any time, than 200.00.00 lire, or (ii) the ratio of current assets to current liabilities to be less, at any time, than 2:1. (6) For the purpose of the preceding paragraph we have agreed that "current assets" should be considered as cash and assets readily convertible to cash and all other assets which would, within one year in the ordinary course of the undersigned's business be converted into cash or assets readily convertible into cash; and that "current liabilities" should be considered as liabilities due and payable and aTllother liabilities which would be payable or could be payable or could be called for payment within one year. (7) The undersigned hereby gives you the assurance set forth in para- graph (5) above to be effective on the condition that you make a loan to the Uassa and that from the proceeds thereof the Cassa grants a loan to the undersigned for the construction of said mill in the approximate amount which we have discussed, namely 570.000000 lire. (8) It is understood that the terms and conditions of any such loan from the Cassa -will be set forth in an agreement to be negotiated and en- tered into between the undersigned and the Gassa and that the substance of the assurances and undertakings given in this letter will be incorporated therein. M A N I T E X Lt Armministratore Unico Ai.EX 15 MANITEX FINANCIAL F01EOCASTS (mailli on 131N) Construction Period ODeration Period -gs776 1956757 r1957/5 t 19-58/59 5 l9/60- l19607 Production (% of capacity) 70 83 100 100 100 (tons) 250 300 360 360 360 I Earning,s Statement Operating costs 802 922 1,082 1,082 1,082 Depreciation 90 90 90 90 90 Interest 31 32 29 26 23 Taxes 6 13 27 32 34 Total 932 1,057 1,228 1,230 1,229 Net Sales 950 1,125 1,357 1,357 1,357 Net income after taxes 18 68 129 127 128 -~ - - - Net income (% of share capital and shareholderst advances) 3.0% 11.0% 21.5% 21.2% 21.4% flrSource and Application of Funds Net income - 18 68 129 127 128 Depreciation _ 90 90 90 90 90 Shareholders1 loans 300 - - - - E:ouity paid in 300 _ _ _ _ _ IBRD loan 570 - - - - Short-term loans 180 _ - _ Total sources 1,350 108 158 219 217 218 Fixed assets 950 _ - - _ - Current assets 1400 - _ Repayment IBMI1 loan _42 45 48 51 514 "Additional assets" - 66 113 171 166 164 Total applications 1,350 108 158 219 217 218 Debt Service Coverage 1o9 2.5 303 3o2 3*1 TTTBalance Sheet (at end of each fiscal year) Fixed assets 950 950 950 950 950 950 Depreciation allowance _ - 90 -.180 -270 -360 -45o Current assets iOO 400 400 4o00 400 4oo "Additional assets" - 66 179 350 516 689 Total 1,350 1,326 1,3149 1,1430 1,506 1,580 Capital 300 300 300 300 300 300 Slhareholderst advances 300 300 300 300 300 300 Surplus - 18 86 215 3142 470 IBRD loan 570 528 483 435 384 330 Current Liabilities 180 180 180 180 180 180 Total 1,350 1,326 1,3149 1,4 1,506 1,580 -- - - - - ANNEX 16 ANCIPA RESERVOIR SICILY CATANIA IRRIGATION PROJECT LEGEND To be i,ig.oted by Pos.o d' Ipi Crnol '4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~To be irrigoted by Gerbini Conml '4'\ To be irrigoled by Poterno Conrl '4/ : - :. Subject to flooding liiilil,lIlIlliI Border line of Conso rzi \4 t aMOUNT ETN\ POZZILLORESERVOMS U G k / <~~~~~~~~~~~~~~~~~~~~~~~~~*OM Pozzi ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~/o t-~~~~......°... I ...... \ % ~~~~~~~~~~~~~~~~~~~~~~~~~..... w .. . .................. O T O N O S s w Y~~~............................. MUCONE-OTONDA-fRA JTA / \ \ t \~~~~~~~~~.............................. FRANSM/SS/ON L/NE )$,~~~~~ ~ ~~~~~~~~~~~........ .CO....... . . . .. . . .. . .. . . .. . . .. . .. . . .. . . LU2Z/ HYDRO PLAN @ r P~~~~~~~~~~~~~~~........ A 7'X 9~~~~~~~~~~~~~~~~~~~~~~.......... . . % R ~ ~ ~ ~ ~ ~C N .. .. . .. .. . .. .. . .. .. . .. . . . . . .. . . . . . .. . . . . . ' ~~~~~~~~~~~~~~~~~~.............. .............: AS)~~~~~~~~~~~~~~~~~~~...... M ED/ TER RA NEAN SEA \9g MAY, 195C~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. ...... ....... Annex 18 S.M.E. GROUP Subsidiary Companies Incor- S.M.E. po- Share capital (Lire) Holding Area Population Company rated Initial Dec. 31, 1954 % Sq. Km. 1954 Societa Generale Pugliese di Elettricita 1912 30,000 5,075,000,000 78 14,071 2,850,000 Societa Elettrica della Campania 1906 500,000 4,279,920,000 71 13,480 2,400,000 Societa Elettrica della Calabria 1926 1,200,000 1,640,625,000 83 15,095 2,150,000 Societa Lucana per Imprese I- droelettriche 1914 1,325,000 870,000,000 81 14,400 840,000 Societa Elettrica Bonifiche e Irrigaziorai 1925 2,500,000 266,560,000 90 (1) (1) (1) Included in Pugliese figures. Annex 19 SOCIETA' lJERIDIONALL DI ELETTRICITA' (S.M.E.) Condensed Balance Sheets (1) (in billions of Lire ) March 31, March 31, Dec. 31, 1953 1954 1954 (2) Assets Fixed Assets 124.72 143.16 143.16 less: Reserve for Depreciation 32.05 35.55 35.55(3) Net Book Value 92.67 107.61 107.61 Construction in Progress (including advance payments and construction stores) 11.11 5.81 13.63 Investmentsin subsidiaries and affiliated Companies 11.22 16.73 16.91 Due from subsidiaries and affiliated Companies 6.62 5.26 6.88 Current Assets: a) Cash and Banks 1.62 .11 5.16 b) Accounts Receivable - Sales of Energy .98 1.14 2.13 c) Stores 1.06 1.03 1.08 d) Other (incl. short term advances to subsidiaries and affiliated Companies) 3.98 3.62 3.30 Total current 7.64 5.90 11.67 Miscellaneous (loan discount, etc.) 1.47 1.37 1.80 130.73 142.68 158.50 Capital, Reserves and Liabilities Share Capital (Subscribed) 36.29 43.54 54.43 less: Not paid in (4) 1.44 - 4.69 Paid in 34.85 43.54 49-74 Reserves (Ordinary, Extra-ord., etc.) .96 1.27 1.49 Capital Surplus due to Revaluation of Assets 47.21 42. 42. Equity 83.02 86.81 93.23 Long Term Debts 25.23 25.89 31.86 Current and Accrued TLabilities (5) 8.76 10.61 8.19 Due to Banks 9.69 14.72 15.57 Reserve for Social Security, etc. 1.40 1.41 1.51 Other provisions, etc. 1.07 1.07 1.07 Balance Profit and ILoss (Undivided Profits) 1.55 2.17 7.07 130.72 142.68 158.50 Notes: T7 non-consolidated figures (2) interim figures based on trial balance (3) does not include allocation to depreciation reserve for period 4/1/54- 12/31/54 estimated at about Lire 2.3 billion (4) subject to call (5) includes current balances due to subsidiaries and affiliated Companies. SOCIETA 'MERIDIONALE DI ELETTRICITAI (S.M.E.) Annex 20 Condensed Income Statements (1) (in billions of Lire ) 1949/50 1950/51 1951/52 1952/53 1953/54 Gross Revenues Sales of energy 8.24 9.19 10,39 12.33 14.58 Other income (2) .81 1.40 1.49 2.20 2.38 Subsidies - .29 .99 9.05 10.59 11.88 14.82 17.95 Operating Expenses, Cost of purchased power, maintenance, general expenses (including interest) 6.23 6.97 7.20 9.24 10,09 Depreciation 1.10 1.10 1.50 2.30 3.50 Taxes .32 .57 .79 .86 .95 7.65 8.64 9.49 12,40 14.54 Net Profit 1.40 1.95 2.39 2.42 3.41 Dividends 1.31 1.85 2s23 2.27 3.21 (1) Non-consolidated figures. (2) Includes dividends from subsidiaries and affiliated Companies, contri- butions by consumers, etc. Annex 21 S.M.E. GROUP Generaeting Capacity, Power production, Purchases nnd Lrsses 1946 - 54 1946 1947 1948 249 1950 1951 1952 3 1L54 Generating Capacity (1000 kw) Hydro Plants 264 320 345 351 364 374 397 516 541 Thermal Plants 45 45 45 45 45 45 80 150 150 Total 309 365 390 396 409 419 477 666 691 Capacity Purchased Power 48 48 61 72 86 96 106 127 127 Total Available Capacity 357 413 451 468 495 515 583 793 818 Actual Peak Load 295 350 370 362 407 468 492 580 670 Product ion (mill. kwh) Hydro Plants 1056 1525 1282 1066 1421 1794 1665 1985 2191 Thermal Plants 63 38 97 205 136 4 139 30 152 Total 1119 1563 1379 1271 1557 1798 1804 2015 2343 Purchases 135L 112 429 389 388 345 500 512 458 Total Energy 1254 1675 1808 1660 1955 2143 2304 2527 2801 Losses 368 419 439 434 433 442 452 470 524 Own Uses 31 32 32 32 42 60 62 54 62 Annex 22 S.M.E. Grout Power Sales 1946-19 4 and Forecasts 195-1 64 (mi 1. kwh) Average Average 1946 1947 1948 1942 19SC 1951 1952 93 12S4 Annual 1S 19S6 197 1958 1599 1960 1961 1962 196i 1964 Annual Categories of increase increase consumers 1946S4 1954-64 Public Light 16,4 29,2 35,2 35,6 41,8 45,1 51,2 55,7 60,6 18 65 70 75 81 86 90 96 103 109 117 6.8 Private Light 147,3 168,9 181,1 169,1 181,6 192,6 198,7 217,2 242,8 7 259 281 302 324 349 375 403 432 465 500 7.5 Domestic 1/ 72,8 63,3 94,1 81,2 84,2 94,8 130,8 161,3 196,5 14 219 244 269 299 333 369 409 454 503 559 11. Industry less than 30 kw 99.3 114,3 124,5 118,9 134,2 14o*6 171,5 193,6 227,2 12 254 286 323 363 406 458 514 577 650 730 12.4 Industry above 3C kw 233,5 278,2 366,9 331,4 410,1 501,9 532,7 651,8 743,4 16 848 966 1101 1254 1430 1629 1858 2119 2416 2754 14.- Electro- chemical and electro- metal.lur- gical 98,0 301,0 313,0 228,0 377,3 451,1 448,6 483,6 490,9 21 496 501 506 512 518 524 531 538 546 554 1.-2/ Traction 133,4 169,3 169,8 199,8 210,6 195,3 210,4 196,3 206,0 6 214 222 232 241 250 260 271 281 293 304 4.- Other 3/ 8S.1 112,2 84.3 61.S 72.3 79.6 98.6 91,8 163.0 9 180 200 170 193 210___298 930C 364 _402 443 lO.S Total Sales 88S.8 1256.4 1368.9 1225.5 1512.1 1701.0 1842.5 2051.3 2330.4 13 2535 2770 2978 3267 3582 4003 4412 468 _5384 _5.961 10.- Yotes: I Cooking, heating etc. 2/ Electro -chemical: 0; Electro-metallurgical: 6$. 3/ Mainly sales to U.N.E.S. Annex 23 S.M.E. GROUP INVESTMhENT PRoGRAM 1955-60 (in millions of Lire) 1955 1956 1957 1958 1959 1960 Part 1 a) IBRD Projects S.M.E. Luzzi Hydro Plant 2,200 115 - - - - Matese Hydro Plants 150 700 150 - - NIuCone-Fratta Transmission Lines 1 655 350 - _ _ _ Pugliese - - Bari Thermal Plant 2,000 3,000 6,500 - - - Coscile Hydro Plant 100 400 600 - Sub-totals 6,105 4,565 7,250 - - - b) Other Projects S.M.E. Iransmdission Lines - 2,950 900 - - - Substations 2,065 1,250 1,600 - - - Distribution 2 000 2,500 3,500 - - - b ,700 6,000 - _ - Pugliese Transmission Lines 850 600 200 - - - Substations 200 2,000 1,150 - - - Distribution 700 1,300 2,500 - - - 1,750 *_7 - - Other Subsidiaries Transmission Lines 400 400 300 - - _ Substations 600 600 450 - - Distribution 750 2 150 1 750 - 17 550 _ _ _ Sub-totals 7,565 13,750 12,350 - _ _ Totals 13,670 18,315 19,600 - - - (continued on following page) -2- Annex 23 1955 1956 1957 1958 1959 1960 Part 2 S.M.E. Thermal Plants - - 4,950 8,250 11,550 8,250 Basso Liri Hydro Plant - C,500 2,400 2,100 - - Bussento Hydro Plants - 700 1,750 2,100 2,450 - Transmission Lines - - - 1,200 400 2,oO0 Substations - - - 2,750 1,600 2,500 Distribution - - - 5,000 5 000 7 550 - 2,200 r::,L5Ro 210000 Pugliese - - Trainsission Lines - - - 550 400 350 Substations - - - 1,150 2,000 1,000 Distribution _ _ _ 4 000 3,600 7,154 _ - - o755 ,5OU 5,500 Other Subsidiaries Savaa-L.te %Zdro Plant - 200 3,000 3,800 - - Transmission Lines - - - 300 400 1,600 Substations - - - 1450 600 1,600 Distribution _- - 2,950 40ooo 6,0oo - 2 7-7~ Totals _ 2,400 12100 34,600 32,000 3800 Grand Total 13,670 20,715 31,700 34,,600 32,000 38,000 ITALY: SME GROUP AVAILABLE CAPACITY AND PEAK LOAD, 1946-1964 (MILLIONS OF KW) 2.0 2.0 AVERAGE WATER CONDITIONS 1.8 1.8 1.616 .8 .8 .6 .6 p 2 1.4 1.4 .2 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~... .2 .0 0... 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964.... .... 8 ...... 8~~~~~~~~~~~~~~~~~~~~~~~~~ 77--,~~~~~~~~~~~~~~~~~ "o~~~~~~~~~~~~~~~~~~~~~~~~~~~~~P .6~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~BDEooi tf 0246 ITALY: SME GROUP AVAILABLE POWER AND DEMAND, 1946-1964 (BILLIONS OF KWH) 10~ 10 AVERAGE WATER CONDITIONS 9 . 9 8 8 7 - - 7 6 6 5--- 5 : IV ^::THERMAL PRODUCTION . 4 . .. ... ...4 3 __ 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 lzRD- Economic StottF POWER DEMA0 ~~~~~~~~A'm,~~~~~~~~~~~~~~~~~~~~~~~0 Annex 26 S. ivi. E. Luzzi Hydro Power Plant Construction Cost Estimate Land and Rights ................ .. , , Lire 25 million Civil Works: Barrage and Intake Works . ........ Storage Basin ........ ............. .. ..*- ... 160 Sluice Gate ........... ............... * ........ 33.2 I Pressure Tunnel ........ . ........... ....... 2,786.8 " Surge Tank .................. 232.9 " Penstock .......... . 192.8 I Power Station and Tailrace ...... .............. " 389.5 U Outdoor Switchyard ....... 235.7 " iUscellaneous ........... . . .......... 153.8 Mechanical' & Electrical Equipment: Equipment ". .. 1,684.2 " Engineering, supervision, overhead and interest during construction (1) " . . .... 505 " Contingencies . . . 311 Total: Lire 7,000 million (1) applies only to work outstanding on December 31, 1954. For work completed, these charges are already included in overall figures. S.K.E. calculates interest during construction at an average of 4% annually. If more interest should accrue, it is charged off to operations. Annex 27 S. M. E. bI,Iatese Hydro Power Plants Construction Cost Estimate Plant No. 1 Penstock ... . .. . Lire 130 million Powerhouse . ..*........ i 75 million Mlechanical Equipm-ent " 85 million Electrical Equipment "....... 165 million Outdoor Switchyard . . 20 million Transport & M;Liscellaneous " 25 million Lire 500 million Plant l'o. 2 Penstock " ....... 95 million Powerhouse "...... 50 million ,,ieechanical Equipment * .... .. 60 million Electrical Equipment .... 100 million Transp2ort E Miscellaneous " 15 million Lire 320 million Transmission Line RL Substation Land Survey and Rights ...... 3.7 million Towers... ...... .. ....... 57.8 million Conductors & Ground lf;ire " 61.8 million Substation .." .... 118 million Lire 241 million Engineering, Supervision, Overhead, interest during construction " 112 million Contingencies .......... . _ . 107 million Total : Lire 1,280 million Annex 28 S. Ia. E. ivKucone - Rotonda - Fratta Construction Cost Estinate 220 KV Transmission Line Transmission Line: Engineering and Survey ..... Lire 23 million Land and Rights ................. 43 It Towers .......................... 721 " Conductors & Ground Wire " 1.172 " Lire 1.959 million Popoli Substation Civil & 1Iechanical Works ....... 98 million Transformers . . "..... n 203 " Electrical equipment . .... 62 I Lire 363 million Tusciano Substation Civil & Iechanical Works .. ...... 81 million Transformers .......... .......... .. 290 " Electrical equipment U............ " 59 ' H Lire 430 million Engineering, supervision, overhead, interest during construction ... 155 ' Contingencies . .... I 93 " Total: Lire 3.000 million Annex 29 SOCIETA t iaIDIONALE DI ELETTRICITAt (S.i4.E.) Pro-forma Balance Sheet (1) as at December 31. 1957 (in billions of Lire ) Assets Fixed Assets 181.62 less: Reserve for DeDreciation 50.65 Net Book Value 130.97 Construction in Progress 11.30 Investments in affiliated Companies 25.96 Due from affiliated Companies 6.88 Net Current Assets (Current Assets less Current and Accrued Liabilities) 2.35 Miscellaneous (Unamlortized discount on loans etc.) 2.65 180 .11 In'tal. Reserves and Liabilities Share Capital 92.77 Reserves (Ordinary and Extra-Ordinary) 1.49 Capital SurDlus due to Revaluation of Assets 23.66 Equity 117.92 Long Term Debts: Proposed IBRD-Loan 5.63 Other Long and Medium Term Loans 44.5 50.17 Reserve for Social Security etc. and other provisions 2.58 Balance Profit and Loss Account 9.44 180.11 (1) Nonl consolidated figures Annex 30 SOCIETAXA' ARIDIONALE DI ELE'rTRICITA' (S.M.E.. Estimated Income Statements (1) (in billions of Lire ) 1955 1956 1957 1958 1959 Gross Revenues 1. Sales of energy 18.80 25.37 29.24 33.55 37.99 2. Other Income (2) 2.23 2.60 3.20 3.30 3.65 3. Subsidies 2.71 .90 1.05 .40 .41 4. Total 23.74 28.87 33.49 37.25 42.05 Cost of Operations 5. Operating expenses and maintenance (including general expenses) 6.38 6.91 7.71 8.62 9.38 6. Fuel 1.07 2.22 2.24 2.26 2.05 7. Cost of purchased power 2.63 3.95 5.89 6.26 8.52 8. Depreciation 4.50 4.90 5.70 6.55 7.00 9. Taxes 1.30 1.50 1.85 2.24 2.40 10, Total 15.88 19.48 23.39 25.93 29.35 11. Net Income from Operations 7.86 9.39 10.10 11.32 12.70 12. deduct: interest 2.99 3.29 3.21 3.24 3.81 13. Net Profit 4.87 6.10 6.89 8.08 8.89 (1) Non-consolidated figures. (2) Includes dividend from subsidiaries and affiliated Companies, contributions by consumers, etc. Annex 31 SOCIETAI MERIDIONALE DI ELETTRICITAt (S.M.E.) Forecast of Receipts and Expenditures . (in billions of Lire ) 15 B1956 1957 1958 19 BECBIPTS 1. Net Income from Operations g 7.86 9.39 10.10 11.32 12.70 2. Depreciation allowances 4.50 4.90 5.70 6.55 7.00 3. Receipts from Operations 12.36 14.29 15.80 17.87 19.70 4. Proposed Borrowing: a) I.B.R.D. Loan 4.o4 1.37 .21 b) Other long and medium term loans (net) 3/ 6.oo 3.90 7.30 6.05 20.00 5. Short term borrowing from Banks 1.64 2.18 6. Sale of Share Capital 10.00 10.00 10.00 5.00 7. Payments by Share holders / 4.69 8. Total Receipts 27.09 29.56 33.31 35.56 46.88 EXPENDITURES 9. Construction: 5/ a) First Group: (i) I.B.R.D. Projects 4.04 1.37 .21 (ii) Other Projects 4.03 6.49 5.94 8.07 7.86 6.15 b) Second Group 2.20 9.10 21.40 21.002 c) Third Group 6.83 Total Construction 8.07 10.06 15.25 21.40 27.83 10. Plant Renewals .75 .90 1.10 1.40 1.60 11. Investments in Subsidiaries .87 2.70 5.48 _37 3.00 12. Total investments 9.69 13.66 21.83 23.17 32.43 13. Debt Service: (amortization and interest) a) I.B.R.D. Loan 6/ .12 .27 .30 .51 .51 b) Other long and medium term loans 3.60 4.66 5.35 5.51 6.72 14. Repayment of Bank Credit (incl. interest) 9.63 6.31 .36 .24 .37 15. Total Debt Service 13.35 11.24 6.01 6.26 7.60 16. Deduct interest charged to construction 5/ .32 .40 .61 .86 1.11 17. ITet 13.03 10.84 5.40 5.40 6.49 18. Payment of Dividend 4a37 5.o6 6.o8 6.99 7.96 19. Total Expenditures 27.09 29.56 33 3.56 46.8$ Notes: I/ Non-consolidated figures. 2/ Before deduction of interest. 3 Net proceeds assuming a discount of about 9%. 4/ Represents subscribed but not yet paid in balance of share capital as of Dec. 31, 1954. i Figures for 1955, 1956 and 1957 represent interest only; first amortiza&- tion installment to be paid in 1958. / Interest charged to construction at a nominal rate of 4% per annum. Annex 32 SOCIETA' GZNEML1S PUIGLIESE DI ELETTRICITA1 (S.G.P.E.) $UR±AtY OF BALANCE SHEETS (in millions of Lire) Assets 1952 1953 1954 Fixed Assets 18,516 20,263 20,923 Less Depreciation B,677 9,644 10,394 Net Book Value 9,839 10,619 10,529 Construction Work in Progress 173 188 949 Investments in affiliated Companies 1 1 1 Current Assets: a) Cash and Banks 10 3 3 b) Customers Accounts Receivable 340 412 399 c) Stores 202 446 465 d) Due from SME (Parent Corrnany) 1,682 1,462 1,815 e) Other 513 343 204 Total Current 2,747 2,666 2,886 Miiscelianeous (Loan Discounts, etc.) _ 25 20 16 Total 12,785 13,494 14,381 ja tal, Rleser_es and Labilities Share Capital (Paid in) 2,800 3,734 5,075 Reserves and Capital Surplus: Legal 117 160 215 Caoital Surplus Due to Revaluation of Assets 4,941 5,027 3,972 5,058 5,187 4,187 Equity 7,858 8,921 9,262 Long Term Debts 598 591 584 Due to Banks, etc. 1,650 870 500 Current and Accrued Liabilities 1,304 1,368 1,588 Reserve for Social Security and Severance Pay (staff) 704 776 893 Other Provisions 527 770 1,282 Undivided Profits 144 198 272 Total 12 785 13,494 14,381 Annex 33 SOCIETA' GENERALE PUrGLIZSE DI ELETTRICITA' (S.G.P.E.) Condensed Income Statements (in millions of Lire) 1950 1951 1952 1953 1954 Gross Income Sales of electrical energy 4,733 5,273 5,760 6,616 7,517 Other income 118 116 570 437 835 Subsidies 253 443 Total 4,851 5,389 6,330 7,306 8,795 Cost of Operations Operating expenses (including maintenance, cost of purchased power, general expenses, etc.) 4,236 4,675 5,441 6,117 7,076 Taxes 120 171 170 234 539 Depreciation 300 350 500 650 750 Total 4,656 5,196 6,111 7,001 8,365 Net Profit 195 193 219 305 430 Dividend 180 180 202 286 402 Annex 14 SOCIETAt GWENRALE PUGLIESE DI ELETTRICITAt Power Sales 1946-54 and Forecasts 1955-64 (mill. kwh) 1946 1947 1948 1949 19S0 1951 1952 2254 19655 1957 1958 1 S 1960 1961 6 1963 1964 Categories of consumers Public Light 3 5 7 7 8 8 9 10 11 12 13 14 15 16 17 18 19 20 22 Private Light 42 47 50 47 49 51 48 53 60 64 69 74 80 86 92 99 106 114 123 Domestic 27 31 38 32 34 37 55 64 71 79 88 97 108 120 133 148 163 181 201 Industry less than 30kw 20 23 28 25 29 30 37 42 52 58 65 74 83 93 105 118 133 149 167 Industry above 30kw 90 105 140 121 158 194 201 215 243 277 315 359 409 466 531 605 690 787 897 traction 3 3 3 3 4 4 4 4 4 4 4 5 5 5 5 6 6 6 6 Other 3 4 6 5 5 6 6 7 8 9 10 11 13 14 15 17 19 21 23 Total Sales 188 218 272 240 287 330 360 395 449 503 564 634 713 800 898 1011 1136 1278 1439 Annex 35 P U G L I E S E Coscile Hydro Power Plant Construction Cost Estimate Barrage and Intake Lire 180 million Pressure Tunnel . .............. "* 230 million Surge Tank 4*0* ............ i 45 million Steel Penstock ********,**........ it 79 million Powerhouse *..................4....... " 35 million Equipment, mechanical & electrical " 145 million Tailrace ............ 0...... . 65 million liiscellaneous . ................... " 50 million Engineering, supervision, overhead, interest during construction ** " 161 million Contingencies ...................... * * 110 million Total ... Lire 1,00 million Annex 36 PUGLIESE Bari Thermal Power Plant Construction Cost Estimate Building Construction Lire 1,450 million Boilers with Accessories it 2;500 Turbo-generators with Accessories " 2,000 " Condensers pTith Accessories " 1,200 n I1ater Treatment Plant 350 Cooling Towers 600 " Fuel Storage and Handling 250 Transformers " 450 I avritchgear 1? 600 " Control Equipment 300 U Engineering, Supervision, Overhead, Interest during Construction 'l 1,100 U Contingencies It 700 ?? Total Lire 11,500 million Annex 37 SOCIETA GENERALE PUGLIESE DI ELETTRICITA' (S.G.P.E.) Pro-forma Balance Sheet as of December 31, 1957 (in millions of Lire) Assets Fixed Assets 44,602 less: Reserve for Depreciation 13,994 Net Book Value 30,608 Investments in affiliated Companies 1 Net Current Assets (current assets less current and accrued liabilities) 1,311 Miscellaneous (loan discounts, etc.) 779 32,699 Capital, Reserves and Liabilities Share Capital 10,223 Reserves and Surplus: Legal R.eserve 215 Capital Surplus due to Revaluation of Assets 2,27 h62 Long Term Debts: Proposed I.B.R.D. Loan 7,500 Other 9,683 17,183 'Reserve for Social Security etc., and other provisions 2,175 Undivided Profits 656 32,699 Annex 38 SOCIETA' GENERkLE i'UGLIE'E DI _EIZTRiCITA' (S.G.P.E. Estimated Income Statements (in millions of Lire) 1955 1956 1957 1958 1959 Gross Income 1. Sales of energy 8,287 10,836 12,599 15,095 16,783 2. Other income 900 900 905 935 965 3. Subsidies 550 165 173 25 42 4. Total 9,737 11,901 13,677 16,055 17,790 Cost of Operations 5. Operating Expenses (including maintenance) 2,987 3,388 3,653 4,538 5,100 6. Fuel 1,440 2,400 7. Cost of purchased power 4,743 5,622 6,369 4,679 4,061 8. Depreciation 850 1,300 1,450 2,400 3,000 9. Taxes 570 650 670 730 780 10. Total 9,150 10,960 12,142 13,787 15,341 11. Net Income from Operations 587 941 1,535 2,268 2,449 12. less: interest 82 406 670 1.442 1,377 13. Net Profit 505 535 865 826 1,072 Annex 39 SOCIETA' GEHERAIE PUGLIESE DI ELETTRICITA' (S.G.P.E.) Forecast of Receiots and Expenditures (in millions of Lire) 1955 1956 1957 1958 1959 RECEIPTS 1. Net Income from Operations 1/ 587 941 1,535 2,268 2,449 2. Deporeciation allowances 850 1,300 1,450 2.400 Q,000 3, Receipts from Operations 1,437 2,241 2,985 4,668 5,449 4. Proposed Borrowing: a) I.B.R.D. loan 2,100 3,400 2,000 b) Other long and medium term loans Z! 1,350 3,185 4,loo 4,095 c) Short term credits from Banks 590 309 216 5. Sale of Capital Stock 423 - 3,000 - 4,ooo 6. Total Receipts 5,310 8,826 12,675 9,072 9,665 EXPEND ITUBES 7. Construction: 2/ a) I.B.R.D. Projects 2,100 3,400 7,100 b) Other 1,750 3,900 3,850 5,700 6,ooo 3,850 7,300 10,950 5,700 6,ooo 8. Plant renewals 80 250 300 400 500 9. Debt Service (principa.l and interest) a) I.B.PR.D. 58 208 356 684 684 b) Other long and medium term loans 182 507 818 1,534 1,617 10. Repayment of short term bank debts and other (including interest payments) 822 311 6 55 73 11. Total (9 , 10) 1,062 1,026 1,180 2,273 2,374 12. Less interest charged to construction 126 240 342 68 96 13. Net (11 - 12) 936 786 838 2,205 2,278 14. Dividend payments 438 484 581 761 881 15. Other 6 6 6 6 6 16. Total Exoenditures 5,310 8,826 12,675 9,072 9,665 Notes: 1/ before deduction of interest payments, which have been included in items 9 and 10. 2/ represent net proceeds; discount amounts to approximately 91% of principal amount of loans. 3/ includes interest at a nominal rate of 4%p per annum. Annex 40 TJN1ONE ESEROIZI EETTPRICI (UNES) 9o2densed Balance Sheets (in millions of Lire) 12I31/1952 12/31/1953 12/31/1954 ASSETS Fixed Assets 45800.3 47663.8 53552.1 less: Reserve for Depreciation and Amortization 14218.6 16018.6 18018.6 Net Bookvalue 31581.7 31645.2 35533.5 Construction Work in Progress 2193.6 4028-3 4830.1 Advance Payments to Suppliers 153.2 879.5 1283.7 Participations in affiliated Companies 685.1 1076.5 1088.9 Due from affiliated Companies (long-term advances) 95.4 523.3 1080.5 Current Assets: Cash and Banks 195.6 323.7 457-7 Accounts Receivable, deposits, 1821.8 2304.2 2485.3 etc. Stores 1092.5 1285.0 994.6 Total Current 3109.9 3912.9 3937.6 Miscellaneous 80.- 265.- 406.- 3782L28 42330.7 48160.3 CAPITAL, RESERVES ArD LIABILITIES Share Capital 6ooo.- 11200.- 1400o.- Not paid in - 649.2 - Paid in 6ooo.- 10550.8 14000.- Reserves and Surplus Legal, Statutory, etc. 490.9 603.6 734.8 Capital Surplus due to Revaluation of Assets (Balance) 20279.4 17374.9 14488.3 Long Term Debts 2884.9 4641.2 6369.3 Current and Accrued Liabilities 2944.7 3635.7 3943.1 Banks 1022.9 - 2337.6 Pension Fund and Other Provisions 3890.8 4774.1 5443.7 Balance Profit and Loss Account (Undistributed Profits) 3,85. 75o.4 84.5 37898.9 42330.7 48160.3 Annex 41 UNES - IiVTC 01v SPATEWINETS ' OR THE YEARS 1S50-- 1954 (expressed in million Lire) 1950 1951 1952 2932 a) - Operating revenues - Sales of electrical energy 5,950 6,827 7,640 8,788 9,549 - connection contributions 264 346 429 542 724 - subsidies - 277 6,214 7,173 8,069 8,330 10,550 b) - Other revenues 126 _ q ..L .. 340 2 c) - Total revenues 6,340 7,327 8,213 8,670 10,797 d) - Operating expenditures - operation and maintenance 4,802 5,206 5,705 5,053 6,500 - depreciation 720 1,200 1 ' P 1,800 2,000 - taxes 24 2 373 580 682 5,681 6,648 7,478 7,433 9,182 e) - Net income (c - d) 659 679 735 1,237 1,615 f3 - deduct interest payments 181 183 20 3 . 4 g) - net profit 478 893 1. 9126 Annex 42 U. I'. E. S. Generating Capacity, Power Production, Purchases and Losses, 1946-1954 1946 1947 1948 1949 1950 1951 1952 1953 1954 Generating Capacity (1000 kw) 23,5 44.6 50.5 51.2 55 60.2 102.4 102.9 102.9 Peak load 79 84 91 96 101 117 128 140 151 Production (million kwh) 80 135 210 195 220 291 261 328 355 Purchases 252 259 210 221 271 264 333 302 339 Losses 113 118 116 110 129 147 139 137 141 Own use 4 5 6 6 6 6 6 7 17 Sales 215 271 298 300 357 402 449 486 536 Annex A3 U.N.E.S. Power Lales 12946-54 and Forecasts 1955-64 (mill. kwh) D4 19 2 § 1949 1 251 L 1 1 948 195_6 =2 1958 19S9 19602 1966 1964 Cate,ories of consumers Public Light 8,9 11,7 13,8 15,C 17,2 20,7 21,0 23,6 26,C 27,0 28,0 29,0 30,0 31,0 32.0 33,0 34,0 35,0 36,0 Private Light 40,7 51,3 57,2 54,5 63,7 70,0 75,2 81,7 89,4 93,0 96,0 99,0 102,0 105,0 108,0 110,0 112,0 114,0 116,0 Domestic 4,0 3,e 4,7 9,3 10,6 13,0 17,0 20,9 23,2 25,0 26,0 27,0 28,0 29,0 30,0 31,0 32,0 33,0 34,0 Industry up to 30 kw I/ 65,2 82,6 89,0 81,0 93,6 100,3 113,5 130,3 145,6 153,0 160,0 167,0 174,0 180,0 186,0 191, ,196,C0 200,0 204,3 over 3C0 kw 67,0 89,2 101,0 lo6,1 129,1 149,6 169,9 168,5 182,6 197,0 213,0 232,0 251,C 275,0 301,0 326,0 352,0 383,0 414,0 E1 ectrochemical industry 5,9 9,5 11,9 14,9 17,4 21,2 20,4 31,0 35,4 4o,C 45,0 5C,0 56,0 62,0 69,0 76,o 83,0 9C,C 99,0 Traction 2,5 3,4 399 5*0 6,3 7,3 7,7 8,0 8,5 9,0 10,0 11,0 12,0 13,0 14,0 15,0 16,0 17,0 18,0 Retailers 8,7 8?9 11,5 9,8 11?4 11,6 14,2 11,5 11,7 12,0 13,0 14,0 15,0 16,0 17,0 18,0 19,C 20,0 21,0 Other 11,9 11,5 5,0 5,6 8,0 8,3 10,5 10,3 14,0 18,0 23,0 28,0 33,0 39,0 45,0 51,0 57,0 63,0 70,0 Total Sales 214,8 271,9 298,0 301,2 357,3 402,0 449,4 485,6 536,4 574,0 614,0 657,0 701,C 750,0 802,0 850,0 901,0 955,0 2012,0 Note: -17includes power used for irrigation, along the Adriatic coast. Amnec 44 UNES Investment Program 1955-60 (in millions of lire) 1955 1956 1957 1958 2959 1960 Part 1 a) IBRD Projects Cap. Tronto Hydro Plant 600 Cap. Castellano Hydro Plant 1,800 1,400 600 Ascoli Hydro Plant 15700 1,000 Sub totals 4,100 2,400 600 b) other Projects Aso Hydro Plant 400 Ponte ilPaglio Hydro Plant 520 300 Venamartello Hydro Plant 960 700 400 Transmission Lines 120 470 240 Substations 580 440 Distribution 1,000 1,000 1,000 Sub totals 3,000 3,050 2,080 Part 2 Arquata Hydro Plant 700 1,000 -700 Thew"aal Plant 3,000 5,000 2,000 San Lazzaro Hydro Plant 1,000 1,000 750 1montalto EIydro Plant 500 700 500 Canal Constructions 1,600 1,950 1,700 Transmission Lines 240 350 250 Substations - _ Distribution 1,000 1,000 1,000 Sub totals 3,700 7,000 7,040 4,750 3,450 Totals 7,100 93150 9,680 7,040_ 4,750 3,450 ITALY: UNES AVAILABLE CAPACITY AND PEAK LOAD, 1950-1964 ( THOUSANDS OF KW) 350 AVERAGE WATER CONDITIONS 300. 300 250 250 200 200 150 1~~~~~~~~~~~~~~~~~~~50 ; g \\\\\ 01 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 g~~~~~~~~~~~~~~~~~~~~~~~~ IB RD - Econornic Stff 10 2 50 Q N 50~~~~~~~~~~~~~~~~~~~~ ITALY: UNES AVAILABLE POWER AND DEMAND, 1950-1964 (BILLIONS OF KWH) I .4 I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~.4 AVERAGE WATER CONDITIONS tHERMAL PRODUCTION 1.2 1 121 8 . .6 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~6 o 0 1950 1951 1952 1953 1954 1955 (956 (957 1958 1959 1960 1961 (962 1963 1964 z z IBRDO-Economic Staff n 1026 A,me--c 47 CAPODIR;hi'IFr TRONTO !iY.P R LAIAT CQnstruction Cost T.stimate (in million Lire) Br2rage 233 Intake tunnel 9gO Surge tanks penstock 240 PoTw2Terhouse 140 iPIachinery 450 Land 10 Engineering, supervision 79 Overhead, in!erest, contingencies 348 lotal 2,4100 Annex 48 UNES CUPODIPONIM CASTE LLAl;O HYDRO PLAI T Construction Cost Estimate (in -illion TLire) Teiiporary barrage 65 Dam 1,560 Spillway 105 Tntake tunnel 275 Surge tank, penstock 42J Powerhouse 1/ 60 Machinery 650 Roads and land 120 Engineering, sunervision 130 Overhead, interest, contingaecies 615 Total 4,000 l/ Extension to powerhouse built for Capodiponte Tronto plant. Annex 49 U1ES ASCOLI HYDRO PLANT Construction Cost Estimate (in million Lire) Barrage 4 Intake tunnel 780 Surge tank, penstock 405 Powerhouse 230 Machinery 670 Land 30 Engineering, supervision 86 Overhead, interest, contingencies 759 Total 3,000 UNES - PRO-FORMA BALANCE SHEET Annex 50 as of December 31, 1957 (in millions of Lire) Assets Fixed Assets 74,195.9 less: Reserve for Depreciation 25,557.6 Net Book Value 48,638.3 Construction in Progress (including advance payments) 11,400.- Participation in affiliated companies 1,088.9 Due from affiliated companies (long term) 1,080.5 Net Current Assets (current assets less current liabilities) 953.9 Miscellaneous 406.- 63,567.6 Capital, Reserves and Liabilities Share Capital 23,520.- Reserves and Surplus Legal, Statutory an'" Earned Surplus 2,176.3 Capital Surplus due to Revaluation of Assets 11,688,3 13,864.6 Long Term Debts: Proposed IBERD Loan 5,625 Other Debts 14,906.3 20,531.3 Pension Fund and other Provisions 5,651-7 63,567.6 Note on the assumption of sale of capital stock amounting to Lire 6.720 mil- lion during 1956 and 1957 and a further issue of bonus shares of Lire 2.800 mil- lion out of capital surplus due to revaluation of assets. Annex 5_L UNES - ESTIMATED INMCM STATEMENTS (in millions of Lire) 1955 1956 157 1958 1959 Operating Revenues Sales of electrical energy 9,963 12,857 14,047 16,036 17,615 Connection contributions 700 700 700 700 700 Subsidies 285 235 250 10,948 13,792 14,997 16,736 18,315 Other revenues 1/ 200 200 200 200 200 Total revenues 11,148 13,992 15,197 16,936 18,515 Cost of Operations Operation and maintenance 2/ 6,214 6,945 7,447 8,290 8,700 Depreciation 3/ 1,939 2,800 2,800 3,286 4,160 Taxes 870 1.210 _1.410 1.450 1J605 9,023 10,955 11,657 13,026 14,465 Net Incorre from Operations 2,125 3,037 3,540 3,910 4,050 deduct: Interest *nayments 899 963 1,431 1.701 1.629 Net profit 1,226 2,074 2.109 2.209 2,421 ITotes: 1/ Consist mainly of dividends from affiliated Companies. 2/ Includes costs of purchased power. 3/ On basis of average depreciation rate of about 4% per annum of gross book value of fixed assets (written up cost). Annex 52 1IS - FOUAS2' OF RECEIPTS AND EXPEIDITURES (in millions of Lire) 1955 1956 M 57 8 !M5 RECEIPTS 1. Net Profit a/ 1,226 2,074 2,109 2,209 2,421 2. Depreciation allowatces 1,9 391 , z8(0 ZiBoo ,286 4,160 3. Receipts from operations (1 , 2) 3,165 4,874 4,9b9 5,495 6,581 4. Borrowing: a) Proposed I.B.R.D. loan (through Cassa) 3,280 1,920 425 b) Loans already contracted 4,500 c) Proposed other loans 2,200 3,000 4,000 5. Proposed sale of Capital Stock 2.800 3,920 2,352 6. Total Receipts 10,945 11,794 12,254 9,495 Sp1 EXPE ITURES 7. Repayments of loans: (Principal) a) Proposed I.B.R.D. loan 204 216 b) Other Loans 356 426 381 887 917 356 426 381 1,091 1,133 8. Capital Expenditures: a) I.B.R.D. Projects 4,100 2,400 600 b) Other %000 6.750 9.080 r?o40 4,750 7,100 9,150 9,680 7,040 4,750 9. Reduction of Bank Debts 1,500 800 10. Dividend b/ 1,120 1,568 1,88o 1,880 2,n80 11. 3ther Payments 9 12 14 14 16 12. Total Exnenditures 10,085 11,956 11,955 10,025 7,979 13. Cash surpInlus or deficit (-) (annual) 860 (-) 162 299 (-) 530 954 14. Cash surnlus or deficit (cumulative) 860 698 997 467 1,421 ./ After financial charges. §/ On the assumption of an annual dividend of 86%.