FILE COPY Document of UN-54 The World Bank FOR OFFICIAL USE ONLY ECUADOR POWER SECTOR EME1ANDUM may 12, 1981 Projects Department Latin America and the Caribbean Regional Office This doeument has a restricted distribution and may be used by recipients only In the performance of their official duties. its cantents may not olberwise be disclosed without World Bank 2uthorizaden. CURRENCY EOUIVALF.NTS Currency unit m Sucre (S/.) SI. 1.nn = 100 centavos - US$0.04 SI. 1,000,000 US$40,000 !SS51.00 - S/. 25.00 i/ uSSI,000,000 S/. 25,000),000 1/ USS mill 1= S/. 0.0250 ACPRONYMS CENAFE = Centro Nacional Franco-Ecuatoriano CEPE Corporacion F.statal Petrolera Ecuatoriana CONZADF. = Consejo 'acional de Desarrollo EEO Empresa Flectrica de Ouito S.A. E-4ELEC - Empresa Flectrica del Ecuador Inc. FONAPRE = Fondo Facional de Preinversion IDB = Inter-American Development Bank IFCO International E.ngineering Co. - U.S.A. INE - Instituto N-acional de Energia INECEL = Instituto Ecuatoriano de Electrificacion PNE = Ministerio de Pecursos Naturales y Energeticos OLADE = Latin-American Energy Organization SFNI National interconnected System ABBREVIATIONS, UNITS JAZ-D IEASIUFS kcal = kilocalorie (1,000 calories = 1.163 kIh) kW - kilowatt ilhr = megawatt (1,000 kW) k0h = kilowatt hour G*1h = gigawatt hour (1,000,000 kl.t) kV kilovolt (1,000 volts) ILA megavolt-ampere (1,000 kPA) km = kilometer (0.6214 mile) km2 - square kilor.eter (0.386 so. mi) ha = hectare (0.01 km2 = 2.471 acres) TOE = ton of oil equivalent (107 kcal) FISCAL YE-A? INECEL's fiscal year ends December 31 1/ Exchange rate as of 'March 31, 1981, which wsas used to compute currencv equivalents in this report. ECUADOR POWER SECTOR EMERANDUw Table of Contents Page No. SUHMARY, ISSUES AND RECOMMENDATIONS ..................... i-Lv PART I THE ENERGY SECTOR 1. Energy Resources I.................* ..................... 1 Hydrocarbons ............................................ 1 Hydroelectric Resources .... ..... .......... ............. 2 Alternative Energy Resources ............................ 2 Geothermal Resources 2.................................. 2 Fuelwood ............................................... 2 Uranium Fuel ....... .................................... 2 Other Non-Conventional Energy Sources ................... 3 2. Energy Balance - Consumption ............................ 4 The Present Energy Market ........... ... S* *0*6O**SSO... 4 Future Demand ........................*.*........... 6 Rural Energy Survey 6.................. 6 3. Domestic Oil Prices 7............................*...... 7 Current Level and Structure 7 ............. ....* 7 Price Subsidies ......09.0 ........ ....... S Criteria for Future Pricing Policy ...................... 8 4. Organization of the Energy Sector ....................... 10 Consejo Nacional de Desarrollo .......................... 10 Ministerio de Recursos Naturales y Energeticos .......... 10 Corporacion Estatal Petrolera Ecuatoriana .........*... 11 Instituto Ecuatoriano de Electrificacion ................ 12 Instituto Nacional de Energia ........................... 12 This report is based on the findings of a sector mission which visited Ecuador in July 1980. The mission comprised Ms. Ursula Weimper and Messrs. Jorge Larrieu and Ricardo Halperin. The report was updated to incorporate the findings of the TIECEL transmission project appraisal mission, which took place in Fovember 1980. Table of Contents (Continued) Page No. PART II THE POWR SECTOR 5. Sector Organizatiin, Institutions and Human Resources .... 15 Legal Framework ........................... e*e**s*........ 15 A. Instituto Ecuatoriano de Electrificacion 15 Role in Sector . ................................. 15 Organization and Management ........15 Supervision of Electric Power Companies 16 Sector Planning 17 Accounting 18 Auditing ......................................... 18 Procurement 19 Management Problems ...................... . 19 B. Empresa Electrica de Quito 21 C. Eapresa Electrica del Ecuador 22 D. Other Electric Power Companies 22 Human eeso u r c e 6 23 Present Human Resources Awailability ......23 Future Human Resources Requirements 23 Training Activities ...........24 6. Sector Facilities 25 Generation 25 Transmission .......... ,................... 26 Subtransmission 25 Distribution *.................................-...e 26 7. The Power Market and the Sector Development Program 27 The Present Power Market 27 The Puture Power Market 28 r Construction Program and Investment Requirements ......... 29 Sector Finances 30 Current Financial Situation ...... 30 Investment and Financing Plan ............................ 30 Future Finances 32 Tariffs 33 Tariff Structure .......... ....00....35 Tariff Issues .. ...35 LIST OF ANNE%ES Annex 1 Page No. Attachment 1.1 - Energy Balance 1978 .............................. 37 Annex 2 - The Oil Industry ........ ................. .............. 42 Table 2.1 - Oil Reserves *e*e....e*..*....***.*................. .. 57 Table 2.2 - National Production of Crude Oil ...................... 58 Table 2.3 - National Production of Oil Derivatives ................ 59 Table 2.4 - Sales of Petroleum Derivatives, 1972-1979 ........ .. .... 60 Table 2.5 - Imports of Petroleum Derivatives and of Blends 1972-1979 ........ .. .................... .................. 64 Table 2.6 - Estimation of Subsidy to Domestic Market ............... 66 Table 2.7 - Retail Prices of Petroleum Derivatives, 1980 .......... 68 Table 2.8 - Crude Oil Export Revenue Distribution, 1979 ........... 69 Annex 4 Chart 4.1 - Ministry of Natural Resources and Energy Organization Chart .... .. .......... ; ............ 70 Annex 5 Table 5.1 - INECEL's Participation in the Capital of the Electric Power CompWanies . ............................ 71 Chart 5.1 - INECEL Organization Chart .... ...................... 72 Table 5.2 - 1978 Operation and Maintenance Costs Breakdown ........ 73 Table 5.3 - 1978 Gross Generation/Purchases, Sales, Local Use and Losses .................................... 74 Table 5.4 - Manpower Resources ..... ....... .................... . 75 Annex 6 Table 6.1 - Ecuador's Installed Capacity ..... ..................... 76 Attacbment 6.1 - Oagoing and Future Development Projects .......... 77 Attachment 6.2 - Main Characteristics of Future Power Plants . ...... 78 Attachment 6.3 - National Interconnected System ...... 81 Annex 7 Table 7.1 - National and SNT Energy Forecast ...................... 82 Table 7.2 - National and SNI Demand Forec.ast ...................... 83 Table 7.3 - 1980-1985 Iavestment Program .................... .... 84 Annex 8 Table 8.1 - Power Sector Estimated Balance Sheets 1978-1979 ....... 85 Table 8.2 - Power Sector Estimated Income Statements 1978-1979 .... 86 Table 8.3 - Power Companies' Financial Rates of Return .. .......... 87 Map - National Iuterconnected Systm .... ....... .. .................. 88 FUEL PRICES: AN UPDATE 1. On February 18, 1981 the Government of Ecuador approved across-the- board increases in the domestic-prices of petroleum derivatives 1/. The following table summarizes the old a-d new prices: Proportion of total Percentage Product Consumptior (Z) Old Price New Price Increase (US$ cents per gallon) S. 92 octane gasoline 4 72.8 80.0 9.9 80 octane gasoline 34 18.6 60.0 222.6 63 octane gasoline 2 16.4 40.0 143.9 diesel 24 14.4 44.0 205.6 kerosene 11 13.4 24.0 79.1 jet fuel 4 44.8 88.0 96.4 bunker 21 10.4 28.0 169.2 2. These increases represent a major breakthrough and show that the Government is willing to implement the policy changes required to address the issues facing the sector. It is estimated that, ceteris paribus, the increases vill reduce the Implicit subsidy to consumers (as given by the difference between the domestic price and the international price), from about 8% of GDP in 1980 to 4S in 1981. 3. Despite the above measures, domestic prices still average less than 50% of world market levels. Thus the need for further price adjustments in the future remains. 4. Another important issue still outstanding is the inconsistency of the structure of petroleum price derivatives with either cost of production or raorld market values. For example, the new price of kerosene, widely used by lower-income groups, is about half that of diesel. This, and other similar differences in the cases of other products, are likely to induce undesirable substitutions, with the resulting distortions in the allocation of resources. Thus, the Bank should continue to convey its concern that the Government address the need for a more rational price structure. 1/ The price revision did not include specialty products and LPG, which approximately represent 7% of consumption. SUMM4ARY, ISSUES AND RECONMENDATIONS 1/ 1. Ecuador has abundant renewable and non-renewable energy resources. The hydroelectric generation potential is very significant and yet largely untapped. Since 1972, the country has become a major oil producer and there are good prospects to increase reserves, both of conventional and of heavy crude oils. The use of associated gas is being developed, and in the Guayaquil Gulf important natural gas deposits have been detected. In z2eition, a preliminar- inventory of geothermal resources is now being completed by the Organizacion Latinoamericana de Energia (OLADE). Wood and bagasse prc.ide a substantial portion of non-commercial energy and the Instituto Nacional de Energia (INE)*is currently evaluating the efficiency of its use, together with solar and biogas possibilities. 2. The oil price increase that has taken place in world markets since 1973 caused an economic bonanza with, however, some negative side effects which are now becoming increasingly evident and which the Gevernment is trying to correct. Due to failure to adjust internal fuel prices, consumption has been high, and, also, fuel destined for the internal market has been smuggled to neighboring countries. Inadequate pricing policy has createa an inconsistency between the structure of primary energy consumption and that of available resources, in particular favoring thermal electricity generation over the development of the large hydropower potential; similarly, the oil consumption pattern and refinery yields have become increasingly unbalanced. Furthermore, exploration activities have been low, and proven reserves have been declining. Under pessimistic assumptions of production and growing demand, this could imply that, as early as 1988, Ecuador would cease to be an oil exporting country. 3. Ecuador's major objectives for the energy sector are the following: Ca) increase petroleum exploration and optimize petroleum production; ob) cause changes in the structure of petroleum consumption, to ration- alize its use and to prevent smuggling and waste; Cc) cause changes in the domestic prices for petroleum derivates, to enhance the sector's financial capability; (d) develop the hydroelectric potential, improve the use of wood charcoal in the rural sectors and develop other energy sources (geothermal, solar and biogas); (e) integrate isolated electric generating systems, develop rural electrification, and assure the supply of electricity both in urban and in rural areas. The power sector also has important social objectives to be implemented by connecting lower income consumers to the grid and by reducing, in relative terms, the tariffs paid by the less affluent. 1/ For a fuller discussion of economic issues, see "Ecuador, Development Problems and Prospects". IBRD, July 1979. - ii - 4. The power sector goals for the short and medium term are ambitious. Commissioning of the first stage of the Paute hydroelectric project is scheduled for 1982 (200 MW) and 1983 (300 MW); it will triple existing hydro capacity. By 1984 other Important hydro projects, Agoyan (150 MW), Paute "C' (500 MW) and Daule-Peripa (130 MRW), will be under construction, and by 1986 two other large hydroprojects will be starting: Paute-Mazar (140 MW) and Toacni (300 MW). Investment in transmission will be substantial; while currently there is only one major transmission line in operation (between Quito and Guayaquil), by 1985 most of the regional systems will have been interconnected to the national grid. Finally, in distribution the goal for 1985 is to increase the electrification rate 1/ from about 40Z to 50Z and to reduce overall distribu- tion losses from 15Z to 12% by upgrading the various networks. 5. The achievement of these goals will require a major mobilization of financial and human resources. Sector investments between 1980 and 1985 are expected to amount to over USS1,600 million (at 1980 price levels), while at present, the sector's revalued gross fixed assets in operation amount to little over US$800 million equivalent. Employment within tie electric utili- ties is forecasted to grow from about 7,300 people in 1980 to nearly 11,000 in 1984. 6. Thus, the Government authorities face a formidable challenge, which will put to a severe test their ability to implement the actions required. The Bank's review of the sector has identified several issues which will have to be adequately addressed if the sector objectives are to be satisfactorily met. The main issues and recoamendations on how they may be handled are presented uelow. Issue No. 1 7. Fuel Prices. The prices of petroleum products in Ecuador are among the lowest in the world. In 1978 these prices constituted an implicit subsidy 2/ amounting to about 6% of GDP. Due to subsequent world oil price increases, in 1980 the subsidy is likely to have been as high as 8%. The problems and the distortions ca-used by the low internal prices are significant and, unless substantially reduced, will act as a brake to the country's economic growth. 8. Fuel price subsidies are specially important in the transport sector and also within the power sector, where they encourage auto-l'roduction and thermal generation, and distort electricity costs inducing excessive consump- tion and uwste. 9. Recommendations. Implementation of a policy of price increases to bring the internal levels in line with international values should be a prerequisite of further Bank financing to Ecuador's productive sectors. It Population with electricity service/total population ratio. 21 'he subsidy has been calculated as the difference between domestic prices and the price of petroleum derivatives posted in Caribbean refineries. - iii - 10. The secror financial projections developed by the Bank mission assume that the prices of fuels used for electricity generation (Bunker C, diesel and kerosene) will be progressively increased to the following proportion of international levels: 25% in-1981, 37.5% in 1982 and 50% in 1983. Such policy, if accompanied by regulatory measures to induce optimal generation schemes, would allow Bank support for the Instituto Ecuatoriano de Electrificacion transmission project now under consideration and for future projects in the power sector. Issue No. 2 11. Electricity Tariffs. At present the provisions of the electricity tariff regime (which requires that tariffs be set so as to yield a rate of return on revalued assets of 8.5% per year) are not being complied with. As a result, electricity tariffs are low and the power sector's consolidated rate of return is negligi1ble, while net internal cash generation is negative. 12. Recommendations. Retail tariffs should be progressively increased so as to allow reaching an 8.5% rate of return in 1984. The Bank mission has forecast that rates of return of 2% in 1981, 4% in 1982, and 8% in 1q83 would be achieved. This would result in a self-financing ratio for 1982-85 of about 20%, which is a modest target, especially in view of the very large sector investment program. By 1985 retail tariffs would have tripled; however, after adjusting for domestic inflation, the increase would only be about 50%, which should be a feasible target. Issue No. 3 13. Management and Organization. Both the management of INECEL and of its subsidiaries leave room for considerable improvement. Areas deserving specific attention are: (a) INECEL's coordination and control over the operations of its subsidiaries; (b) overstaffing, both within certain areas in INECEL and in its subsidiaries; and (c) information systems, especially accounting, budgetary, financial and statistical information) l/. 14. Recommendations. Qualified consultants should be engaged soon to assist INECEL in the above matters 2/. Until such consultants' recommendations become available, INECEL should take such immediate measures as may be feasible to improve its performance. 11 The mission found that the quality of technical and financial information developed by INECEL or gathered from its subsidiaries is extremely poor. Lack of consistency is frequent. Financial statements do not follow accepted accounting practices. 2/ These consulting services would be part of the proposed INECEL Transmission Project. - iv - 15. Independent external auditors, both for INECEL and for its subsidiaries should be engaged at the earliest to assist in the upgrading of the accounting system, revision of accounting criteria and adjustments to the historic financial statements, asset revaluation, and preparation of consolidated financial state- ments. Issue No. 4: 16. Financing* The Implementation of the proposed 1980-84 investment program will require a massive financial effort. 17. Recommendations. The tariff actions discussed in paragraph 12 will have to be complemented by Government financing and by substantial borrowings in international financial markets. With regard to the Government contribu- tions, an early definition would be required so that, based on it, alternative financing strategies may be devised. 18. In view of the magnitude of the financial issues, the Bank should include a major projects clause in the Guarantee Agreement for the proposed INECEL Transmission Project, which clause would be designed to ensure that any major projects undertaken within the sector are economically justified and are adequately financed. Issue No. 5 19. Training. The planned sector expansion will result in a significant increase in workforce requirements. The successful implementation of the expansion program and the achievement of more satisfactory efficiency levels, will, to a large degree, be contingent upon the adequacy of the sector's training program. IVECEL is conscious of this need and - in consultation with the Bank - has already taken steps to engage consultants to assist in the identification of training requirements and formulation and implementation of programs. 20. Recommendations. The proposed INECEL Transmission Project would include a substantial training component, which would address this issue. Issue No. 6: 21. System Losses. The statistical information available shows that some of INECEL's subsidiaries have unacceptably high levels of losses. While in some cases this may be partly attributed to deficiencies in the information itself, it is quite clear that many distribution systems exhibit flaws which require remedial action. 22. Recommendations. To address this issue, INECEL should develop a program for the study of losses within its subsidiaries and for system upgrading and administrative improvements to reduce losses to acceptable levels. Such a program is to be implemerted as early as feasible. U PART I THE ENERGY SECTOR - 1 - 1. ENERGY RESOURCES 1.01 Ecuador has a large and diversified energy base which has not yet been fully assessed. In the following paragraphs, known reserves and potential resources of fossil fuels, as well as renewable sources of energy, are discussed. Hydrocarbons 1.02 Total sedimentary basins extend over an area of 17 million ha. of which less than 20% has been explored. The most important oil reserves were discovered in 1969 by the Texaco-Gulf consortium in the Eastern region. During the 1970s exploration activities were limited, and proven reserves decreased from 1.6 billion barrels in 1972 to 1.2 billion barrels in 1979. Actual proven reserves might be higher and are to be assessed by a reserve audit study. Currently, the reserves-to-production ratio averages 15 years. The prospects for increasing the resource base are favorable; both for con- ventional and for heavy crude oils and the Government objectives for the next five years are to add 730 million barrels of crude oil to proven reserves through enhanced recovery, development of known fields and new exploration, and to maintain an average production volume of 225,000 barrels per day. 1.03 The economic future of Ecuador depends to a significant degree on the success of achieving the above objectives. Major responsibility for this is assigned to the national oil corporation: Corporacion Estatal Petrolera Ecuatoriana (CePE) 1/. As a means of overcoming CEPE's technical and financial limitations, the Government has also announced its interest in attracting fo1.eign contractors to join in the exploratory effort. The terms of the hydrocarbon operations contracts under which new companies are to operate have not yet been adequately defined. Also, agreement with already established companies over future operating conditions must be reached if foreign participation is to increase. 1.04 Natural gas is expected to become an important energy source in the future. At present, only the LPG (propane and butane) fraction of associated gas produced at the Santa Elena oil fields is being recovered, but in 1981 a new LPG plant and a pipeline will enable the economic recovery of part of the associated gas produced in the Eastern region. In addition, preliminary exploratory work shows important free gas resources in the Gulf of Guayaquil. These are to be developed during the next five years and will be used to promote industrial development in the area. 1/ CEPE and its currently associated operators are to evaluate 902 of sedimentary basins and drill 350 wells, which will require an invest- ment of some USS470 million. CEPE's share in this program is USS370 millions, which represents one-third of its total investment budget for the five-year period 1980-84. -2- Hydroelectric Resources 1.05 The Andean mountain range separates the eastern from the western watersheds, which have drops of more than 3,000 meters. Twenty-two hydro- graphic basins have beei identified, covering 85% of the country's surface. The usable hydroelectric potential is currently estimated at 22,000 MW, mainly contained in the Pastaza, Santiago and Napo basins. Fully developed, these basins could generate 90,000 GWh/year of firm energy (which if thermally generated would require about 150 million barrels of oil per year). It is presently estimated that about 12,000 MW could be economically developed, but at present only about 2% of this potential has been tapped. In 1983, however, this ratio will increase to about 6% with the commissioning of the 500 MW paute hydroelective development. The 1980-84 development plan has set as an objective the rapid development of hydroelectric capacity and by 1985 it is estimated that 72Z of electricity requirements will be provided by this source. This is a significant change in the generation structure if compared with the present hydro generation ratio of about 25%. Alternative Energy Resources 1.06 One of the major problems for effective energy planning is the lack oF reliable data on alternative energy resources. The 1980-84 Development Plan includes both studies and in-the-field measurements of these resources; a brief sumary of the present state of knowledge is given in the following paragraphs. Geothermal Resources 1.07 Ecuador's localization offers favorable prospects for geothermal development. Superficial showings have been detected in Tungurahua, Pichincha and Azuay (see Map). The Instituto Ecuatoriano de Electrificacion (IECEL) has the responsib4 ity for evaluating the geothermal potential and in the first stage has received assistance from OLADE. Fuelwood 1.08 Fuelwood is an important source of energy in the rural areas. The country has important forestry resources, mainly in the Amazonas region and in the province of Esmeraldas. -owever, the lack of a reforestation policy and the indiscriminate use of wood for industrial and energy purposes, has reduced considerably the forest area and the rural regions are facing shortages of fuelwood. The Instituto Nacional de Energia (INE) is attempting to address the problem by developing improved stoves for cooking with fuelwood. Uranium Fuel 1.09 The Ministerio de Recursos Faturales y Energeticos (MRME) and the Atomic Energy Authority have undertaken to explore for uranium. Although no proven deposits have been determined, it is thought that the mineral exists in the Oriente region. - 3- Other Non-conventional Energy Sources 1.10 Currently, the possible use of solar energy, minihydropower, and other sources is being itudied by INE. In addition, OLADE is promoting the construction of biodigestors, in which animal and vegetables waste is converted into methane. A demonstration plant has been built in cooperation with the Provincial Council of Pichincha and OLADE is also providing technical assistance to other provinces. -4- 2. ENERGY BALANCE - CONSUMPTION 1/ The Present Energy Market- 2.01 Despite the fact that petroleum represents less than half of Ecuador's known energy resources, the national economy has become increasingly dependent on this source. Oil exports amount to approximately 65% of total primary energy production, which can be estimated at 10.8 million tons of oil equivalent (mtoe) in 1978, and over 95% of domestic commercial energy needs are supplied by oil. The basic objective of long-term energy policy is to make energy consumption more consistent with available resources. The thrust of the present Development Plan is on the supply side, mainly accelerated development of the hydropower potential and expansion of the productive capacity of the oil industry. The Plan is less specific with respect to energy consumption, although the consequences of postponing meas- ures to rationalize domestic petroleum demand are discussed. 2.02 Between 1973 and 1978, final consumption of commercial energy increased on the average by 14% per year.. which is high when compared with its prior evolution and with the more recent performance of the economy. 2/ The breakdown by fuel type (Annex 1, Attachment 1.1) shows that gasoline is by far the most important product in the market. Although the price of LPG is considerably higher than that of competing fuels, its market penetration has been limited only by available supplies. Electricity still has a rather small participation; furnishing only about 14% of industrial energy requirements and servicing mainly urban areas. The structure of final energy consumption by type of fuel is shown below. 1/ INE has initiated work on energy balances and up to now has produced balances for 1969-78, based on commercial energy demand at the final consumer level (which means that conversion losses are not accounted for). In Annex 1, Attachment 1.1, an attempt is made to construct the global energy balance for 1978, which reveals the degree of under- estimation Implicit in the first approach. Information on the structure and trend of consumption over time is taken from INE's work. 2/ During the period 1969-73, final energy consumption rose by 7.2Z per year. Between 1973 and 1978, GDP at constant prices, excluding the energy sector, increased by 6.8% per year. -5- 1978 Relative Average Annual Growth Market Share (Z) Rate during 1973-1978 (%) LPG 3.2 35.1 Gasolines 1/ 39.4 (43.2) 11.3 (15.4) Jet Fuel 5.0 28.5 Kerosene 10.7 12.2 Diesel Oil 16.8 12.6 Residual Fuel Oil 16.5 18.2 Electricity 8.4 16.7 Total 100.0 14.1 2.03 The high proportion of light and middle distillates in total petroleum consumption is not in balance with the yields obtained from domestic refineries. As a result, refinery operations are not optimal, deficit products have to be imported and refining capacity has to be expanded at an accelerated pace. 2/ 2.04 Fuel consumption for public electric generation purposes repre- sents 17% of petroleum sales. It is important to note that presently about 75% of the electric generating capacity is thermal, distributed as follows: internal combustion generating units, about 60%, and steam-driven turbine generating units, about 15%. The reduced share of steam generators is due to the existence of numerous small isolated systems which consume important volumes of diesel oil and, if available, kerosene. Information on fuel input to auto-generators is not available. 1/ The figures between brackets reflect actual sales of the product, whereas those lined up in the columns, refer to estimated effective domestic con- sumption. The difference is attributable to smuggling and indicates the results that can be expected from drastic measures to control this traffic. 2/ In 1979, the refineries had to process 26% more crude oil than warranted by straight volumetric requirements and produced a 52% surplus of re- sidual fuel oil which had to be exported. In addition, 2.7 million barrels of gasoline and other clean products had to be imported to supply domestic requirements, at a cost equivalent to the export of 4.9 million barrels of crude oil. Annex 2 discusses at length the oil industry's difficulties in supplying the domestic market. - 6 - 2.05 The table below presents the demand structure by economic sectors. 1/ 1978 Relative Average Annual _ Market Share t%) Crowth Rate 1973-78 (%) Agriculture and Fishing 7.1 8.2 Mining and Industry 17.8 10.5 Transport 52.8 17.4 of wbich: Private Car Fleet 22.6 18. 5 Air and Maritime Shipping 11.4 36.1 Residential and Commercial 20.7 12.9 Others 1.6 8.7 Total 100.0 14.1 The figures shown confirm that transport takes over one-half of final energy consumption and provides further evidence that substitution of traditional fuels has taken place, mainly in the residential sector, and that efficiency in energy use has been declining. Future Demand 2.06 Future demand for liquid fuels and for electricity is expected to increase at rates of 12% and 11.5% per year respectively. These seem reason- able, aud perhaps on the high side for petroleum products, since the market for these fuels is already showing a certain level of saturation, as evidenced by the slower growth in 1980 (9% over 1979); in addition the expansion of hydroelectric generation and the interconnection of the power system will reduce fuel requirements for thermal generation. Rural Energy Survey 2.07 INE is currently carrying out a survey of non-commercial energy use by rural households and cottage industries. Preliminary information gathered indicates that the use of wood and charcoal are much less important than previously thought, and that their weight in total primary energy consumption probably is in the range of 17 to 23Z. The use of bagasse in sugar refineries has not yet been studied. 1/ Aggregated from tables in "Balance Energetico, la parte: Analisis del Consumo Final", INE, May 1980. - 7 - 3. DOMESTIC OIL PRICES Current Level and Structure 3.01 The Government recognizes the need to adjust energy prices, but the necessary decisions to correct the absolute and relative price levels have not yet been taken. Laws have been passed to adjust electric tariffs but they have not been enforced (para. 8.10) and changes in petroleum product prices have not affected major fuels. As a result, direct and cross-sector subsidization practices pervade. These practices not only reduce the self- financing capability of CEPE and of INECEL, but also lead to inter-institutional conflicts that reduce efficiency and induce poor allocation of productive resources. Thus, to achieve Ecuador's long-run economic objectives, a coherent pricing policy should be implemented. 3.02 Prices for liquid fuels have not changed substantially since 1973. Compared with the domestic inflationurate, the consumer Is actually paying 120X less in 1980 than he did in 1973. Moreover, the current average retail price of USS7.033 per barrel is less than 20% of world market prices (compared with mid-1980 levels). 3.03 Price changes of individual products distort the relative prics structure and lead to undesirable substitutions. As shown in the following table, LPG and asphalt are priced close to international levels. In 1980, prices for international bunkers were increased by about 652 for volumes above a basic quota, and a new grade gasoline (92 octanes) was introduced in the domestic market at a price equivalent to US$30.58 per barrel (US$0.73/gal.) 'The Government expects to gradually substitute the lower priced product by this new fuel in the more affluent areas and to achieve within one year a 10% market penetration, representing a 36% increase in CEPE's revenues from total gasoline sales. USS/Gallon US$/bbl LPG 0.522 21.91 Gasoline 92 octanes 0.728 30.58 Gasoline 83 octanes 0.186 7.81 Gasoline low grade 0.164 6.89 Kerosene 0.134 5.62 Diesel 0.144 6.05 Residual Fuel 0.104 4.37 Asphalt 0.578 24.27 1/ Mid-1980 price for the Guayaquil area. Due to transportation costs prices in other parts of the country are generally slightly higher. Price Subsidies. 3.04 - The subsidy to the domestic consumer should be measured by comparing prices to marginal long-run supply costs or to world market prices (opportunity cost). 'Powever, even if measured in terms of current technical production costs, the subsidy is still substantial. 3.05 The bulk price for crude oil delivered by the oil companies for the domestic market is negotiated by the Government on the basis of pre- sumptive production costs. All producing companies share market requirements in proportion to their relative production. The current average price is USSI.55/bbl, but the range is from US$1.40/bbl. for the older production ventures to over US$6.0/bbl. for the more recent ones. The latter is indica- tive of the long-run marginal cost for crude. It is estimated that by 1985 about one-third of crude production will have to come from higher cost sources. If, in addition, consideration is given to the new investments that have to be made in refining, transport and marketing facilities, it is evident that the average cost of supplying the Ecuadorean market will increase sig- nificantly in the coming years. - 3.06 Based on average technical supply costs, the net subsidy to the domestic consumer of petroleum products can be estimated at USS1.56/bbl. for 1980 1/. However, the subsidy paid by CEPE is considerably larger (US$3.641bbl), as the company's revenue from sales (US$4.96/bbl) is the average retail price (US$7.03/bbl), less consumption taxes (US$2.08). The current supply cost is estimated at US$8.59/bbl including the cost of importing deficit products, while the technical production cost of products derived from domestic crude oil is about US$5 per barrel (this figure, however, assumes a zero value for the crude oil itself). Thus, the real amount of the subsidy is far larger than indicated, given the opportunity cost value of oil in interna- tional markets and its replacement cost, as measured by the long-unm marginal production cost. 3.07 Cross-sector subsidization transfers resources from the petroleum to the power sector. To finance the expansIon of the power sector, 472 of the state royalties are directly allocated to INECEL and additional funds are made available through an Electrification Fund and transfers to Provincial Councils. In 1980, limits were set to these automatic allocations 2/. Criteria for Future Pricing Policy 3.08 In adjusting the price structure, the Government should avoid the danger of a fragmented policy and of further distortions of the demand struc- ture. The following factors should be taken into account in the determination of relative prices for petroleum products: 1/ See Annex 2, Table 2.6. 2/ Pegulation No. 57 of February 11, 1980 establishes the follov&tg ceilings for automatic participation: (a) price of crude oil exported at USS23.50! bbl; (b) price of heavy fuel oil exported at USS17.50/bbl; and (c) income from the domestic market is frozen both in volume and prices. - 9 - (a) LPG is priced close to world market levels. This product is going to be in ample supply after mid-1981 when the pipeline from Shushufindi enters into operation. In order to create an incentive to use this new supply, the prices for keroserne and for low grade gasoline would have to be increased above that of LPG; (b) the fact that kerosene is priced below diesel oil creates an industrial demand for this fuel. This has been controlled in the past by limiting the supply of kerosene to the market, thus reducing its availability to low income consumers, which runs contrary to the social objectives of the Government's policies; (c) the current price differential between diesel and fuel oil is insufficient to induce the use of heavy fuel oil in industry and in power generation. As a consequence, Government has had to Impose quantitative restrictions which distort resource allocation; and (d) current fuel oil prices do not provide an adequate incentive for hydroelectric development, end have also discouraged the development of the country's naturi- gas resources. 3.09 A realistic pricing policy should take Into account the political feasibility of implementing the changes required. This is an extremely sensitive matter, and any evaluation is tainted with sutjectivity. However, in view of the problems presently caused by subsidized prices, and the likeli- hood that they have not had any positive distributional effects, the argument is strong for implementing the required changes at a reasonably fast pace. The Bank should therefore insist on significant initial steps prior to making any new loans to Ecuador's productive sectors and should discuss the pace of programmed future increases to ensure that expected targets will be achieved in a reasonable time. - 10 - 4. ORGANiZATION OF THE ENERGY SECTOR 4.01 The Constitution of Ecuador and specific sector legislation estab- lish that the Executive is to exploit the nation's fossil energy resources directly or in association with private enterprise and that the Government holds X monopoly on electricity generation, transmission and distribution, but that it can to authorize private operations. Decisions are taken at the following levels: general energy policy is decided by the President of the Republic; MRNE defines and coordinates sectorial policies; and CEPE and INECEL are in cbarge of the administration and implementation of the policies. A brief description of the main institutions of the sector follows. Consejo Nacional de Desarrollo (CONADE) 4.02 CONADE, chaired by the Vice-President of the Republic, is responsible for overall economic planning, and in March 1980 it completed the preparation of a development plan for 1980-84, which is mandatory for public sector institutions and which sets investment targets for both the oil and the power sectors. In order to insure that the objectives of the plan are achieved, annual programs are to be drawn up and performance is to be measured against milestone goals. Ministerio de Recursos Naturales y Energeticos (MMNE) 4.03 MNEM is the central authority for energy matters, responsible for policy formulation and for overall organization and administration of the sector. Three undersecretaries, respectively responsible for Natural and Energy Resources, for Administration and for Fisheries, are under the direct authority of the Minister (Annex 4, chart 4.1). 4.04 The Undersecretary for Natural and Energy Resources supervises the departments of Byirocarbons (Direccion General de Hidrocarburos - DGH) and of Geology and Mines. DGH is the policymaking and supervisory body for oil and gas, foreign investors' participation in the oil sector, approval of investment plans, revision of petroleum laws and pricing of petroleum products. 4.05 The scope of the activities of DG& calls for higbly experienced personnel but because of the public salary structure and political changes personnel turnover has been very high. Since ]976 about 150 professional staff have left and most of the present staff are relatively new. 4.06 There are two energy-related advisory bodies to the Minister. The first is the National Energy Council, composed of the heads of the Ministries of F_nance and Industry, CONADE, and the Joint Command of the Armed Forces, and chaired by the Minister of Natural and Energy Resources. The second is the Committee on Petroleum Policy, which brings together CEPE's General Manager and experts on the petroleum industry. 4.07 Also under the jurisdiction of MRME are three autonomous institu- tions: CEPE, INECEL and InE, all of which are discussed below. - 11 - Corporacion Estatal Petrolera Ecuatoriana (CEPE) 4.08 CEPE, a public sector corporation established by Decree No. 522 of June 23, 1972, was set up as an instrument for government participation in all phases of the petroleum industry. CEPE is involved in the following activities: (a) Exploration and Production. In addition to direct operations, CEPE has a 67.5% share in the CEPE-Texaco consortium, which produces 98Z of Ecuador's oil and owns 507 of the trans-Andean pipeline and the associated export terminal facilities. CEPE supervises the activities of foreign contractors: Texaco, Cities Service and Yacimientos Petroliferos Fiscales (Argentinii). (b) Refining. CEPE owns and operates Ecuador's largest refinery at Esmeraldas and holds, respectively, a 24.2% and 12.3% partic'pation in the Anglo and Gulf refineries. It plans substantial expansion of throughput and conversion capacity and proposes full reversion of privately held shares. (c) Natural Gas. It manages the Shushufindi LPG plant and pipeline project and plans the development and -utilization of gas resources in the &uayaquil Gulf. (d) 1'arketing. It sells in international markets, not only its own sbare in crude oil production and its surplus of refined products, but also the Government's royalty crude. It imports deficit products and has a monopoly for local distribution and marketing. 4.09 CEPE's organization is composed of (a) a Board of Directors, whose functions include the appointment of management staff, approval of the budget and of major investment decisions, and policy formulation regarding private contractors; (b) a General Manager, who is the chief executive; and (c) oper- ating and administrative units, which are being reorganized into major area divisions. 4.10 In the past, CEE's efficiency has been hamperwd by a weak internal structure and by poor relations with MRNE and with other Government agencies. To deal with the first of the above, a foreign consultant 1/ was engaged to carry out an organizational study. This study has now been completed and its recommendations are being implemented. Regarding the second aspect, CEPE has has argued that it lacks autonomy in decision making-, being subject to the Ministry's approval in matters related to personnel, procurement and management. To solve these problems, CEPE has proposed increasing the decision-making power of its Board, which would be fully responsible for policy implenentation 1/ SNC (a Canadian consulting firm) proposed the reorganization of CEPE in order to improve coordination of activities, delegation of authority, and project supervision. As a result, an Assistant teneral I'anager was appointed and operational divisions were established. Also, a new system of accounting and management information and new procedures are being implemented . - 12 - within guidelines given by the Energy Council 1/. It is evident that the Ministry's supervisory role is compatible with managairial autonomy, if adequate long-term efficiency criteria are clearly established. Thus, the Bank should support CEPE's position.. It is open to question, however, whether CEPE will be able to overcome its present organizational, financial and technical limitations and accomplish within the five-year period the proposed objectives. The Government has recently appointed a new Minister of Natural and Energy Pesources and a new General Manager of CEPE, and, as a result, it is expected that project priorities will be redefined and coordinated in the context of a realistic policy. 4.11 The 1980-84 Development Plan includes an investment program for hydrocarbons in an amount equivalent to US$1,300 million in 1979 constant dollars, of which 862 would be financed by CEPE. However, revised estimates are being prepared, and it is expected that investments will be increased above the company's present financing ability. If this is considered in conjunction with CEPE technical limitations, it becomes evident that priorities will have to be redefined or human and financial resources wiil be spread too thin to be productive. 4.12 A final, but not less important factor for the success of the proposed oil development plan is the Government's policy towards foreign companies, whose expertise is especially important in exploration activities. This policy has to define the incentives for potential newcomers, as well as solve the problems with present operations, and in particular with Texaco. The Government is currently proposing to establish a jointly operated company, Petroamazonas, staffed by personnel from both CEPE and of Texaco in proportion to their respective capital shares and which would become totally integrated to CEPE after a five-year transition period. As a result, Texaco is reluctant to invest in new projects (of which supplementary recovery is of high priority), unless adequate incentives are provided by the Covernment. Bank participation in the sector should be contingent upon a clarification of the Government's policy in these matters. Instituto Ecuatoriano de Electrificacion (INECEL) 4.13 Decree No. 1042 of September 1973 established INECEL as the public utility in charge of electric generation, transmission, distribution and marketing. Its organizational structure as well as the issues related to the power subsector are discussed in the second part of this memorandum. Instituto Nacional de Energia (INE) 4.14 IINE was created in 1978 as a technical-scientific body for the purpose of analyzing alternative energy strategies in the context of the changing international energy situation. It is a small institute with limited financial resources and staff and under the 1980-84 Development Plan, it has been assigned two main objectives: 1/ CEPE's Board of Directors and the Energy Council are composed of the same Government authorities (para. 4.06). - 13 - (a) to develop national energy balances and to inventory Ecuador's energy resources; (b) to analyze existing technologies on production and use of renewable sources of energy and promote the implementation of those best suited to Ecuador's resource endowments 1/. 4.15 I1ME has prepared historic commercial energy balances at the final consumer level for 1969-78 and is carrying out a survey on the use of renewable energy sources in Ecuador's rural areas. This has been done with the technical and financ'al assistance of the European Economic Community, which provided an energy planner and is making a second one available for 1981. flTE is also introducing a more efficient stove for cooking with wood and charcoal and is trying to promote the installation of solar water heaters in new constructions. 1/ This comprises solar, eolic, geothermal energy, biodigestors, micro- and minihydraulic generation and forestry, as well as more efficient use of fueluood, through the introduction of better designed cooking stoves. - 14 - PAPRT II THE POWER SECTOR - 15 - 5. SECTnR ORG.ANIZATION, INSTITUTIONS AND HUMAN RREOURCES Legal Framework 5.01 The most Important legal provisions governing Ecuador's power sector are contained in the Electricity Law, passed in 1973 and subsequently amended on several occasions. The law, as it currently stands, establishes that the Government (through INECEL) has the monopoly on electricity generation, transmission and distribution; it is empowered, however, to authorize private operations. The Executive power defines sector policies through the Ministry of Natural Resources and Energy, the Ministry of Defense (when national security matters are at issue), and INECEL. 5.02 The provisions of the Electricity Law are generally sound, basically, tending toward the unification of power systems in INECEL. INECEL is provided with a sufficient degree of autonomy to enable it to carry out its operations efficiently. A. Instituto Ecuatoriano de Electrificacion Role in Sector 5.03 INECEL was created in 1961 as an autonomous entity. It operates the National Interconnected System and is the majority stockholder in 15 of the 16 utilities which operate in the sector. 1/ INECEL's participation in the capital stock of these companies ranges from 54Z to nearly 99X, thus giving it full legal control (see Annex 5, Table 5.1). The 16th company, Empresa Electrica del Ecuador (EKELEC), is 100% privately owned and operates in the city of Guayaquil under a concession contract (para. 5.28). 5.04 INECEL's functions are defined in the Electricity law; the main ones are: (a) to program, coordinate, execute and supe-rvise the de7elopment of electrification in all its phases; (b) to take an inventory of national electricity generation resources; (c) to plan, finance, purchase and operate generation, transmission and distribution facilities; (d) to obtain the internal and external financing required to fund its investment prograts; and (e) to promote the develo"ment of regional electric companies through the merger of existing utilities. 1/ There are also small electric power installations which operate in isolated systems and are owned by local municipalities, as well as a significant number of private autoproducers. - 16 - Organization and Management 5.05 INECEL's Organization Chart is shown in Annex 5, Chart 5.1. Policy decisions are taken by_the Board of Directors and day-to-day administration is entrusted to a General Manager. 5.06 INECEL's Board is composed of the Minister of Natural Resources and Energy, who presides over it; the Minister of Finance, the Minister of Industry and Commerce; the President of the Planning Board 1,, the Chief of Staff of the Armed Forces; and one representative from each of the following: the electric power companies, the National Association of Power Engineers and the electric sector workers 2/. Reporting to the General Manager are six operating units: Industrial Relations, Engineering and Construction, System Operations, Marketing and Distribution, Finance, and Rural Distribution. The latter is now being set up, as a condition of IDB's lending for rural distribution. Several staff groups also report directly to the General Manager: Planning, Systems Analysis, Legal Department, Procurement Committee, and Public Relations. The functions of these units are the stanidard ones associated with the respective names, except for marketing and distribution, discussed below. Supervision of Electric Power Companies 5.07 The Marketing and Distribution unit encompasses two main functions: (a) standards and supervision, which involves setting up standards for works and supervising operations and maintenance in INECEL s subsidiaries; and (b) supervision of managerial performance, which involves looking into the operations of the subsidiaries, seeing that norms instituted by INECEL. are properly applied, and coordinating the work of INECEL's representatives at the Boards of Directors of its subsidiaries. 5.08 Until now, INECEL has seldom made its presence felt in the manage- ment of its subsidiaries. Though in all IDECEL holds the voting power majority (para. 5.03), the other Board members represent the municipality in which the subsidiary operates and carry heavy political weight. Also, in some cases INECEL has appointed to Boards staff who lacked the adequate skills or personalities for the tasks, which may be one reason why INECEL's success in Improving the quality of management within its subsidiaries has been limited. Currently, INECEL's management is trying to shape up its supervisory role. New staff have been appointed and further changes are being considered. It is too soon to evaluate these efforts, but they represent steps in the right direction and deserve the support of the Bank. 1/ This provision is likely to be amended as the Planning Board has now been replaced by CONADE, which is presided over by the Vice-President of the Republic. 2/ The Government Directors may be represented by alternates. - 17 - 5.09 INECEL also faces the additional problem that the subsidiaries are frequently unable to provide adequate information in a timely fashion. This is particularly true with regard to financial information. Even though INECEL appoints "comisarios," with-on paper--some of the functions of an external auditor, in general these people, performing such roles on a part-time basis and without supportirg staff assistance, tend to rubber-stamp whatever infor- mation the subsidiaries provide. This results in a very noticeable lack of external control over tbe subsidiaries' operations. For the proposed INECEL transmission project, the Bank has requested that independent external auditors be appointed to all th- sabsidiaries 1/. This should result in an improvement of the subsidiaries' financial statements (which now generally are of poor quality) and provide some measure of external control. INECEL is also con- sidering, albeit with some internal resistance from other areas, bolstering up its internal auditing group, presently understaffed, so as to exercise additional controls over the subsidiaries. Recent Bank missions have encour- aged this approach. Sector Planning 5.10 INECEL is responsible for sector planning, which has to be consistent with the macroeconomic guidelines developed by CONADE. With the assistance of consultants (Lahmayer-Germany and Ridroservice-Brazil), INECF.L is currently preparing the National Electrification Baster plan (with Bank financing through Loan S-006-EC). The main objectives of the Plan are to: (a) study Ecuador's future power market; (b) select the least-cost program for power generation considering hydroelectric, geothermal and conventional thermal alternatives; and (c) define optimum transmission and distribution investment programs. 5.11 The Master Plan studies are being developed in three stages: short term (1978-85), medium term (1985-92) and long term (1992-2000). The following studies are also included under the Master Plan: (a) inventory of hydroelectric 2/ and geothermal 3/ resources, which will recollect existing information and create new information banks containing cartographic, hydro- logical and geological data, as well as information regarding the developmeur stages of hydroelectric sites (identification, evaluation, pre-feasibility, feasibility and detail design studies); and (b) development of an Integrated Planning System (SIP) which will optimize the hydro/geothermal power plants (identified in the inventory of hydro/geothermal resources) and their installa- tion sequence. 1/ Only one of these subsidiaries, Empresa Electrica de nuito, currently engages external auditors. un EEO's case, this stems from a covenant under IDA Credit 286-EC, approved in 1972. 2/ The inventory is expected to cover about 225,000 km2 or about 70% of Fcuador's area and about 802 of Ecuador's estimated hydroelectric potential. 3/ The inventory of geothermal resources, originally to be financed by the Bank, 's now being financed through a grant from the Organizacion Latinoamericana de Energia (OLADE). - 18 - 5.12 The short-term Master Plan (1978-85) studies have already been completed and the draft reports were found to be satisfactory by the Bank. The Faster Plan medium/long-term studies are currently progressing satisfac- torily and draft reports are expected to be available in February 1982. Accounting 5.13 The quality of INECEL's financial statements is extremely poor, possibly because of the lack of importance hitherto attached to such informa- tion, department head changes, old fashioned recording systems, and absence of competent staff in the area. Contributing factors, too, have been the insuffi- cient staff engaged in internal auditing tasks and the delays in the Contraloria General's external auditing interventions, which have limited their usefulness. 5.14 The main problems detected by the Bank missions are the following: (a) despite the fact that INECEL's share in the capital stock of its subsidiaries ranges between-54% and 99%, INECEL shiws this partici- pation as an investment (at historic cost; profits, or losses, earned by the subsidiaries, but not distributed, are not shown) and does not prepare financial statements which consolidate the data of its subsidiaries 1/; and (b) fixed assets are shown at cost, despite legal provisions which require their annual revaluation. 5.15 Other problems stem from the poor quality of some of the figures and from the excessive time taken to produce reports. For example, accounts receivable include items which are highly unlikely to be collected and an offsetting reserve for bad debts has not been set up; inventory figures are not supported by physical checks (not even on a sample basis); and studies undertaken in the past for projects which were discarded are shown within deferred charges, amortized over five year periods, instead of being written- off. As to the time taken to prepare reports, the Accounting Department emphasizes the delays it-experiences in receiving information and the poor quality of data sent by warehouse managers 2/. Auditing 5.16 By law, INECEL's financial statements are audited by the Contraloria General de la Nacion and this has resulted in major delays in the issuance of 1/ The power companies follow a uniform system of accounts (originally prepared in 1966 with the assistance of Middle West Service and updated in 1977), which is reasonable. 2/ Yanagers have to provide data in a manner which allows allocating costs to each project under construction or to maintenance, and what they send is frequently incomplete, or inaccurately coded. - 19 - the audited statements due to the Contraloria's lack of staff. The Contraloria issues "long" reports which include a professional opinion as per the standard format; and, when necessary, has appropriately qualified its opinion or has explicitly stated that in its opinion the financial statements did not fairly present the financial position of the company. 5.17 In connection with the proposed transmission project currently under consideration, INECEL has agreed to request the authorization of the Contraloria to engage a private firm of external auditors. It is expected that this should reduce the delays in the completion of audits and, too, that the auditors would provide advice in solving the deficiencies in the accounting system noted in paragraphs 5.13 to 5.15. Procurement 5.18 Government agencies' procurement procedures are governed by a national procurement law. In 1977, a Bank mission visited the country to study the law and to examine whether it could cause conflicts with the Bank's procurement procedures. The main conclusions then reached were that the provisions of the law itself are basically reasonable and do not generally collide with Bank guidelines. 5.19 The problems identified by the 1977 mission may be summarized as follows: (a) bidding committees tend to adopt restrictive interpretations of the law, thus drawing complaints from bidders; (b) the most serious deficiency in the legislation is that which limits the use of price adjustment clauses. Price adjustment is subject to various decrees (that lie outside the procurement law) Which are broadly worded and confusing; gc) the Ecuadorean practice has been to require bank guarantees, since they do not have experience with performance bonds. Thus, in Bank financed projects, it becomes necessary to ensure that the option of furnishing a performance bond is provided and, too, to rev,Lew the relevant provisions of the bidding documents; (d) the law appears to exclude the use of international commercial arbitration, which may work to the detriment of the executing agency; and (e) the law requires that contracts be awarded within 60 days of the receipt of the technical committee report. Often, this does not allow a reasonable time for the Bank to study the report. Management Problems 5.20 INECEL currently faces important organizational and managerial difficulties, which, if no remedial action is taken, are likely to increase in the coming years due to the strains imposed by corporate growth and a very ambitious investment program. IPECEL's top management is conscious of this, - 20 - and, in the proposed transmission project which the Bank is currently consider- ing, it has included consulting services for institutional development. This project component is of substantial importance as, through it, the Bank would be able to provide an important input to INECEL's institutional development. 5.21 INECEL's current difficulties, discussed above, are mainly in the following areas: (a) accounting and financial information systems, due to the poor quality of the information and the excessive time taken to produce reports; (b) information systems in general, because of lack of coordination, absence of checks and duplication of efforts; (c) long-term financial planning, which (partly due to the factors mentioned above and, also, to lack of competent staff) is inadequate. Presently, efforts are being undertaken to improve this situation; (d) lack of adequate coordination between various departments which tend to operate as autonomous entities. Tackling t.is problem will require an in-depth analysis of the organizational structure and division of responsibilites and it is likely to be one of the major difficulties faced by the consultants; Ce) unclear or, in some cases, non-existent policies with regard to the management of its subsidiaries (para. 5.08) and inadequate staff to supervise them; and (f) a weak internal auditing department, which is performing only a fraction of the functions it should undertake. 5.22 A sensitive issue has been the frequency of changes in the position of General Manager, as well as in other high management posts. Though the law establishes that the General Manager is appointed for a four year term, and may be reappointed, changes have been more frequent because the position has been considered to be of a political nature. This is bound to have affected policy continuity and, consequently, company efficiency. Furthermore, the expectation of short tenures would lead to emphasizing short-term goals over long-term objectives. Since the problem stems from political practices in Ecuador, it is doubtful that it could be solved through legal provisions. 5.23 It has been preliminarily agreed with INECEL that the first phase of the consultants' study will be a diagnosis of the present situation, which would provide a more comprehensive analysis than outlined above. - 21 - B. Empresa Electrica de Ouito 5.24 EEQ is organized as a private corporation. Its main shareholders are INECEL and the Munfcipality of Owito (other private sector shareholders account for about 2% of EEQ's capital). The organizational structure calls for a Board of Directors, a General Manager, and five operating units: engineering and construction, operations, commercial, administration, and finance. The organization is reasonable, though in the past the company has had management problems. 5.25 EEQ provides electric service to a substantial part of the province of Pichincha, including the city of Ouito. At present, EEO has over 160,000 customers and a customer/employee ratio of 131/1, above the national average as may be expected in view of the characteristics of the area it serves. EEO now has a generating capacity of about 136 14 and an additional 34.2 MW are to be commissioned in early 1981. 5.26 EEQ has been the main recipient of Bank Group funds within Ecuador's power sector 1/. The first two Bank operations (in 1956 and 1957) helped to finance the 40 MW Cumbaya hydroelectric project, several diesel plants and extension of the distribution systems (these works were completed by the end of 1961 and have been operating satisfactorily). 5.27 IDA Credit 286-EC for USS6.8 million was approved in 1972 and covered part of the foreign exchange costs of the Nayon hydropower plant, a diesel engine generating unit, transmission lines and a rural electrifi- cation component. A PPAR on this operation was issued on May 30, 1980 (PPAR No. 3003). Its main conclusions were that: (a) the physical objectives of the project were met, albeit with delays and cost overruns; (b) progress toward the institutional objectives of the project was disappointing; (c) most of the covenants related to the financial aspects at the institution were not met; and (d) lack of cooperation affected the efficiency of IDA supervision efforts, which, however, also required more frequent field supervision than actually took place; These lessons should be kept in mind for the proposed transmission project currently being considered with IPECEL. 1/ The only other financing provided by the Bank to the sector has been through Loan S-006-EC to FONAPRE for the Master Plan studies and feasibility of Paute-Mazar hydro-development, currently under way (para. 5.10). - 22 - C. Empresa Electrica del Ecuador 5.28 Like EEQ, EHELEC is organized as a corporation. It is, however, privately owned. EMELEC's concession was granted by the municipality of Guayaquil in 1925 and was ratified by the National Government by a decree- law passed in 1966. The concession expires in 1995 after which time (but subject to a three-year advance notificatinv), .he Municipality may acquire all the company facilities at a "fair price." 5.29 The Government has, through the 1980-84 National Development Plan, expressed its concern at the negative effects associated with the private ownership of EYELEC and has indicated that eventually EMELEC should be nationalized. No date has, however, been set and, in some quarters, there seems to be some uncertainty at the position taken. It would be desirable if action is taken soon, as nationalization would reflect itself on the sector's financing requirements. Uncertainty over the Government's position on this matter could hypothetically result in a slower pace of investment by EMELEC's present ownership, eventually affecting the quality of the service it provides. 5.30 EMELEC serves the city of Guayaquil and some neighboring areas, totaling about 172,000 customers. EMELEC's generating plants are all thermal; with an installed capacity of about 183 MU. The company employs about 850 persons. D. Other Electric Power Companies 5.31 Besides EEO and EMELEC, there are 14 other electric power companies of fairly small size operating in Ecuador. Additionally, 42 municipalities operate small local power facilities. The Goverment has set as one of its objectives in the sector the consolidation-through merger-of these companies. The medium-term target (for which no date has been set) is to reduce the total number of power companies from 16 to 9, a sensible effort that the Bank should support. 5.32 The income statements of the power companies (shown in Annex 8, Table 8.2) do not present a breakdown of O&M expenses, since the corresponding information is not available. The cost data which is available is simmarized in Annex 5, Table 5.2. Particularly striking is the difference in absolute costs and in cost structure between EEO and EMELEC, on the one hand, and the smaller power companies on the other. One of the factors causing higher O&M costs in these smaller companies is the high incidence of system losses (para. 7.04, and Annex 5, Table 5.3). Another reason is system size, since the small companies face diseconomies of scale, which are reflected in higher labor costs. However, it would seem that EMELEC manages to operate with a relatively much lower labor force than EEQ or the other INECEL subsidiaries. *The available data roughly indicates that kFWh sold per employee for EEQ come to about half that for EMELEC, while for the other INECEL subsidiaries they were again about half as much as in EEQ (in some cases they were as low as one-fourth or one-third). These factors, the management weaknesses, and shortage of professional staff detected in some of the smaller IFECEL subsidiaries, lack of policy directives from TIECEL, and casual style of control exercised over the subsidiaries together are reflected in performance inefficiencies and constitute an issue which ought to be addressed promptly. - 23 - E. Human Resources Present Human Resources Availability 5.33 The following table illustrates the current human resources situa- tion within the power supply industry: Customer/ GWh Sold/ Employees Z Employees Employees INECEL 1,657 25 - a/ - a/ EKELEC 860 13 182 1.0 EEO 1,342 20 131 0.44 INECEL subsidiaries and municipalities 2,714 42 106 0.21 Total Power Sector 6,573 100 90 b/ 0.31 b/ a/ INECFL is a bulk supplier. hi Includes INECEL's employees. The above figures and rptios were considered within acceptable limits when compared with other Latin American countries which had similar sector infra- structure and level of development. 1I However, once again notice should be taken of the disparities within the various public supplier organizations, which are shown above and discussed in paragraph 5.32. About 5,532 persons were also engaged by consultant and contractor firms working in activities directly related to the power sector. Annex 5, Table 5.4 provides additional statistical data on human resources. Future Manpower Requirements 5.34 By the year 1985, INECEL expects that the power supply industry will require about 11,200 employees, nearly 2,800 of whom are to be engaged by I1ECEL and 8,400 by INECEL's subsidiaries, municipalities and EMELEC. The sector GWh sold/employee ratio is expected to improve from 0.31 in 1979 to 0.44 in 1985, while the connected customer/employee ratio is expected to increase from 90 in 1979 to 92.6 in 1985. It is also expected that in 1985 nearly 10,000 people will be working with consultant and contractor firms. 5.35 The different Bank missions that visited Fcuador recently reviewed the sector's humen resources requirement projections and found them reasonable. Nevertheless, it appears that some areas of the sector (especially within 1/ Customer/employees and CWh sold/employees ratios were respectively 68 and 0.4 for Panama, 77 and 0.24 for Uruguay, 94 and 0.67 for Costa Rica, 233 and 1.08 for Peru. - 24 - INECEL and its subsidiaries) may be overstnffed. This issue is to be properly addressed and assessed in the proposed consulting studies for institutiQnal development. Furthermore, INECEL is expected to agree with the Bank during the forthcoming negotiations for the proposed transmission project on targets for improving efficiency in this respect. Training Activities 5.36 INECEL has established an important and active Training Department which has, over the past seven years, developed a good, if somewhat centralized, training system. Training services are available to, and are widely used by, the staff of INECEL and its subsidiaries. The training system is based upon sound training principles and benefits from executive management commitment and support. The following features of the existing training scheme are indicative of the systematic manner in which training services have been developed and are now being routinely provided: (a) an annual policy statement on human resources and training is updated and circulated each year; (b) regular human resources planning and forecasting for the complete sector is undertaken as a corporate management exercise; tc) an annual training program is issued to all regional utilities, detailing the training programs to be offered at INECEL's training center and a variety of approved programs of education and training available in Ecuador and externally for which training grants are available; and (d) INECEL operates a well established residential training center (Centro Nacional Franco-Ecuatoriano-CENAFE-present capacity 100 trainees) with a highly trained staff and a good mix of well equipped practical training and classroom facilities. Since the successful implemer.tation of the 1980-85 development program will require a major mobilization of human resources, as well as improvements in management practices, the INECEL transmission project, currently under Bank consideration, would include a substantial training component. - 2.5 - 6. SECTOR FACILITIES Generation 6.01 As of December 1979 installed power generating capacity was about 924 NW, of which 700 MW, or 75Z of the total, was thermal and the balance hydroelectric. A summary description of these Installations is given in the table below (see also Annex 6, Table 6.1). Internal Oil-fired Combustion Steam Plant Hydro Total Public Service 423.2 136.0 212.5 771.7 Self-Producers 140.6 12.1 152.7 Total 563.8- 136.0 -224.6 924.4 About 520 NW, or 56% of the total installed capacity, are currently intercon- nected through the 230 kV Quito-Guayaquil transmission line and the 69/34.5/22 kV Ouito-Latacunga-Riobamba-Ambato subtransmission network. 6.02 Present electricity public supply (through INECEL, its subsidiaries, EKELEC and municipalities) accounts for about 84% of total power supply. Private generation (self-producers - mostly industrial and agricultural undertakings), accounts for the remaining 16% (about 153 MW capacity, of which 141 MW are dieael generators and 12 MW are hydroelectric plants). It is expected that the share of self-producers' in electric generation (mainly thermal generation) will be reduced in the future when: (a) the National Interconnected System becomes operational (the 230 kV Ouito-Guayaquil transmission line was commissioned in August 1980 and different interconnecting transmission lines will be commissioned during 1981-84); (b) the Paute hydroelectric development is commissioned (500 MW during 1983 and 500 MW during 1987); and (c) petroleum price subsidies for electricity generation are reduced. 6.03 The table below shows the power plant additions already committed to be installed and commissioned during the period 1980-82. Internal Oil-fired Combustion Steam Plant Hydro Toral MW 180.0 198.0 33.2 411.2 INECEL is also installing 5 x 100 MW h7droelectric units at Paute, to be commissioned in 1982/83. - 26 - 6.04 To meet 1986-90 forecasted energy requirements, INECEL, based on the results of the short-term Master Plan studies, developed a least-cost expansion program which involves the installation and commissioning of the following hydroelectric power plants (see also Annex 6, Attachments 6.1, 6.2 and 6.3): Power Plant Capacity (MW) Tentative Commissioning Date Agoyan 150 1986 Paute C 500 1987 Daule-Peripa 130 1988 Paute-Mazar 140 1989 Transmission 6.05 The existing transmission system is reduced to short transmission links between major consumption centers and the nearby power generating stations. The first SNI major interconnecting link was commissioned during August 1980 and ties the two biggest consumption centers, Guayaquil and Quito, through a 327 km - 230 kV, double circuit transmission line. The following transmission lines are currently under construction and are expected to be commissioned before the end of 1982 (See Annex 6, Attachment 6.3): (a) 183 km - 230 kV, double circuit Guayaquil-Paute; (b) 80 km - 138 kV single circuit, Ouito-Ibarra; (c) 154 km - 138 kV, double circuit, Santo Domingo-Esmeraldas; and (d) 107 km - 138 kV, single circuit, Ouevedo-Puertoviejo. 6.06 During the period 1982-85, IINECEL intends to install and commission about 538 km of 230 kV transmission lines, 427 km of 138 kV transmission lines and about 280 MVA step-up/down transformation capacity at different substations. This will allow INECEL to: (a) incorporate the different isolated systems to the SNI network; and (b) deliver the hydro-electricity to be produced by the existing and proposed hydro-power plants (see Annex 6, Attachment 6.3). Subtransmission 6.07 Some of the isolated systems (all of them INECEL subsidiaries) will be integrated into the main SNI network through subtransmission lines (69 kV and 34.5 kV). Therefore, about 1,300 km of 69 kV and 34.5 kV sub- transmission lines and about 450 MVA step-up/down transformation capacity at different substations are to be installed and commissioned during the period 1982-85. Distribution 6.n9 From 1982 to 1985, INECEL aims to provide electricity to about 1,500,000 additional inhabitants in different areas (which represents about 250,000 new electricity consumer services). This would increase Ecuador's electrification rate from 38Z in 1978 to 50% in 1985. For this purpose, InECEL and its subsidiaries plan to: (a) construct new low voltage distribu- tion circuits; (b) extend and Improve existing distribution systems; and (c) implement a two-stage rural electrification program, part of which is being financed by IDB. - 27 - 7. THE POWER MARKET AND ThE SECTOR DEVELOPMENT PROGkAM The Present Power Market 7.01 Ecuador's per capita installed capacity, energy consumption and population access to electricity are among the lowest in South America. 1/ Nevertheless, from 1970 to 1978, Ecuador substantially improved its electrifi- cation level as shown by the indicators in the following table: Capacity Ilstalled/ Consumption/ Electrification Year Inhabitant Inhabitant Rate (X) 1970 51 watts 155 kWh/year 28 1975 74 watts 266 kWh/year 32 1978 122 watts 333 kWh/year 38 About 63Z of the total electricity produced in the country (estimated at 2,600 GWh in 1978) is consumed in the Guayaquil (970 GWh or 37Z) and Ouito (680 MWh or 26Z) areas. 7.02 Ecuador's electric public utilities (INECEL, its subsidiaries, EMELEC and municipalities) currently supply energy to about 622,000 customers, of whom about 162,000 (26% of the total) are customers of EEQ and about 172,000 are customers (28% of the total) of EMELEC. About 73Z of the popula- tion in Quito and about 71% of the population in Guayaquil are currently connected to the public supply distribution system. 7.03 In 1978, total electricity generation amounted to 2,573.5 GWh (of which 2,181.8 GWh were sales and 391.7 GWh were losses and power station use). Industrial customers consumed about 863.3 GWh, while residential and commercial customers used 792.4 GWh and 299.9 GWh, respectively. Public lighting and municipal use amounted to 226.2 GWh. Total electricity sales in Ecuador have steadily increased at an average annual rate of about 13%, from 791.0 GWh in 1970 to 2,181.8 GWh in 1978 (see Annex 7, Table 7.1). Simultaneously, maximum demand has increased from 224.0 MW in 1970 to 564.5 MW in 1978 (see Annex 7, Table 7.2) at an average rate of about 12%. 7.04 In 1978, INECEL's subsidiaries' and EMEIEC's system losses (see Annex 5, Table 5.3), including transformation and distribution losses, power station use, thefts and unaccounted, amounted to 293.6 GWh, or 13% of the utilities' gross generatioul purchases (estimated at 2,277.6 GWh). Some of INECEL's subsidiaries have reached an unacceptable level of losses and/or unaccounted for consumption (up to 35% of gross generation/purchases), mainly due to inadequacies of the distribution systems (overloaded distribution 1/ Consumption per capita and electrification rates of some other South- American countries are, respectively: Argentina 1,236 kWh and 80Z; Brazil 912 kWh and 62%, Chile 927 kWh and 87%; Colombia, 691 kWh and 62%; and Peru 532 kPh and 35%. - 28 - transformers and lines, lack of compensating/regulating equipment - capacitors and voltage regulutors, lack of adequate metering devices and registration methods). A program designed to address this issue is, therefore, urgently required. The Future Power Market 7.05 The Master Plan load forecast was developed after considering the results obtained from alternative projection methodologies: extrapolation of historical and actual electricity consumption trends, correlation with macro- economic indicators, and regional and national forecasts by sectors. Total electricity requirements are expected to increase from 2,912 GWh in 1979 to 6163 GWh in 1986 at an average annual rate of about 11.52 1/ Yzximum demand i8 expected to increase from 658.3 MW in 1979 to 1,355.6 MW in 1986 at an average annual growth rate of about 11%. The generation plant load factor is expected to improve from 50.5% in 1979 to 51.8% in 1986. Details of the energy and demand forecasts are given in Annex 7, Tables 7.1 and 7.2. 7.0O Between 1978 and .1986 the industripl consumption is expected to increase from 34% to 38% of total electricity consumption, while losses and power station use are expected to decrease from 15% to 122. 2/ Otherwise, the structure of electricity consumption is expected to remain basically unchanged, as shown below: x of Total Generation Category 1978 1986 Residential 30.8 31.0 Commercial 11.7 12.2 Industrial 33.5 37.7 Public Lighting and Others 8.8 7.1 Losses and Power Station Use 15.2 12.0 Total 100.0 100.0 1/ This growth is in line with Ecuador's economic projections as outlined in a Bank country study of July 1979 (Ecuador: Development Problems and Prospects) and with the macroeconomic forecasts contained in the 1980-84 development plan. 2/ It is reasonable to expect such reduction in energy losses and power station use because: (a) the bulk of the energy will be transferred through high voltage lines (230 kV and 138 kV); (b) existing subtrans- mission and distribution systems are expected to be improved; (c) INECEL and its subsidiaries are expected to improve the existing methods of energy monitoring and theft control; (d) power station use at thermal plants (which accounts for the bulk of this item) is expected to be reduced substantially, as the SNI thermal generation requirements will decrease when the Paute hydroelectric development becomes operational in 1983. - 29 - Construction Program and Investment Requirements 7.07 In order to meet energy and power capacity requirements during the period 1980-90, IPECEL and its subsidiaries have prepared generation, transmission, and distribution construction programs based on: (a) detailed analysis of the capability of existing gener:ition and transmission facilities and of facilities being added to the existing system; and (b) the results of the short-tern Master Plan optimization studies. The construction program includes the following major works: (a) about 945 MW and 1,220 MR of new generating capacity to be installed during 1980-85 and 1986-90, respectively; (b) about 860 and 980 circuit-kilometers of 230 kV and 138 kV transmission lines to be commissioned during 1980-82 and 1983-86, respectively; and (c) expansion of subtransmission and distribution systems. lDetails of capacity and commissioning dates for the different construction program works are given in Annex 6, Attachments 6.1 and 6.2. 7.08 The investment requirements for 1980-85 (see Annex 7, Table 7.3) are estimated at USS1,640 million (at 1980 price levels).. About US$1,372 million are to be invented-by INECEL in: (a) SNI generation plants (US$829 million); (b) 138 kV and 230 kV SNI transmission lines (US$308 million); (c) 69 kV and 34.5 SNI subtran6mission lines and rural electrification (USS169 million); and (d) studies and general investments (US$66 million). In addition, EMEIEC and INECEL's subsidiaries are expected to invest about US$264 million in their distribution systems. 7.09 INECEL also has estimated the 1986-90 generation program investments at about US$1,200 million. Tlhe 1986-90 transmission, subtransmission and distribution investment requirements would be only defined by February 1982, when the results of the medium-term master plan studies become available. A summary of the sector 1980-90 investment program (not including the 1986-90 transmission, subtransmission and distribution programs) is given below: Sector Investment Program (a) 1980 - 1985 US$ million C1980 ice level) SKI generation program 8Z9 SKI transmission program 308 SNI subtransmission and Rural electrification programs 169 INECEL studies and general investments 66 INECEL's subsidiaries and EMELEC distribution programs 264 Total 1,636 (b) 1986-90 SNI generation program 19200 1980-90 total investment 2,836 - 30 - 8. SECTOR FINANCES Current Financial Situation 8.01 In 1979 total sector investments in power facilities amounted to nearly US$250 million equivalent, of which a substantial part corresponds to the Paute hydro project, currently under construction. By historic standards, this figure is very high, as the sector's revalued gross fixed assets in operation now amount to little over US$800 million equivalent. Current plans call for an even greater investment effort in the coming years. 8.02 Presently, the sector's net internal cash generation is negative. Equity funds are derived mainly from INECEL's participation in oil royalties (over US$160 million in 1979). INECEL, EEO and EMELEC are fairly active borrowers in international financial markets. *1owever, IMECEL has lacked long-term financial planning and borrowing strategies and, as a consequence, it has relied too much on suppliers' credits with fairly short amortization periods, which is resulting in heavy debt service burdens. IDB has made several loans to the sector, and so has the Bank Group (to EEO, see paras. 5.26-5.27). INECEL's subsidiaries tend to rely on INECEL for equity funds and for loans, complementing this mainly with supplier credits. Their borrowing in international markets is very low, and, to a large extent, this is due to the limited ability of local financial managers, to the red tape involved in obtaining approval from the Government, and to the high cost associated with obtaining the required guarantees. 8.03 Annex 8, Tables 8.1 and 8.2, respectively show the consolidated power sector balance sheets and income statements for 1978 and 1979 as estimated by the Bank mission. As of December 31, 1979, the sector had a low debt-equity ratio (38:62 with fully revalued assets 1/ and 46:54 without asset revaluation) which would indicate that, provided revenues are increased so as to yield an adequate debt coverage ratio 2/, the sector ought to be able to finance a substantial proportion nf Fts investment program through borrowings. Investment and Financing Plan 8.04 The consolidated investment and financing plan for INECEL and its subsidiaries is summarized below: 3/ 1/ The highest debt equity ratio corresponds to INECEL (40:60). EEQ and EMEIC have figuLas of 35:65 and 33:67 respectively, while the average for INECEL's subsidiaries (excluding EEQ) is only 8:92. 2/ The Bank mission forecasts are that in 1980 the debt service coverage ratio will be about 0.5. The tariff issue is discussed in paragraphs 8.10 to 8.23. 3/ EHELEC's forecast investments in the same period amount to less than US$50 million (and no financing problems are foreseen), thus the table is representative of the evolution projected for the sector as a whole. - 31 - CONSOLIDATED INVESTMENT AND FINANCING PLAN*. 1982-1985 (In millions of current dollars) Amount % Requirements for Funds Investments in: Hydro generation 693.1 38.2 Transmission 209.3 11.5 Other, operational 241.8 13.3 Other, non operational 119.6 6.6 Studies 73.6 4.1 Subtotal 1,337.4 73.7 Interest during construction 354.1 19.5 Subtotal 1,691.5 93.2 Net working capital 123.2 6.8 Total requirements -1814.7 100.0 Sources of Funds Net operating income 541.5 29.8 Other income (net) (99.9) (5.5) Depreciation 272.6 15.0 Total gross cash generation 714.2 39.3 Less: Debt service (357.4) (19.7) Net internal cash generation 356.8 19.7 Equity contributions: Oil royalties 517.6 28.5 Miscellaneous taxes 10.5 0.6 Other Government contributions 230.8 12.7 Subtotal 1,115.7 61.5 Borrowing (gross) 699.0 38.5 Total sources 1,814.7 100.0 *Figures may not add up because they have beeT rounded off. - 32 - 8.05 The Bank has worked closely with INECEL and with the Government in developing a suitable program financing scheme. The Government is expected to assign over US$1 bii±ion equivalent (more than 602 of which from INECEL's participation in oil royalties) towards equity contributions, and between 1981 and 1985 new loans amounting to about US$800 million are also to be raised from internationil lending agencies, suppliers and commercial banks. Future Finances 8.06 The consolidaced financial projections for INECEL and its subsid- iaries are based on the assumption that retail tariffs will be progressively increased, so as to achieve rates of return (on a rate base composed by average net revalued fixed assets and a provision for working capital of 4% in 1982, 8% in 1983 and 8.5% in 1984 and after. This calls for nominal increases in the average price (inclusive of fuel clause) paid by consumers of 30% in 1981 1/, 34% in 1982, 9% in 1983, and 36% in 1984. 8.07 The rates of return indicated above would enable INECEL to make a contribution of about 20% to its 1982-85 investment program; which is reasonable in view of the magnitude of the works involved. Furthermore, by 1985 INECEL's contribution is expected to have increased to 35%. 8.08 The debt-equity ratio is expected to fall in the period considered, mainly because of the large amount of Government equity contributions fore- casted. This suggests that, once tariffs reach reasonable levels, it may be feasible to finance a larger proportion of INECEL's investment needs through long-term borrowings, simultaneously reducing the sector's dependence on Qovernment funds. 8.09 Several steps would be required to increase borrowing capacity and access to international markets under favorable conditions. One of these is the full revaluation of assets in the manner prescribed by Ecuador's tariff legislation (presumably this would confirm the mission estimate shown in Annex 8, Table 8.1, thus providing additional evidence of the sector's borrowing capacity). Another important measure would be the engagement of independent external auditors, since the quality of the financial statements of INECEL and of its subsidiaries is now very poor. INECEL should also proceed to prepare consolidated financial statements (this would have the additional effect of lowering IDIECEL's debt equity ratio). Financial management should also be improved: INECEL should set up a long term borrowing strategy (including possible refinancing of short term maturities), both for itself and for its subsidiaries, should devise mechanisms to limit the subsidiaries' traditional reliance on INECEL as lender of first resort and should also provide the subsidiaries with assistance in obtaining long term financing. This Would imply a substantial broadening of the scope of INECEL's financial management, and would require the corresponding internal changes. Steps recently taken by INECEL management suggest that they are moving in this direction. External assistance will, however, be required and it is expected that this would be provided by the institutional development and training components of the Bank loan Which is currently under consideration. 1/ Orer the December 1980 level. - 33 - Tariffs 8.10 Ecuador's tariff regime provides for an 8.5% annual rate of return on a satisfactorily revalued rate base, which is adequate. This legislation has not, however, been implemented. Recently enacted measures have, further- more, created some confusion over what tariff adjustment criteria will be applied in the future. Thus, substantive policy changes are required if tariffs are to become adequate means for efficient resource allocation, and to allow a reasonable internal contribution to investment within the sector. 8.11 Over the past 10 years, the average tariff level for all electric power companies in Ecuador has not increased at the same pace as internal inflation (as measured by an index of consumer prices). In contant dollar terms, there has also been a small deterioriation. These results are shown in the following table: ECUADOR - Average Electricity Tariffs - Ctrrent Constant 1.970 Constant 1970 Sucres 1/ Sucres 2/ USS mills 3/ 1970 0.56 0.56 27.2 1971 0.66 0.60 25.3 1972 0.74 0.63 27.5 1973 0.75 0.57 26.2 1974 0.74 0.46 23.0 1975 0.78 0.42 22.5 1976 0.86 0.42 23.5 1977 0.96 0.42 24.6 1978 1.02 0.39 24.3 1979 1.09 0.38 23.3 1980 1.28 4/ 0.39 24.0 1/ Total sales revenues/sales in kWh. 2/ The deflator used in the index of consumer prices given in IBRD, Ecuador: Development Problems and Prospects, page 643, updated to 1979 by the index of consumer prices given in IMF's International Financial Statistics. For 1980 the annual average was estimated as 15% higher than the 1979 corresponding figure. 3/ For calculating the constant US dollar series, an exchange rate of S/20.9 per dollar in 1970 and of S/25 thereafter was used. As the deflator, the US consumer price index uas used (sources, IBRD, World Tables, 2nd ed., 1980 and IMF Financial Statistics; for 1980 the annual average was estimated as 14% higher than the 1979 corresponding figure. 4/ Estimated by IECEL on the basis of the new tariff structure approved for 1980. - 34 - 8.12 If, however, one takes into account that electricity generation in Ecuador is still predominantly (about 75%) from thermal sources, it is quite clear that - given the increases in relative oil prices that took place in world markets since 1973 - tariffs have not kept pace with costs if these are appropriately measured. Due, however, to the significant subsidy which oil derivatives sold in the internal market have (para. 3.05), the electricity companies cost figures significantly underestimate opportunity costs and, therefore, the low tariff levels have not affected the financial integrity of the sector to the degree that could have been expected. 8.13 Annex 8, Table 8.3 shows that, for the power sector as a whole, the financial rate of return in 1978 and 1979 was marginally positive (2.1% and 0.52, respectively). Excluding EK4ELEC (which is the only private company in the sector with a rate of return of 9.5% guaranteed through its concession contract), in 1979 the consolidated sector rate of return fell from 1% to a marginally negative figure. Furthermore, the sector's cash flow had by 1979 dropped to about US$15 million, an insignificant amount in relation to the sector's financing requirements. (If EMELEC is excluded, the figure drops further to about USSi2 million equivalent.) 8.14 The sector's profitability (or, more appropriately, lack of it) worsens dramatically if one attempts to recast costs to reflect international fuel prices. In 1978 the prices of Bunker C and diesel were at approximately one-fourth the international level, which implies z subsidy equivalent to more than US$30 million. Had fuel prices been set at their international level, the average cost per kWh sold would have increased from S/0.90 to about S/1.32. This figure may be compared to an average tariff of about S/l.02kWh. Since 1979 the distortion caused by the fuel pricing policy has increased as world oil prices have risen significantly. We estimate now that the fuel price subsidy during 1980 will amount to about US$120 million. 8.15 On a comparative basis, Ecuador's tariffs (which as of mid 1980 averaged about USS0.05 per kWh) are well below the levels of all Latin American Bank borrowers with a high proportion of thermal generation which are meeting their rate of return or contribution to investment covenants. 8.16 The tariff levels and tariff structures of the 16 companies which constitute the sector vary considerably. In 1979 the average tariff was US$44 mills. However, four systems (including the large EMELEC system and the Latacunga system, directly operated by INECEL) had average tariffs below US$40 mills and in one of these (Riobamba), the average tariff was US$28 mills. In contrast, six systems had average tariffs exceeding US$56 mills/kWh. The national development plan for 1980-1984 sets as a policy goal the attain- ment of a national tariff structure, and the recently approved tariff changes are a modest step in this direction. 8.17 It should be noted that, with the present sector organization, the achievement of a national tariff structure will be a difficult goal to reach. This is because the cost structures of the various power companies differ considerably. While some companies like EEO and EMELEC operate in predominantly urban areas, where the population is heavily concentrated and industry has a - 35 - significant weight, others operate over larger territorial spans, where population is dispersed, average income is low, and industrial demand is not significant. Thus, a mechanism would be required to transfer funds between companies so as to allow them all to meet financing requirements and rate of return targets. The-problem will, however, be partly reduced as the process of regionalization through merger of existing companies, to which INECEL and the Government are committed, continues. 1/ Tariff Structures 8.18 The tariff structure prevailing through 1979 encouraged electricity use by establishing an inverse relationship between demand level and unit prices. For example, EEO's residential rate structure 2/ was as follows: Cost (per kWh) Up to 30 kWh SI. 1.22 31 - 60 kWh SI. 1.12 61 - 100 kWh SI. 1.07 101 - ... SI. 1.02 8.19 This has now been changed and, for the residential sector, there are lower rates for demands below 70 kWh per month and higher (constant) rates when consumption exceeds this figure. For commercial and industrial users, the rate structure still favors the larger consumers. The variance in treatment between companies, however, still remains significant. Tariff Issues P.20 The above analysis and the financing problems faced by the power sector discussed in the preceding section indicate that strong action in the tariff field is required. Such action involves: (a) significantly increasing average tariff levels, (b) further changing tariff structures so as to bring them in line with true economic costs, and (c) reducing the present tariff disparities between the various electric power companies. 8.21 The degree to which average tariff levels yet need to be adjusted is mentioned in paragraph 8.6, based on forecast financing requirements. Tariff structure adjustments would require a marginal cost study. A prelim- inary study of the marginal cost of electricity generation will be prepared by INECEL's consultants, Lahmeyer. Gmbh, under the Haster Plan studies they are currently carrying out (para. 5.10). It is expected that the draft report will be completed by February 1982. 1/ The medium-term goal is to reduce the number of companies from 16 to 9. 2/ Other rates were available for high consumption residential consumers which, subject to a minimum monthly payment, brought the incremental rate per kWh as low as S/. 0.77. - 36 - 8.22 INECEL should review the tariff structures of the power companies on the basis of the study mentioned above and should formulate a strategy to reduce geographical tariff disparities. This would require devising alternative mechanisms for the transfer of funds from the power companies which would have higher-than-rpquired tariffs to those in the opposite situation. R.23 The analysis of the above issues should also look into the social objectives of electric tariff policies. At present residential consumers with a monthly demand of 70 kWh or less are given a preferential rate, which, under the Government's wage and price guidelines, is to remain unchanged during the next two years or so. OG theoretical grounds, social (or "lifeline") tariffs may be justified 1/; however, efforts should be undertaken to ensure the rationale of the levels so determined and of the "cut-off" demand point up to which the social tariffs are applied. 1/ On this matter, see Electric Power Pricing Policy, World Bank Staff Working Paper No. 340, July 1979, page 37 and sr. 37 ANNEX 1 ECUADOR Attachment 1.1 Page 1 of 5 POWER SECTOR NEMORANDUM ENERGY BALANCE 1978 1.- NOMINAL ENERGY DEMAND: 10 Barrels 10 TEP 6/ Sales of Petroleum Products 1/ 21,925.4 2,799.9 Gasoline 8,439.9 995.9 Kerosene 2,834.2 365.6 Diesel 4,682.7 641.5 Residual 4,234.2 605.5 Turbo Fuel 935.6 121.6 Aviation Gasoline 4-2.8 4.8 LPG 2/ 756.0 65.0 Refinery Fuel 3| 1,489.0 212.9 Hydropower (GWM) 4/ 781.5 64.0 NOMINAL COMMERCIAL DEMAND 3,076.8 '076.8 Non-Conmercial Energy 5/ 725.0 NOMINAL TOTAL ENERGY DEMAND 3,800.0 General Note: This table was prepared in order to be able to roughly assess the underestimations of the Energy Balances at the Final Consumer level prepared by INE. 11 Excluded are non-energy petroleum product sales, such as asphalt, solvents, and other oils. Sales include products bought by international shipping and smuggling. Also included are imports of refined products. 21 LPG is obtained from the Peninsula oil fields and from refineries. 31 Estimated at 5% of refineries' throughput. 4/ Estimated at 860 kcal/kwh and 10,500 x 106 kcal/103 TOE. 5/ Estimated at 19% of total energy consumption 6/ Conversion factors used are indicated on Page 5. Tons of oil equivalent. - 38 - ANNEX 1 ECUADOR Attachment 1.1 Page 2 of 5 POWER SECTOR MEWDRANDUM ENERGY BALANCE 1978 2.- EFFECTIVE ENERGY CONSUMPTION - PRODUCTION 10 TOE Commercial Energy Consumption by Finrl /Domestic Consumer (Line 46) 2,248.5 Petroleum Products (Line 36) 2,038.0 (90.6%) Natural Gas (LPG ) (Line 45) 31.6 ( 1.4%) Electricity CLine 35) 178.9 ( 8.0%) of which Hydro 54.4 ( 2.4%) Non-Commercial Energy Final Consumption /(Line 4 minus 0.5xLine 21) 693.9 Total Energy Consumption by Final Domestic Consumer: 2,*942.4 Losses in the Energy System MiLines 14+191234-34) 647.2 Variation in Stocks and Statistical Adjustments ,CDecrease) (Lines 7,44) ( 199.4 Net registered exports (Lines 6+40-43) 7,071.7 Unaccoumted for exports (Lines 41+42) 290.4 Total Energy Production 10,752.3 Non-Energy Petroleum Products (Line 13) 81.4 TOTAL PRIMARY EN1ERGY PRODUCTION 10,833.7 -39 - ANNEX 1 Attachment 1.1 ECUADOR Page 3 of 5 POWER SECTOR MENORANDUM ENERGY BALANCE 1978 103 TOE PRIMARY ENERGY AVAILABLE TO DOMESTIC SYSTEM: Production: 1 Crude Oil Production 10,013.1 2 Public and Private Hydropower generation 64.0 3 Natural Gas (LPG from oilfields a/ ) 31.6 4 Non-comuercial Energy (Wood & Bagasse) 725.0 5 Total Production Primary Energy: 10.833.7 6 Crude oil exports 6,092.7 7 Variation in stocks and statistical adjus ment /(refers to crude oil only) (Decrease) C 225.1) 8 Primary Energy Available to Domestic System 4,966.1 9 ENERGY CONVERSION 10 Refining: 11 Crude oil input 4,145.5 12 Yield of Energy Products 3,851.2 13 Yield of Non-Energy Products 81.4 14 Refinery Fuel 212.9 15 Thermal Electricity Generation: 16 Public Sector 17 Petroleum Products Input 487.0 18 Gross Generation (1586 GWh) 129.9 19 Inefficiency in Generation 357.1 / It has been assumed that half of LPG production stems from natural gas ana that the other is produced in the refinery process. - 40- ANNEX 1 Attachment 1.1 Page 4 of 5 ECUADOR POWER SECTOR SMERANDUM ENERGY BALRNCE 1978 3 10 TOE Thermal Electricity Generation (Cont...) 20 Auto-Producers (Private) 21 Energy Input (50% assumed to be bagasse) 62.2 22 Gross Generation (90X of 225 GWh) 16.6 23 Inefficiency in Generation 45.6 24 Net Energy from Conversion Processes 3,997.7 25 Losses due to Inefficiency in Conversion 615.6 26 Non-Energy Products (derived from Refining) 81.4 27 ENERGY AVAJILABL TO FINAL CONSUMER: 28 Commercial Energy: 29 Gross Electricity Generation 210.5 30 Public: Hydro 62.2 31 Thermal 129.9 32 Private: Hydro 1.8 33 Thermal 16.6 34 Losses in Transmission & Distribution a/ 31.6 35 Net Electricity Sales 178.9 36 Petroleum 2,038.0 37 Production in Refinery 3,851.2 38 Used for Power Generation 518.1 39 Petroleum Products Available 3,333.1 40 Export of Residual Fuel Oil 1,131.7 41 Sales to Tnternational Transport 116.5 C...) al Losses estimated at 15% of gross generation. - 41 - ANNMEX 1 Attachment 1.1 ECUADOR Page 5 of 5 POWER SECTOR NEMORANDUM _ ENERGY BALANCE 1978 103TOE Petroleum (Cont...) 42 Smuggling 173.9 43 Imports of Refined Products 152.7 44 Variations in Stock - Imcrease 25.7 45 LPG (from Natural Gas) 31.6 46 Total Commercial Energy Consumption by Final Consumer 2.248.5 47 Non-Commercial EnerS' 693.9 48 Wood & Bagasse 725.0 49 Less Bagasse used for Electric /Generation 31.1 s0 TOTAL ENERGY CONSUMPTION BY FINAL CONSUMER 2,942.4 General Note: Energy Conversion Factors used in the foregoing tables are those published by U.S. National Energy Information Center - Energy Interrelationships, PEAIB-771166. Page 44, and read as follows: LPG 0.086 TOE/bbl. Kerosene 0.129 TOE/bbl. Motor Gasoline 0.118 " Diesel oil 0.137 Aviation Gasol. 0.113 " Residual PO. 0.143 " Naphta 0.118 " Asphalt 0.167 " Jet Fuel CKero type) 0.130 TOE/bbl. - 42 - ANNEX 2 Page 1 ThE OrL INDUSTRY I. SUPPLY OF FYDROCARBONS Reserves 1.01 Total sedimentary basins extend over an area of 17 million hectares (Mha). Of these, 3.2 Mha have been assigned or contracted with the following firms or consortia: Corporacion Estatal Petrolera Ecuatoriana (CEPE) 2.4 Mha; CEPE-Texaco 0.491 Mha; CEPE-City 0.04 Msa; and CEPE-YPF 0.06 Mha 1/. The undistributed area is divided into 24 blocks in the eastern area and 46 blocks in the coastal on- and off-shore region. Over the decade 1970-80, only limited new reserves were found, aid the level of proved reserves decreased from 1.6 billion barrels in 1972 to 1.2 billion barrels in 1979. 1.02 A detailed analysis of reserves is of high priority and currently an audit is being contracted. New areas will be opened for exploration under the hydrocarbons operations formula (para. 4.12) and secondary recovery projects will be implemented in the main producing fields: Sacha and Shushufindi-Aguarico. The potential areas offer prospects for conventional resources as well as for heavy crudes. ; he national development plan estimates additions to reserves in the amount of 730 million barrels over the period 1980-84, 570 million from secondary recovery and 160 million from new fields. Coastal Area 1.03 On-shore. Little detailed information is available on this region. -ie Santa Elena Peninsula contains the old oil fields of Ancon, Carpet and Cautivo, whose accumulated production amounts to 100 million barrels; annual decline is at 13-14%, and production was 1.5 Mb/d in 1979. 2/ No estimates on remaining reserves are available, although it is thought that 882 of the original reserves are still unexploited. Work is being done to rehabil- itate these fields which produce a 380 API crude with 0.2% sulfur. In addi- tion, geochemical research in the provinces of Esmeraldas and Manabi indicates possible accumulations of hydrocarbons. 1.04 Off-shore. In 1977, the Western Geophysical Co. of America ini- tiated seismic research in the areas of Esmeraldas, Manabi and Guayas; results show some prospects in Blocks 3 and 7. Studies indicated that the geology of the Gulf of Guayaquil is different from that in the Santa Elena Peninsula. In the Gulf of Guayaquil, ADA and Northwest have done exploratory work, and important shows of gas have been found. Reserves of free gas are estimated in the range of 180 to 260 billion cubic feet in the Amistad structure, 1/ 200,000 ha assigned to Northwest are under discussion (para. 1.3). Detailed reserve estimates are given in Annex 2, Table 2.1. 2/ Mb/d expresses thousand barrels per day. 43 - ANNEX 2 Page 2 and additional reserves could be Incorporated from other not yet evaluated structures in Block No. 11. 1/ Eastern Area 1.05 This region contains the most Important actual and potential oil resources. Geological and geophysic studies of the northeastern region are well advanced: (a) the area assigned to the CEPE-Texaco consortium has been explored, although some work remains to be done in the south. Seismic interpretation of pre-cretaceous structures has been initiated and favorable prospects have been detected; (b) the small CEPE-CEPCO area has oeen covered. Only field Joan remains to be developed; (c) CEPE has carried out an important seismic program on its assigned area, by contract with Compaguie Generale Geophysique from July 1976 to March 1979. The results show the existence of stratigraphic traps, which might contain small hydrocarbou accumulations; (d) YPF of Argentils has carried out seismic explorations with no positive showings; and (e) in the southern jungle regions, there seem to be some favorable prospects, but no significant seismic studies were made after Amoco abandoned the research. 1.06 The most Important reserves were discovered in 1969 by the Texaco- Gulf consortium. The four main fields contain 75% of total original proven and probable reserves (see Annex 2, Table 2.1). In comparison with these, all the other fields are marginal. 1.07 Total remaining proven, probable and supplementary reserves amount to 2,02.5 million barrels of which 83.5% are located in the area assigned to the CEPE-Texaco group, and CEPE by itself bolds 15Z of total reserves. In order to develop the smaller fields, important investments in infrastructure - roads and pipelines - must be made. 1/ There is a legal problem associated with this gas. ADA, a joint venture of several companies (Philips Petroleum Co., Bell Oil & Gas Co., Equity Funding Corp., General Exploration Co., and American Ultramar Ltd.), which between 1970 and 1972 drilled nine wells and invested about US$25 million, filed suit before US courts against Northwestern, the company that entered an association contract with the Ecuador Goverment in 1975. This latter contract was also declared extinct in 1979, and at present CEPE proposes to develop the Amistad Field by itself. ANNEX 2 - 44 - Page 3 Production 1.08 The Oriente region had supplied 982 of the country's accumulated production over the period 1972-78 which was 437.2 million barrels. Indeed, in 1979, 99.4% of the 78 (see Annex 2, Table 2.2) million barrels produced originated in only eight fields of this area. The producers were the CEPE- Texaco consortium (98%); CEPE-City (1.6Z); and CEPE (0.4Z). 1.9 For the period 1980-84 the development plan estimates an increase in production to an average of 225 Mb/d, conditioned to the following works: (a) artificial lifting, well reconditioning and secondary recovery in fields Sacha and Shushufindi. It is estimated that, through supplementary recovery, reserves will increase by 570 million barrels and production could increase by 20 Mb/d. (b) incorporation of the following fields: Yuca, Charapa, Dureno, Joan 15.6 Mb/d Bermejo, Coca, Cononaco 14.3 Tignino, Shiripuno, Tivacuno 12.7 Cuyabeno, Pucima 6.0 Prmravera, Yuturi, Tiputini 6.8 1.10 CEPE is revising the daily production forecasts upward (to about 250 to 300 Mb/d), but the Ministry of National Resources and Energy argues that during the transition period significant delays may arise and that maintaining present production rates will demand significant technical and financial efforts. The pace of future activity will also depend on Ecuador's success in attracting foreign interest for further exploration. II. Consumption and Exports 2.01 Annex 2, tables 2.3, 2.4, and 2.5 present basic data on oil consump- tion and refinery processing, which show the following structure for 1979: Product Structure (Z) 1/ Domestic Market Requirements Refinery Yields Gasolines 38.2 25.4 Kerosene and Turbo Fuel 15.1 11.3 Diesel 22.1 15.9 Residual 20.4 43.0 1/ Only the most important products have been included. The total excludes asphalt. 45 - ~~~~~ANNEX 2 Page 4 2.02 The qualitative imbalance enhances the already substantial volumetric problem that the domestic market poses for the oil industry. Total demand for petroleum products rose by'an average of 15% per year, from 29.2 thousand barrels per day (Mb/d) 'In 1973 to 69.2 Hb/d in 1979, and its share in the country's crude oil production increased from 14% to 32X over this period. Qualitatively, the demand for light and middle distillates grew at a higher than average rate, thus increasing the imbalance between refinery yields and the structure of consumption. As a result, refinery operations are not optimal. 2.03 The domestic market requirements cre supplied by all oil producing companies according to their relative share in production. The volume is calculated as that amount of crude oil processed in domestic refineries plus the value of crude oil that has to be exported in order to pay for imports of supplementary products. This latter portion is called "compen- satory crude". Product Demand 2.04 Motor gasoline is the single most important product consumed in the market (382 of total sales). Two grades were traditionally marketed, of which the low octane (80) product has been gradually replaced by medium (83) octane gasoline (special). The special grade gasoline priced at the equivalent of 19 US cents/gallon gained increasing drivers' acceptance for better performance, but its use was also stimulated by quantitative restrictions on the supply of the lower octane gasoline. In July 1980 CEPE introduced a new higher octane gasoline (92 octane), priced at the equivalent of 73 US cents/gallon (almost four times the price of special gasoline), and the Government has indicated that it expects it to drive out the lower priced product in the more affluent areas, thus forcing the higher price on the market. Gasoline sales increased 14.4% per year during the period 1972-79; demand accelerated substantially and reached a peak growth of more than 20% in 1975; the rate seems to have slowed down since. It should be noted that because of the price differential for gasoline between Ecuador and its neighboring countries, an unaccounted outflow of gasoline is taking place. It is estimated that these illegal exports amount to 10 to 15% of domestic- demand. If the consumption figures shown in Attachment 3 are corrected for this illegal traffic, the average rate of growth of domestic demand for the period 1973-78 falls to 11.6% per year 1/. 2.05 Kerosene demand represents about 10 to 12% of total sales. It has experienced a 16.3% yearly growth since 1973, due to its wider use in marginal urban and rural areas, substitution of more traditional fuels, and its utili- zation in industrial installations; Ecuador's price structure favors such use and only restricted availability of this fuel has avoided a more irrational use. 1/ In the Energy Balances, the following statistical differences due to illegal gasoline exports were estimated: 1975, 550,000 barrels; 1976, 753,000 barrels; 1977, 687,000 barrels; 1978, 1,283,000 barrels. AMNEX 2 -46 - Page 5 2.06 LPG has been the fastest growing fuel, especially in urban areas, where it has substituted for gasoline and kerosene in household use. The present policy is to promote its use in other sectors, as supply comes forward from the Shushufindi plant. Research should be directed towards its use in transportation. - 2.07 Aviation fuel sales, particularly turbo-fuels, have increased at high rates. Recent price increases (limited to international sales) should reduce this growth in the future. 2.08 Diesel oil had an average growth rate of about 15% over the period 1972-79 and its participation has remained at approximately 22Z of total oil requirements. A significant part (18Z) of consumption is due to electric use for electricity generation. 2.09 Sxmil-u:ly, residual fuel demand is to a large extent caused by electricity generation requirements (approximately 60% of total domestic sales). Its relatively low participation in total domestic consumption (20%) reflects the structure of the country's economy and the absence of heavy industry. In the long run, it is likely that the share of heavy fuels will not grow significantly, because of hydroelectric development and the introduc- tion of natural gas into the fuel market. Oil Consumption for Electricity Generation 2.10 At present, electricity generation capacity amounts to about 924 MW; about 700 NW or 76% of the total capacity, corresponds to thermoelectric generators which are distributed as follows: diesel engine generators 51%, gas turbines 26%, and steam driven generators 23%. The reduced share of steam generators is due to the existence of numerous small isolated systems which use up important volumes of diesel oil and, if available, kerosene. Annex 2, tables 2.6 and 2.7 provide information on the pattern of fuel requirements used for electricity generation. Diesel oil supplies more than one-fourth of oil requirements of the sector (on a volumetric basis) and residual fuel oil the balance. The precise distribution is not known since some utilities report their fuel inputs as mixtures of diesel and Bunker C without stating their composition. Projection of Future Domestic Demand 2.11 It is important to appraise domestic consumption in the framework of the country's production level. In 1972, domestic demand of 28.4 Mb/d represented 33% of production. In 1973, the sharp increase of production to 208 Mb/d reduced the share of the domestic market to 14%. Since then, produc- tion has stagnated while internal demand has soared to 69 Mb/d in 1979, reducing the exportable surplus to 67.6% of production. If such conditions were to remain unchanged in the future, by 1988 all production would be consumed domestically and long before that time the cost of imports of supple- mentary products would have exceeded revenues from surplus exports. 2.12 The growth rate of domestic demand has declined from an average of 16.1X per year for the period 1973-78 to 12% for 1979, which could mean that a certain level of saturation has been reached. Also measures are being taken to reduce smuggling to reighboring countries. In addition, in the long run the - 47 - ANNEX 2 Page 6 expansion of hydroelectric generation and the interconnection of the electric system, will directly reduce the intake, of petroleum prfducts for generation purposes and indirectly substitute electricity for formerly used household fuels such as kerosene and gasoline. Upon- these facts, the national oil company assumes that the estimated growth rate of 12% per year contained in the development plan may be reduced to approximately 92. RefininR 2.13 Refining operations were started in 1926 and were directed toward the domestic market. Except for short periods of time, domestic production bad to be supplemented by imports of such products as gasoline, kerosene, diesel, jet fuel and asphalt. In the early 1970s, the Covernment decided to parti- cipate more actively in the refining activities which were carried out by private companies. It then contracted the construction of a new refinery, Esmeraldas, of which CEPE is the sole owner. Also in 1974, the Government took over a 12.5% participation in the Gulf refinery and a 24.3553% partici- pation in the production of the Anglo-Ecuadorean plant. 2.14 Capacity. There are four refineries in Ecuador with the following capacity: Designed Volume Processed 2/ Capacity Cagacity 1/ 1979 Utilization (b/cd) (b/cd) (Z) Esmeraldas 55,615 50,259 90.4 Anglo 31,000 28,976 93.5 Gulf 7,000 6,757 96.5 CEPE-Texaco 1,000 1,003 100.0 94,615 86,995 91.9 Source: 1/ "Balance de la Situacion Petrolera del Ecuador" Cuestiones Economicas - Banco Central de Ecuador - 1980. 2/ Boletin de TRidrocarburos - Ministerio de Recursos Naturales y Energeticos - December 1979. The above table shows that in 1979 the average rate of utilization of installed capacity was 922, which is a worldwide efficient level of operation. Figures for the first five months of 1980 indicate that capacity utilization is at 97%. 2.15 Refining Structure. Table 8 refers to refined products processed in domestic refineries over 1972-79. The simplified product slate has changed over time in the following manner: -48 - ANNEX 2 Page 7 1975 1978 1979 Gasolines 39.7% 25.6% 25.4% Kerosene and Turbo Fuel 13.3% 13.0Z 11.3Z Diesel 22.0% 15.8% 15.9% Residual 25.0Z 45.6% 43.0% Source: From data in Annex 2, table 2.8. The information for 1975 refers to production by the Anglo-Ecuadorean, Gulf, and CEPE-Texaco refineries. The first two, located on the Santa Elena Peninsula, were built to process light crudes. When domestic supply of these declined, feedstock was imported in the form of Bolivian crude and Venezuelan reconstituted oil. Today, these atmospheric distillation plants are fed 96% with Oriente crude and the balance comies from adjacent domestic production. By September 1977, the more modern Eameraldas refinery had entered into operation. It is 100% supplied with Oriente crude via the trans-Ecuadorean pipeline. It yields 28% gasoline, 9% kerosene, 16.1% diesel, 31.5% residual, and 11.6% asphalt. 2.16 CEPE's present expansion plans consider the further optimization of the Esmeraldas refinery and the increase of its capacity to 70 Mb/d in 1982 and to 90 Mb/d in 1987. In addition, the two refineries of the Santa Elena Peninsula will be integrated into one production system with a global capacity of 45 Mb/d (a 7 Mb/d iacrease from present level) and mnited to an olefin based petrochemical complex. The date for this development has not yet been defined. Also a new grass-root refinery with an initial capacity of 75 Mbld is planned to start operations in 1984. The localization of this facility has not yet been determined. Projected installed capacity is as follows: 1980 90,300 barrels per day of operation 1981 90,300 " e i nf 1982 105,300 " n n T V 1983 105,300 " " 1984 180,300 i " * Balance of Refined Products on the Domestic Market 2.17 Although present refining capacity greatly exceeds the volumetric requirements of the domestic market (94 Mb/d vs 69 Mb/d), an important imbalance exists due to the qualitative difference in the product slate. Table 9 lists the imports of products that were necessary over the period 1972-79 to satisfy the domestic market. For 1979, they represent 10.8% of all fuel sales and 14.2% of gasoline requirements. The volume decreased substan- tially when the Esmeraldas refinery entered into operation, but significant volumes of gasoline, kerosene, diesel oil and LPG continue to be imported. ANNEX 2 - 49 ~ Page 8 2.18 Once the LPG pipeline enters into operation in 1981, that product will be available in excess to domestic requirements. Gasoline supply, however, will continue to be in short supply over the next few years until new conversion facilities are constructed in existing refineries. However, in the longer run, consumption of middle distillates will increase due to wider use in transport and industry. For this reason, CEPE foresees a deficit of this product in the second half of the decade, and the second expansion phase of the Esmeraldas refinery is to include conversion facilities of residual oil into middle distillates, thus reducing the surplus of heavy ends. 2.19 Price differentials between clean products and residual fuel oil are likely to become larger. CEPE has attempted to reduce the present deficit of light products by contracting refining capacity in the Caribbean; shipping these back and selling the surplus products in the market. However, due to the high shipping.costs and reduced storing facilities in Ecuadorean ports, this operation has not been completely successful. 2.20 The five-year development plan gives the following provisional .igures for the pr duct balance, in million barrels per year: Refining Consumption Exports Imports 1980 33.2 26.3 8.8 1.9 19R1 33.7 29.4 8.2 3.8 1982 38.6 32.8 9.6 3.8 1983 49.1 36.7 13.4 1.1 19R4 63.7 41.3 23.0 0.7 TOTAL 218.3 166.5 63.0 11.3 Source: CONADE, 1980-84 Development Plan. Exports 2.21 Crude oil exports in 1979 were as follows: Compensatory Export of Exporter Direct ExrDrts Exports Royalty Total Exports (Thousands of barrels) CEPE 28,144.3 2,991.5 3,093.0 34,228.8 TEXACO 8,301.2 1,794.8 - 10,096.0 CITY 344.2 54.4 - 398.6 CEPE-CEPCO 18.2 - 18.2 TOTAL 36,789.7 4,858.9 3,093.0 44,741.6 Source: Boletin de Ridrocarburos - Ministerio de Recursos Naturales y Energeticos - December 1979. ANNEX 2 -50 - Page 9 The main markets for Ecuador's crudes in 1979 were the Netherland Antilles (4R%), Panama (21%), USA (16%), and Chile (IIX). This distribution has changed substantially from former years, when a higher volume was sold to final markets. Table 3O gives export figures for 1972-79. 2.22 In 1979 7 mlllion barrels of fuel oil were exported, 91% to the USA and 8% to Pexico. Additional exports of diesel and fuel oil in the form of bunkers are included in domestic sales' statistics. Transport and Storage Facilities 2.23 There is a need to improve and expand domestic facilities to handle petroleum products. The development plan establishes the following targets: Pipelines: La Libertad-Guayaquil: extension 243 km with a capacity of 42 Mbld Alausi-Cuenca: extension 120 km with a capacity of 10-Mb/d Maritime terminals: Esmeralda and La Libertad. Storage capacity at refineries and distribution centers: Gasoline: 559,643 barrels Kerosene: 202,173 " Diesel: 471,117 n LPG: 1,433 tons III. Financial Aspects of the Oil Industry Fiscal Policy 3.01 The oil industry is subject to the Hydrocarbons Law and to various decrees and regula'.ions. The most significant provisions affecting the sector's finances refer to royalties, unified income tax, distribution of oil revenue and industry profits. They are discussed below. Royalties 1/ 3.02 Royalty payment is levied on gross crude production and, since February 20, 1979, is paid in kind. The rate varies from 12.5% for a pro- duction level of less than 30 Mb/d to 18.5% when production exceeds 60 M/bd. The average rate in 1979 was 17.4%. 1/ Article 49 of the Hydrocarbons Law of 1978. ANNEX 2 - 51 - Page 10 Unified Income Tax 1/ 3.03 In 1975, a unified income tax was established for private operations. This tax is equal to 87.31% of net income, including revenue from exports and domestic sales, less ro:alty payments and authorized costs. 3.04 The national oil company (CEPE) retains 282 of net income, once royalty payments and other non-industry related charges are deducted. 21 Distribution of Oil Revenue 3.05 Until recently, all fiscal revenues were earmarked. Royalties were distributed in the following manner: 47% for the Instituto Ecua-riano de Electrificacion (INECEL), 32 for Provincial Councils and 502 for National Defense. The proceeds from income taxes were allocated automatically to 16 different organizations; the National Development Fund (FONADE) received the largest share (43.6% of income tax on private operations and 47.7% of CEPE's remaining distributable income)-, followed by the Natiohal Budget (33.3% and 36.5%, respectively). Other destinations included diverse funds, for purposes such as electrification, housing, health, education and military agencies. 3.06 In February 1980, it was established that earmarked participa- tions would be calculated based on a value of USS23.50 per barrel of exported crude oil, a value of US$17.50 per barrel of heavy fuel oil, and on current revenues from domestic sales. 3.07 The income received above these established limits is to be directly allocated to the Treasury, exception is made of a US$80.2 million allocation in 1980 and USS120 million in future years for Provincial Councils and Mhni- cipalities. This income should increase the central government's capacity to improve the use of petroleum revenues for development purposes. Profits of the Oil Industry 3.08 It is estimated that the main private operator, Texaco, earns about USSl.45/bbl of crude oil produced, which represents an internal financial return over assets, at book values, of 34.3%. 1/ For private companies, according to Decree No. 982 of November 21, 1975 and modified by Decree No. 2059 of December 15, 1977. For CEPE, Decree No. 1678 of July 27, 1977, modified by Decrees Nos. 218 and 337. 2/ These re-er to a 8% deduction for National Defense and a US$3/bbl reduc- tion, which is to pay debt service incurred for the purchase of military equipment. ANNEX 2 -52 - Page 11 3.09 Although the annual report for 1979 was not yet published when the mission visited Ecuador, it is possible to estimate CEPE's net revenue on oil production at US$1.57 per barrel. This preliminary figure must be corrected for a USSO.20/bbl allowance which CEPE receives for each barrel of crude oil exported by private operators, and which is used for financing the company'sa participation in explorat'on and exploitation activities. Furthermore, in July 1980 the Government agreed to transfer to CEPE an amount equal to US$0.20 per barrel fron its own oil receipts, to improve CEPE's short-term financial situation, which is considerably impaired by the cost of supplying the domestic market. Financial Requirements 3.10 The development plan proposed a US$1,300 million investment program for hydrocarbons of which 86Z would be financed by CEPE. Approximately 57% of these resources are to be allocated to exploration and development, 312 to refining, 6% to transport and storage facilities, and the remainder to gas development. 3.11 When the mission visited Ecuador, CEPE was revising its investment requirements to a total outlay of approximately US$4 billion for the period 1981-85. Under present pricing conditions, CEPE's annual net income would vary from USS285 million in 1981 to approximately USS323 million in 1985. These figures suggest that the company's own financial resources would probably be adequate .z finance the original investment figures proposed in the devel- opment plan. However, if the stepped-up program is to be executed, a large financing gap would ensue. IV. Policies and Issues 4.01 The economy of Ecuador depends to a large extent on its oil industry. In 1979, it generated 15.5% of the nation's GDP, contributed 18.3% to public revenues, and earned 55% of total export receipts. Rowever, these contribu- tions have been declining since 1976, because of the stagnation of production, the impressive growth of domestic consumption, and the internal pricing policy that is subsidizing the other sectors of the economy at the expense of the oil industry. * 4.02 The Development Plan for 1980-84 seeks to increase foreign exchange and public sector revenues by revitalizing, among others, the energy sector. The objective of the plan is to achieve an average annual growth rate of 6.5% for the economy as a whole and of 13.5% for the energy sector, To this end, total investments in the economy were estimated, in constant 1979 terms, at about USS5 billion, of vhich 31% would be in energy. 4.03 The strategy for the development of the hydrocarbon sector encom- passes demand management and pricing policies, revitalization of production capacity and other facilities related to supplying the market, and, finally, institution building to Improve planning, operational and managerial capabil- ities. -53 - ANEX 2 Page 12 A. Domestic Pricing - Subsidies 4.04 Although somewhat understated in the development plan because of the sensitive nature of the subject, the pivotal element of the energy policy is demand management, through progressive adjustment of domestic petroleum prices to their opportunity cost values. The present pricing policy stimulates indiscriminate growth of consumption and jeopardizes the development, not only of the energy sector, but of the economy as a whole. 4.05 In 1973 the prices of petroleum products were set above interna- tional levels. Since then, they have remained mostly unchanged and thus, in real terms, the cost of fuels to the consumer has decreased by more than 120% relative to the general price level. In relation to mid-1980 levels, domestic fuels are priced at less than 20% of world market values. 4.06 Crude oil is supplied to the domestic market at an average price of US$1.55 per barrel; this covers production expenses, pipeline fees and.a 20% profit margin for the producing compahies. If compared to the mid-1980 price for Ecuadorean crude oil in international markets of US$35.50 per barrel, the domestic level represents 4.4% of the opportunity cost. 4.07 For 1979, the weighted average price for the barrel of products sold on the domestic market was US$7.033; consumption tax was US$2.076 and sales revenue for the national oil company CEPE was US$4.957 (or US$0.118/gallon). Assuming a zero value for crude oil and no product imports, the technical cost of supplying a barrel of products for the market was U'$5.103; thus, CEPE incurred a net loss of US$0.146 per barrel. In addition, imports of clean products amounted to 10.8X of total domestic sales; assuming an import cost of USS4O/bbl, the subsidy for this concept alone was US$4.32 per barrel. 1/ As a result, domestic prices would have to be increased by 902 only to compensate CEPE for the current technical costs incurred in supplying the domestic market. For 1979, the annual subsidy on this basis may be estimated at US$113 million. 4.08 Petroleum is a non-renewable and limited resource. Its depletion must be compensated by an equivalent expansion of the nation's economic capacity and the long-term pricing policy should attempt to reach the oppor- tunity cost value, i.e., must reflect international market levels and serve as an instrument of economic development. In order to achieve this objective, current domestic prices would have to be increased by more than 500%. On this basis, it can be estimated that the subsidy level is in the order of US$900 million per year, which represents 8% of the GDP for 1980. Although it is recognized that such a gap cannot be bridged in the short term without considerable economic and social disruptions, over the longer period such a policy would contribute to a more equizable distribution of the nation's income, promote the development of a wider energy base and, finally, orient the consumption of petroleum products towards higher value end-uses. 1/ "Compensatory crude oil exports" allow CEPE to recover the loss. For technical cost estimates, see Table 6. 54ANPEX 2 -~ 54 ~Page 13 4.09 In order to assess the effective impact of higher fuel prices on the economic and soclal structure of Ecuador, a thorough analysis is required. Preliminary data shows that the economy should be able to absorb increased costs. It is estimated-that energy represents less than 5Z of total inputs in industrial and basic food products; exports of manufactured goods are less than 8% of total exports; a 100% increase in gasoline prices would increase the operating costs of a bus by 5%; only 102 of the population is served by the private car fleet that consumes a large part of the more than 8 million barrels of gasoline that the market demands. 4.10 The Government has stated its commitment to increase domestic prices in a gradual and progressive manner. In January 1980, bunker prices were increased: above a certain quota, turbo fuel was increased by 65Z to US$1.39/gallon and aviation gasoline to US$1.70/gallon; also, prices for diesel and fuel oil for maritime use were increased twice during 1980 to about 45% of international levels. B. Supply Strategy 4.11 The targets for increased crude oil production and addition to proven reserves are subject to a reassessment of reserves. Present state of knowledge on discovered hydrocarbon fields is not accurate enough to allow the definition of technically optimum production levels, to appraise supple- mentary recovery projects and to establish priorities in the development of already discovered fields. 4.12 Renewed exploratory efforts are required to define long-term policies for the petroleum sector. The plan proposes to assess 90% of the sedimentary basins during 1980-84. For this purpose, the Government has announced that it will invite qualified private operators to join efforts with the national oil company under the hydrocarbons operation contract formula. As indicated, the operator is to carry out exploration and exploitation activities at his own risk and, if sources for commercial production are found, he will be allowed to recover his investment, with an adequate profit margin. The definition of what may be considered an "adequate" margin is likely to be an important issue in the negotiations and, therefore, some time is to elapse before effective private participation in exploration can be attracted. 4.13 On the other hand, in the past the national oil compaDy has not been very active in exploration. This activity requires highly experienced personnel, and such a group can be formed only over the long term. Therefore, it is considered that even if CEPE's budget constraints are lifted, there is likely to be a gap between the supply objectives of the development plan and the actual performance of the industry. Development of Alternative Energy Resources and Conservation 4.14 The development of alternative energy resources is linked to the oil sector, for the following reasons: (a) substantial investments are required to bring them forward and the oil industry is the only likely source to generate ANNEX 2 Page 14 the funds required; (b) the economic feasibility for incorporating these resources into production requires that prices for liquid fuels be increased; and (c) hydroelectric power and natural gas will affect the demand structure for petroleum products and, therefore, the oil industry must introduce the appropriate provisions in its long-term investment policy. 4.15 Moreover, the economy currently makes inefficient use of energy. In order to enhance conservation in all sectors, adequate incentives have to be given. The development plan lists the following measures that are to be implemented in order to reduce the growth rate of demand for gasoline: (a) elimination of smuggling to neighboring countries through rigorous controls 1/; (b) substitution for diesel in trucks; (c) prohibit!on on the import of large cylinder cars; (d) tax on vehicles according to cylinder capacity; and (e) improvement of public transportation in urban and inter- urban sreas. Institutional Strengthening 4.16 The objective of a balanced energy policy should be to adjust energy production to the long-term requirements of economic growth and to the resource base of the country. The Government is cautiously developing a strategy toward this end and is attempting to strengthen its institutional structure. 4.17 In the first place, the Excecutive is promoting a better understand- ing of the energy issues by Congress and the public in general in order to obtain its backing for a revision of the Oomestic pricing policy. As indicated in the previous paragraphs, this is fundamental for increasing the financial surplus generated by the oil industry and required to promote economic devel- opment. 4.18 Second, the Executive is striving for a unification of oil revenues in the National Treasury. To a large extent, these revenues are earmarked and automatically allocated to autonomous institutions, with the consequent inefficient use of financial resources. 4.19 The development plan recognizes the need to promote energy produc- tion, not only of petroleum but of hydroelectric power, natural gas, and other resources. There is, however, no thoroug'i analysis of the interaction of these developments. This shows that there i3 a lack of coordination among CEPE, INECEL, the Instituto Nacional de Energia (INE) and the MRNE. Energy conservation has not been properly addressed and there seems to be a limited interest in fostering overall energy CEPE, INECEL, INE and the MPNE. Energy conservation has not been properly addressed and there seems to be a limited interest in fostering overall energy planning, although in principle, these issues are under the responsibility of the IDE. 2/ There is also a need to '/ Gasoline prices for regular grade are US$0.75/gallon in Colombia and US$0.80/gallon. in Peru. This compares with less than US$0.20 for Ecuadorean gasoline at the border. 2/ INE's budget is estimated at approximately USS1.6 million per year. ANNEX 2 - 56 - Page 15 work out an understanding between the MRNE and CEPE, by which the Ministry retains its policy-maklng and supervisory functions, but leaves CEPE with the necessary authority to operate-as an autonomous corporation. ANNEX 2 * 57 _ Table 2.1 ECUATO). POWER SECTOR MMORANDUM OIL RESERVES (Thousand barrels) Proved Original Acci=ulated Re.-aining Additional Supp1eLrentc: Volu-es PToduction Proved Probable Recoverv CEPE-TE!XACO: 1.513,059 429,884 1,083,175 236,105. + 372,600 Auca 95,482 14,135 81,347 84,804 - Lego Agrio 191,178 67,785 123,393 - - Sacha 633,784 147,849 485,935 - Evaluati:: Shushufindi-Aguarico 559,651 199,905 359,656 - 372,600 Atacapi 8,572 - 8,572 - - Para'uaco 12,403 120 12,283 - - Coca 700 - 700 904 Cononaco 5,000 - 5,000 35,000 - Dureno 1,858 - 1,858 . 7,350 - Tuca 4,431 - 4,431 108,047 CEPE-CEP!CC 27.440 839 26,601 - - Fanny 7,058 ( - ( - - Mariann 19,123 ( 839 (25,342 - - Joan 1,259 - 1,259 - - CEPE: 63,831 - 63,831 242,824 __- 18 - D. 3,502 11 3,502 - Charapa 3,693 - 3,693 - _ Capiron 23,000 23,000 - Other fields 33,636 - 33,636 43,870 - Bexaedo - - - 29,800 - Cuyabeno - - - 62,504 - Puocim - - - 57,527 - Tiputini - - -49,123 - TO-TL O.IEzarT 1,604,330 430,723 1,173,607 478,929 570,000 U Started production early 1979. Source: Article: Situaci6a Petrolera en el Ecuador, by Abelardo Pachano. Published in Cuestiones EconSiicas - Banco CorLtral de Ecuador - January 1980 Author quotes as source: DireccioG de Producci6a de CEPE - 1979. ECUADOR POWER SECTOR MKEORANDUH NATIONAL PRODUCTION OF CRUDE OIL (barrels) 1972 1973 1974 1975 1976 1977 1978 1979 Janitary 98,696 61478.096 7'472:698 4'390.783 5138*1.960 61716.907 51421.042 61763.596 February 94.039 5'955.155 6'840.268 41831.542 51328.402 51788,639 41680.261 6'128.982 'l,rch 96.765 61927.111 7'397.878 835.946 61560.820 4'880,152 5'887.44 71'059.548 April aD.717 51636.878 1251,573 61313.591 51997.234 51270.155 61231.199 6'5U.836 - aly 423.162 41782.260 6'984.765 4'414.038 61297.122 51393.261 61221.934 61625.202 June- 1'142.698 51848.125 6'065.443 41185.607 31408.986 51895.937 61653.813 6'304.675 -JuIt . 11377.966 6'545.940 31462.986 4'475.632 31512.129 41727.104 61419.028 61563.107 August 11U85.637 6'222.330 4'482.326 6101V.312 61242.804 5'1780.739 61257.419 6'606.917 September 41260.174 61916.993 4'467.229 5159V.812 61506.012 4'277.433 6'207.191 6'329.362 October 5'682.418 7'074.834 3'864.866 51616.853 6'200.875 5'400.877 6'450.060 6'624.702 November 6'701.670 6'750.859 21188.382 6'135,082 6'409.306 61320.731 6'589,544 6'1380350 December 61681.638 71011.001 41153.591 5'961.429 6'420,528 61145.790 6'607.%09 6' 093.088 T 0 T A L : 281535.570 761149.582 641632.005 58118.3.627 68'266o098 66'597.725 731626.143 78'064.367 surowth i- 166.9 . 15.1 .9.0 1691 214 10.6 6.0 Source: CEPE U I I~~~~~~~~~~~1 ECUADOR POWER SECrOR HEMORANDUM NATIONAL PRODUCTION OF OIL DERIVATIVES (barrels) Change Z 1972 1973 1974 1975 1976 1977 1978 1919 1978. 1919 GASOLINE (63 OCT.) 11302.594 1'311.572 1'285.311 16399,939 11246.034 846.883 687.001 712.372 3.7 GASOLINE (80 OCT.) 21301.964 2179L785 31544.225 41280,476 41833.450 51297.134 61605.543 70448.33 3 12.B 0 TA I : 1'604.558 4~110.35 7 4'82g.536 5'680,415 6J079.404 6'14A,011 11u2E5.t 8'160.725 11.L9 KEREX 416.952 399.511 593.375 11429.010 11914.583 2'381.257 2'171.232 21497.551 8.1 T11M FUEL 811.899 920.264 31113.021 466.259 466.905 537,367 965.059 11154.713 17.2 DIESEL OIL 2'313.717 21720.J21 960.456 311A.606 21885.821 31214.321 41517.915 51075.84 12.3 RESIDUAL 31002.397 31161.023 31277,042 31582.004 31775.653 61602.227 131018.09) 131653.546 4,9 RIIR SOLVENT 4,025 8.044 3.454 6.957 10.925 14.526 15.631 17.520 12.1 INE.RAL TIMPENTINE 7,378 8.390 9.425 7.998 9.015 13.55' 22.167 15.968 -2.0 SPRAY OI 159.326 169,586 91.453 127.254 131.626 104.049 64.077 74.938 17.0 SOLVENT N2 1 . - - 353 . -. 6.247 100.0 ASPHALT * 20.006 415,255 482.197 1 6 1 .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 ... .. LIQUID GAS 50.406 49.992 63.187 52.768 40.007 227.920 734.929 814560 10 T 0 T A L: 10'370.658 11'539,488 121947,749 14' W.271 151314.099 19'17,597 29'781.S22 311953.825 7.3 SOURCE;,CEPL SUCE: CEPE -l-i i ECUADOR POWER SECTOR MEMORANDUM SALES OF PETROLEUM DERIVATIVES 1972-1979 (barrels) 1972 1973 1914 1¶95 1976 1977 197a 1979 TOTAL Change Z 19718.179 GASOLINI (63 OCT.) 11307.578 11289.783 1'234.?27 11275.775 11286.720 927.303 664,465 66'.A16 8'650.82? (0) GASOLINE (80 OCT.) 21397.684 21835.629 31498.562 4i44f'7l 51323.916 61569.347 71775A65 8'862.608 4117G5.924. 14 TOIAL: 31705.262 41125.412 41733.289 5'71f.488 61610.636 71496.650 81439.930 91527.084 5G'356.751 12.9 KEREX (N) 936.966 11078.427 11198.748 1146t..316 21030.761 21484.537 21834.210 21692.658 141721.623 . 5.0 DIESEL CIL 21115.459 21513.249 21843.913 39201!.202 3'617.356 41355.229 41682.667 51514.066 281851.141 17.8 RESIDUAL 21149.727 21225.775 21400.742 31040.372 31162.513 31343.389 41234.205 POL95.O 251731,612 20.3 LIQUID* GAS 117.820 242.594 228.685 304.628 405.446 570.825 755.984 946.752 31572.134 25.2 TURBO FUEL 238.437 239.056 312.079 43:.605 379.123 638.343 935.648 11071.918 41247,049 14.6 AVIATION GASOLINE . 127.512 94.440 16.682 5(.248 40.113 46.657 42.n9 36.305 520,136 . 15.1 SPRAY OIL 163.502 138.375 117.012 11.869 121.337 116.590 43.580 72.611 890,876 66.2 01i.ERAL TURPENTI11E 3.034 4.853 5.618 ?.641 7.666 11.657 17.038 16.519 74,116 - 2.7 SOLVENT No. 1 2.603 3.323 3.773 '.404 4,437 6.302 6.716 6.742 . 39.30 0.5 d i4 RUiEER SOLVuET 5.888 7,055 41501 6.561 9.410 11B.i8i 11.760 17.796 74W152 51.3 3 . r ASPHALT - (0) (0) (0) to) (0) 479.170 550.098 263.468 11292,736 . 52.1 n g 4.1 TOTAL. 9'566.210 101673.359 121005.072 1436:'!.334 161388.798 191560.530 221554.615 25'261.068 1301372.026 12.0 SOURCE: CEPE t ~ ~ ~ ~ ~ ~ ~ ECUADOR POWER SECTOR MEMORANDUM Structure of Petroleum Consumption (M) 1972 1973 1974 1975 1976 1977 1978 1979 Mlotor Gasoline 38.7 38.7 39.4 39.8 40.3 39.3 38.4 38.1 Kerosene 9.8 10.1 10.0 10.2 12.4 13.0 12.9 10.8 Diesel Oil 22.1 23.5 23.7 22.3 22.1 22.8 21.3 22.1 Residual Fuel 22.5 20.9 20.7 21.2 19.3 17.5 19.2 20.4 LPG 1.2 2.3 1.9 2.1 2.5 3.0 3.4 3.8 Turbo Fuel 2.5 2.2 2.6 3.0 2.3 3.3 4.3 4.3 Aviation Gasoline 1.3 0.9 0.6 0.4 0.2 0.2 0.2 0.1 Others 1/ 1.9 1.4 1.1 1.0 0.9 0.9 0.3 0.4 :' TOTAL: 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1/ Does not include asphalt. SOURCE: Based on data from Attachment No. 3. *IWADOR POWER SECtOI IEKORMIWDU Petroleum Congumption of Pover Sector (Barrels and Percentages) 1972 1973 1974 1975 1976 1977 1978 1978172 Volume 71 Volume % Value % Volume X Volum % Volume 7 Volume 1 Keruuene 71,687 5.9 11,904 5.1 109,203 7.0 140 - 1,925 - 131,720 4.3 42,753 1.2 (40.4) Diesel 240,819 19.9 369,751 26.4 404,585 25.9 354,981 19.6 629,794 26.4 826,597 26.9 839,100 24.4 248.4 Resldual aO0,608 74.2 957,958 68.5 1,047,690 67.1 1,099,178 60.8 1,194,558 50.0 1,319,023 42.9 1,562,862 45.4 73.5 Hixture Il - - 355,006 19.6 562,020 23.6 796,141 25.9 999,781 29.0 - TOTALI 1,213,114 100.0 1,399.613 100.0 1,561,478 t1o.0 1,809,305 100.0 2,388,297 100.0 3,073,551 100.0 3,444,496 100.0 Anzue I Increase (X). ) 15.4 11.6 15.9 32.0 28.7 12.1 19-0d u Hixture of Diesel and Residual. Relative copousition not known. SOURCEV Based on Informa Anuol de Actividades INECEL, 1978. W b t , t -63- ANNEX 2 Table 2.4. Page 4 of -4 ECUADOR 'POWER SECTOR NEMORANDUM Power Sector Consumption of Fuels (as Percentate of Total Domestic Demand for Specific Fuels 1/ Kerosene Diesel Residual Residual + Mixture 2/ 1972 7.7 11.4 41.9 1973 6.7 14.7 43.0 1974 9.1 14.2 42.2 - 1975 - 11.1 36.2 47.8 1976 0.1 17.4 37.8 55.5 1977 5.3 19.0 39.5 63.3 1978 1.5 17.9 36.9 60.5 1/ Calculated for each product as: (Electric Consumption/Total Domestic Sales)*100. 2/ Composition of mixture unknown, However, it is safe to assume that a large percentage is heavy fuel oil. SOURCE: Data from Attachments Nos. 6 and 3. ECUADOR POWER SECTOR MEHORANDUM -. .... IMPORTS OF.PETROLEUH DERIVATIVES AND OF BLENDS 1972-1979. . .(Dairrla) 1972 1973 1974 1975 1976 1977 1978 1979 GASOLINE - 258.846 1'679.279 1'294.178 1'356.054 AVIATION. OA$SLTfE 117.644 84.657 76.131 63.855 47.263 49.o48 . 28.122 50.936 TURBO FUEL - - a* - . - - . - 58.864 265.949 93.181 KEREX -.- -.- -.- -.- 17.895 177.057 199.427 391.856 a DIESEL OIL -.- - . . 203.305 828.561 1'119.S92 405.866 840.707 LIQUID GAS 55.068 94.949 163.843 250.436 393.023 371.450 93.318 9i.656 ASPHALT - - - . - - - 226.486 254.01 b BLENDS 8'529.558 6'868.068 9'1424.876: 8'264.762 8'004.832 5'173.276 T 0 r A L 8'702.270 7'047.674 9'664.850 8'782.358 9'835.770 9'089.692 2'114.092 2'731.209 SOURCE: CF.PE * *1. S.. l 1 .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .% . 3 ECUADOR POWER SECTOR HEKOUAIDUH EXPORTS OF ORIENTE CRUDE, 1972-1979 (barrels) 1912 193 1974 1915 1976 1m 1978 199 lCIl Change Z; i531979 JANUARY ., 51440.795 6'480.056 S1445,782 I14,1.989 6'01b.815 31114.,89 31081.279 331168.605 - 1.1 FEBRUARY .. 51231.365 71017.331 4'142.061 41568.854 S 1315.45$ 2'922,651 2'999.605 311597.321 2.6 MARCH , .,. 61818.101 61773.514 - 61233,188 31627.C01 31932.665 4"993.995 32'378.52. 27.n APRIL ... 51393.125 71012.281 51739.317 5'408.364 41525.486 41170.621 31140.845 361M2.339 . 10.3 ILAY .. 31914.104 60768.995 31563.060 61576.515 51245.431 31922.981 31790.085 331781.831 - 3.S JUNE , .. 51335.047 51966.063 3'650.586 218',314 4'8277.732 '158.242 41004.09 30'322.015 . 3.1 a' JULY 71053*292 21204.657 31579.711 21743.6417 31441.429 3l173.984 3'E62.914 26'159.634 5.4 AUGUST 1I169.465 51207.716 41161.339 61082,159 51161.112 31569.345 3168L7e82 31878.255 331397.933 5.1 SEPTEMBER 44.80,609 61471,722 4'111.633 40569.205 51,30.789 21902.726 3'721.3CA 41437.747 36'125.713 19.2 OCTOBER 51488.978 71203,214 31119.123 51444,952 517684,35 31134.600 31024,617 41423.677 371667.596 46.3 NOVEMBER 61696.510 51928.058 11662.393 41773.936 61925.574 41140,712 31996.227 21562.761 371286.176 - 36.0 DECEHBER 61646.028 71128.112 31805.631 51763.568 51387.965 41002.315 41673.0on 3'196.656 401603.422 .-31.6 bDOAI. : 241961.590 711125.551 591233.081 521091.937 611509.866 501453.106 445799.140 71.71.920 4A3'949.191 _ O.c6 SOURCE: CEP: I I I *1*~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ - 66 - ANNEX 2 Tabla 2.6 Page 1 of 2 ECUADOR POWER SECTOR MEMORANDUM ESTInMTION OF SUBSIDY TO DOMESTIC NARKET a/ US$/gallon US$/Barrel Weighted average retail price 0.167 7.033 Excise tax 0.049 2.076 Sales revenue to CEPE 0.118 4.957 Technical production cost 1/ 0.109 4.593 Import of refined products 2/ 0.095 4.000 State Cost Subsidy 0.037 1.560 Direct Subsidy paid by CEPE 0.086 3.636 a/ Calculated on the basis of actual costs. 1/ Includes crude production costs, refinming, transport and distribu- tion costs as indicated in Attachment 6, -page 2. This figure. does. not value the crude oil itself. In this calculation, the barrel cost has been weighted by 0.9, in order to incorporate the 10% of imports. 21 The imbalance between the structure of consumption and of refining creates the need to import increasing volumes of white products (gasoline, diesel and others of less significant). It is estimated that imports represent 10% of demand and have a landed value of US$ 40.0 per barrel. - 67 - AN.,XC 2_ Table 2.6 ECUADOR Page 2 of 2 POWE SECTOR MEHORANDUM T ECHNICAL COSTS _ US$ per barrel (a) Crude production cost 0.917Y Pipeline transport 0.226 2t karitime shipment 0.154 Refining 1.800 Ez-Refinery cost US$ 3.097 (b) Handling cost of products at Esmeraldas Refinery Terminal 0.379 Transport of products 0.758 Storage of products 0.148 Mhrketing costs 0.165 -Distribution cost 0.556 Post-Refinery Costs 5 US$ 2.006 11 Average weighted exploitation cost estimated by CEPE. 2/ Fixed by Decree No. 1056 of Decemberx1975. 31 Transport for portion of crude refined at Santa Elena. Unit shipment cost from Balao to La Libertad is estimated at US$0.3S5/bbl. 41 Estimated by CEPE as average of all three refineries; Esmeraldas US$2.42 vs. US$0.87 for Angl and Gulf. 5/ CEPE-Commercial Department. ECUADOUR POWER SECTOR HEHORANIJH RETAIL PRICES OF PETROLEUH DERIVATIVES (1980) (Sucres per gallon) ,GASOLI&EMR ,GASOLIMEUjGjj. KEROCEPE DIESEL LPG (SI kg) CARCHI (TulcVn) 4.80 4.30 4.00 4.3o 6.30 IMBABURA (Tbarra) 4.80 4.30 3.6o 3.75 6.30 PICHINC)A (Quito) 4.65 4.10 3.35 3.55 6.30 COTOPAXI (Latacuaga) 4.65 4.10 3.40 3.75 6.30 TUNGURAHUA (Ambato) 4.65 4.10 3.40 3.75 16.30 CHINBORAZO (Riobamba) 4.65 4.10 3.40 3.70 6.30 BOLIVAR (Guaranda) 4,65 4.10 3.50 3.75 6.30 CARAR (Azogues) 5, o 3.35 3 "5 30 AZUAY (uen ca) 5.05 4.40 3.35 3.55 6.30 LOJA (.oJa) 5°.05 - 3.00 3.45 6.30 o ESMERALDAS (Eumeralda.) 5.20 4.80 3.60 3.90 6.30 MANADI rtovrejo) 4.80 4.40 3.00 3.80 6.30 GUAYAS auPyaquil) 4.65 4.10 2.65 3.15 6.30 EL ORO Machala) 4.85 -2,80 34o 6.30 LOS RIOS (Babahoyo) 5.20 4.70 3250 3.75 6.30 NAPO (Tena) 5.80 4.70 4.00 4.40 6.30 PASTAZA (Puyo) 5.30 4.80 4.oo 4.60 6.30 MORONA (Macaos) 5.50 4.50 4,00 4.50 6.30 ZAMORA(Zamora) 5.90 - 4.3o 4.o50 6.3 0 i SOURCE: CEPE / - -69- ANNEX 2 Table 2.8 ECUADOR POWER SECZOR NEMORANDUMI CRUDE OIL EXPORT REVENUE DISTRIBUTION, 1979 _ (in sucres) REVENUES e t T TrYACe T O ?A L DISTRIBUTION - n.R24h9q.76S.oo 4.278'103.96M.75 21'7S7.610.5S0 16.n318'761.342 . ki Royailties - 475'9IS.0S?.55 257'5S.417.75 6'19S.045.S0 749t661.S-n.7: 2 W.J.I.N. S3'042.673.73 51'042.671.7- - ,J.P.M. PM 1WMtfl. lb. 214 914'759.030.S0 341'9DS.976"oo 1.2S6'755.00G.5_- wsc rrpnYr 1Y-.. me. 137 - SOW)tS1.70noo 52f'1S7.4MaJ0o 1.027,9o0.10o.ow * CM *M7CTPTrPCtM tDl S nl.20 . 45'71a.1095.0 451714.495.c-- TALSA DE FW!STfl SnR MM R S tI.2q 3S7.099.97 4S57.099.17 MnNMn r!A(PWAT. DE 'Lr mj rJ4"2s?N Rt01'.1g1.65 711442.672.70 79"4S6.8S4.55 - TJPAWA r. MaPU1tJA Dr rt%".!ALnkS S4 7'5.9S 4'571.677.47 5'211.423.45 VMISlaTRT nT SWL'M wULTCA 223'1t23.474.61 42'363.877.07 165'387.353.?Z InnIrTi'M IE TR.PAJ) 184U'542.196.nq9 63'956l.MnvIs M1242.17. * PATP0M1D NtUAZL DEL NHO 61'4614.351.2k 2'1S64;24S.26 82'629. 98.5G a.E.V. 246'053.647.23 .4 72?.854.13 330'731.55l.1C * OU7tM tLICIA TM00 'UnItAn.L 2.'aaS'6St.513.60 RA2'167.841A65 3.297'5.3G.5.-S ^JD'E MCIM.&j Dr pRITCOALlOfPS 22R'666.V2..71 * 1S'560F.9a5.72 - 302'227.355."W U>JI1CtS:D1S ZTA.AL!S 1710642.914.23 S7t353.325S3. 228'19M.235.52 tIZCV5lb D1>S MqTZaIA1UR 1U'713.tW7.F2 5'739.911.36 22'I4aSL11.25 * .)QNAM 3.507 '041.362.74 612' 835.307.7S -a.119976.673.t.3 CP&47n.227.14 2'919.034.20 31'389.251.11e< BMW CLIMlAL l'901.682.14 627.133.34 2'535.a1S.4=: .L.E .C _ 62u.6io.62 3122.571.41-U.A-. -r.A.!. M 0M .A MM "lML1A 29'227.963.39 2s2n.s6:.3! .?A'4m OE DcP&nLtn DEL £UPJOR W.99"q *Sin o.o 489'159.ecc.so OEMMA U!flrA TM73OW LtYC0'AL §0% AST3 - 22'720.913t.25 3'122.920.50 25t843.820.75 TA'A MC %EW71CI LA7E 226.670.141 226.670.9! TASD DE SFV.YCI 701'217.657.73 * 7'556.100.92 3'604.346.8a =2137a.1C5.43 ______________ _______________ 217.067.39 217.067.39 I TOTAL NATIONAL PARTICIPATION 9.W0"'1X7.304.72 3.755'910.134.59 . 63'059.133.50 12.823'0BSL76.I II TOTAL COMPAY PARTICIPAT N 2.w2^a7r2.o6r.2m / 22'193.827.L6 1's.s4gq.477.co *.9S'S'74.361.tk III ALLOCATED 40n.. __ 'aOO. GRAND TOTAL . - _ ° '.270'1032.S5.7 211'757.610.50 15.381'761.34'1.25 SOURCE: CEPE ANE 4 _70 -4 Ch~art 4. 1 ECUADOR MINISTRY CJF NATURAL RESOURCES AND ENERGY ORGANIZATION CHART AVOR ADVISORY _ Ml NISTER _ PCOMEMINTTE FISHERY DEVELOPMENT C OMMITTEE F# WADVISOR BOARD r INTERNAL L | AUDITING * UNDER SEC rETOLEUM POEIYES IECNIA NTRLADVISORY COMMITEEE LEGAL DEPARTMENT PUIILC RELATIONS UNDERSECRETARY U SCE R UNDERSECRETARY ADMINISTRATION.. _ . PLANNING | r HYDROCARBONS | GEOLOGYANDMINES FISHERY [ DEPARTMENT L DEPARTMENT DEPARTMENT | DEPARTMENT r ----___J AUTONOMOUS INSTITUMMONS NATIOA P~LU OP~NATIONAL I os ENE ; | ELECRIFICATION INSTITUTE (NE) ECUJADOR ICEPE) INSTITUTE (INECELU INSTITUTIONS WaildBank- 21969 - 71 - EC'UADOR A.YNEX 5 POWER SECTOR MEMORANDUM Table 5.1 INECEL's Participation in the Capital of the Electric Power Companies - Z of Capital Stockl2 Power Comoanvamet O-ned by I&NECEL L%gional Norte 90.1 Quito 55.8 Santo Domingc 100.0 Anbato 54.5 Riobamba 67.4 Bolivar 93.2 Azoques 76.2 Cuenca 88.4 Regional Sur 93.4 Esmeraldas 92.8 Manab: 86.9 Santa Elena 98.4 Nilagro 94.9 Los Rios 98.8 El Oro 92.2 Weighted average 85.2 1/ Data as of December 31, 1979 (based on unaudited financial statements). 21 Percentages are based on issued capital, which in some cases differs from paid in capital. 3 As of June 30, 1979. AUN 5 - 72 - Chart 5.1 ECUADOR - INECEL ORGANIZATION CHART TARIFr-S ~~BOARD OF GENERALRI DIRECTORS ET! __n _ _INTCERNAL |AUDIT NG GENERAL. |MANAGER PUL CREA { SECRETARIALSERVICES PIANNING DEPARTMENT , LEA DEPARTMENT SYSTEMS a ORGANIZATION J ,10 EVALUATION COMMITTEEJ TECHNICAL. ADMINISTRATIVE. & FINANCIAL COOPDItJATION ., ~~~~~~~~~~~~~~~~~~~~~~CUP.1:UITTEE INDUSRIALCONSTRUCTION WERCONN E ~INARLTPG] RURAL INDUSTRIAL I P FfNANCE AISTRIBUTION t RELATIONS E| GINEERING PROGRAM World S,k -21968 73 MANNEX 5 - 13- Table 5.2 ECUADOR - POWER SECTOR MEMORANDDH 1978 Ooeration and Maintenance Costs Breakdown (sucres per kWh sold) Selected INECEL EEQ EMELEC Subsidiaries - 2/ Personnel.= .31 .20 .36 yuel/ 4/ .05 .23 .23 Energy purchases .28 .06 .04 Materials .07 .03 .10 Other costs2 .08 .22 .14 4/ Total 0. M- .78 .75 .88 I/ E.E. Cuenca, E.E. Ambato, S.E.R. Manabi, E.E. Riobamba, E.E. Santa Elena, E.E.R. del Sur, E.E. El Oro, E.E. Milagio, E.E.R. del Norte, Coop. Santa Domingo, and E.E. Bolivar. 2/ Some labor costs are classified as "other costs" (however treatment differs between the various companies, so that direct comparison is not legfitimate). 3/ M LEC's facilities have a relatively low fuel efficiency (gallons/kWh *- generated) which would reflect itself in higher fuel costs. 4/ In 1978, the structure of electricity supply and incidence of system losses (including own consumption) was estimated by the mission to be the following: Own Generation Energy Own Hvdro Thermal Purchases Total Consumntion Losses Sales EEQ 47 12 41 100 1 12 87 EmLEC - 87 13 100 3 10 87 Selected InECEL 37 56 7 100 2 18 80 Subsidiaries - 74 - ECUADOR AN N Y 5 Table 5.3 POWER SECTOR MEMORANDUM 1978 Gross Generation/Purchases, Sales, Local Use and Losses WGWh) Gross Losses Generation & Power Gross Purchases Sales Station Use Losses Generation Z Cuenca 90.3 71.0 0.5 18.8 20.8 Bolivar 6.9 5.9 0.2 0.8 11.i6 Azogues 6.8 4.3 0.1 2.4 35.2 Norte 49.0 38.6 0.2 10.2 20.8 Latacunga 25.1 17.3 0.1 7.7 30.7 Riobamba 52.0 46.2 0.3 5.5 10.6 Sur 26.8 21.4 0.5 4.9 18.3 Quito 673.2 583.6 4.5 85.1 12.6 Ambato 57.6 45.6 0.3 31.7 20.3 El Oro 48.1 38.4 0.3 9.4 19.5 Esmeraldes 32.2 28.8 0.2 3.2 10.0 Milagro 50.9 .41.6 1.8 7.5 14.7 Sta. Elena 26.3 22.1 0.9 3.3 12.5 Los Rios 24.1 19.5 0.8 3.8 15.8 Manabi 114.0 84.9 7.5 21.6 18.9 TOTAL INECEL S-UBSIDIARIES .1,283.3 1,069.2 18.2 195.9 15.3 EMELEC 994.3 869.0 27.6 97.7 9.8 TOTAL POWER SECTOR 2,277.6 1,938.2 45.8 293.6 12.9 -75 - ANNEX 5 Table 5.4 ECUADOR POWER SECTOR MENORANDUM MANPOWER RESOURCES a) EXISTING MANPOWER (1979) I NEC EL Sub- Cnutts Total Power sidiaries, Conutractos supply INECEL Municipal- & Contractors Industry ities & _EELEC MANAGERIAL 70 98 27 195 PROFESSIONAL 437 311 260 1008 TECHNICAL 127 200 207 534 CLERICAL AND OTHER SERVICES 451 1,468 305 2,224 IORKERS 572 2,839 4,733 8.144 TOTAL 1,657 4,916 5,532 12,105 b) MANPOWER REQUIREMENT PROJECTIONS/ INECEL, Sub- Total Power sidiaries, Consultants & Supply YEAR INECEL Municipal- Contractors Industry ities & Requirements EMELEC 1980 1,841 5,462 6,147 13,450 1981 2,040 6,051 6,809 14,900 1982 2,196 6,514 7,330 16,040 1983 2,477 7,346 8,267 18,090 1984 2,720 8,069 9,081 19,870 1985 2,835 8,410 9,465 20,710 I/ Source: INECEL ECUADOR POWER SECrOR MEHORANOUM Scuadomls installed Capacity (KV) * d}IE~NLUC, t1EICEL AnD *UUltDt^ARlIK JUICTPAL SF.LF-PRODUCERS TOTAL Provines. Udro fleEra,l Total Ifrt ThermaL Total Mydro lThrual Totl ydra Thermal Total 15yl.72S 14J.I1 29.910 226 111 3317 2.666 2.666 15.95S 10.962 n2.91g Bolivag 640 S.033 5.673 s0 o 5 95 --- -- 320 5.043 S.961 Canat 640 1.280 2.220 00 -- 90 -- 9.075 9.075 920 10.45S 11.31S Carallt 1.620 76 5 2.16 1 _ Sol -- - 2.201 06' 2.1%1 cotrmu1 4.200 366l 1.56 4*05 492 691 -- 4.S51 1.55t 4.605 6.431 13.0.6 chilborazO 9.117 5.164 14.411 245 202 147 1.900 711 2.611 11.262 6.277 17.5.19 El Oro -- 10.576 16.576 2.366 215 2.641 S-- 5IB 2.366 19.429 21.195 .b,eaelda -- .7192 7.192 -- 16d 164 -- 5.603 25.603 -- 32.9S9 32.95S Gaal.ajau -- -- -- -- al9 669 -- 265 205 -g- 94 Guayas 319.703 319.113 676 676 -- 39.551 39.551 -- 360.010 J350.0o0 lmbabltIra 9622 6.5J4 16.i6 440 -- 440 071 3.041 3.912 10.933 9.57S 20.506 Loja 2.560 9.259 l1.O1 -- 127 127 206 1.096 1.102 2.166 10.402 13.248 Loa pta. -- 21.112 21.112 -- 216 216 -- 7.433 1.413 -- 26.761 20.761 HsunabI -- 33.600 33.600 -- 991 991 -- 4.204 4.204 -- J;0.75 21.06S Murona Santiago -- -- - 153 1.066 1.219 256 -- 256 409 1.066 P E.45S Repo -- -- -- 71 1.171 1.242 1.000 10.2d2 12.162 1.6711 11.53 13.424 PantaS 110 945 1.05S -- -- -- -- S70 570 110 1.515 1.625 Pkhlincha r55160 94.816 160.176 2.604 -- 2.004 1.050 30.677 317.727 95.214 125.493 220.707 tunqurabsa 74.961 10.900 6lS941 - -- go- - 99 74.961 11.0176 66019 Zamora Chinchipe -- -- -- -- 154 154 -- .- __ __ 154 154 TCAL 204.95S SS2.913 757.866 7.451 6.349 13.600 12.0s3 140.601 152.604. 224.J49 659.063 924.352 X < 4 - 77 - ANNEX 6 Attachment 6.1 ECUADOR POWER SECTOR MEMORANDUM ONGOING AND FUTURE DEVELOPMENT PROJECTS (a) Onsoin2 Prolects Commissioning Prolect Capacity Dates - Paute hydroelectric plant. (Phase A & B) 500 MW 198211983 - Guayaquil No.3 (steam) 73 MW 1980 - Esmeraldas No.1 (steam) 125 MW 1981 - Quito (gas turbines) 60 MW 1980 - Regional Systems' generation 186 1XW 198011982 - SNI transmission system (138 kV & 230 kV) - 1980/1982 Total (b) Future Prolects - Agoyan i50 MW 1986 - Daule-Peripal/* 130 MW 1988 - Paute - Phase C 500 MR i987 - Paute-Nazar 140 MW 1989 - Toachi 300 XW 1990 - SNI transcmssion system (230 kV & 138 kV) - 1982/1985 - Regional systems' transmission system (69 kV & 345 kV) - 1982/1985 - Distribution & Rural electrification 1982/1985 - Studies, small generation stations and general invest- ments 1982/1988 Total 1J Corporacion de Desarrollo de Guayas (CEDEGE) is carrying out the dev elopment of this multipurpose project. INECEL is not participating in its financing. The power facilities of project are to be leased by CEDEGE in a multi-year agreement with INECEL. - 78 - ECUADOR ANNEX .6 Attachment 6.2 POWER SECTOR MANAGEMENT Page I of 3 Main Characteristics of Future Power Plants (A) HYDROELECTRIC DEVTELOP.ETNTS 1. Paute - Phases "A" and "B" - Dan and Reservoir Type: Arch Dam (concrete) Height: 170 m Length: 400 m 3 Volume: Gross: 120 x 106 m Net : 100 x 106 m3 - Powerhouse Turbines: Pelton (net head: 615 m) Installed Capacity: 5 x 100 MU Firm Capacity : 437 MW Firm Energy : 2355 GWh/year Average Energy : 4017 GWh/year 2. Aoyan - Dam and Reservoir Type: Gravity (concrete) Height: 36 m Length: 270 m Volume: Gross: 1.87 x 106 m3 Net : 0.88 x 106 m3 - Powerhouse Turbines: Francis (net head: 155 m) Installed Capacity: 2 x 75 MW Firm Capacity : 138 MW Firm Energy : 569 GWh/year Average Energy : 1031 GWh/year 3. Paute - Phase "C" This development is an extension of Paute "'A" and "B" described in (1). The additional capacity added to Paute is: Installed Capacity: 5 x 100 MW Firm Capacity : 437 MW Firm Energy : 0 Average Energy : 1710 GWh/year ANNEX 6 - 79 - Attachment 6.2 Page 2 of 3 4. Daule-Perina - Dam and Reservoir (multi-purpose: power, irrigation and water supply). Type: Earthfill, Height: 78 a Length: 230 m * Volume: Gross: 6 x 109 m3 Net : 4.3 x 109 m3 - Powerhouse Turbines: Francis (net head: 55.7 m) Installed Capacity: 2 x 65 MW Firm Capacity : 77 MW Firm Energy : 521 GWh/year Average Energy : 710 Gha/year 5. Toachi - Dam and Reservoir Type: Rockfill with impermeable core Height: 154 m Length: 370 m Volume: Gross: 139 x 1° m3 Net : 94 x 10 3 - Powerhouse Turbines: Pelton (nethead: 292 m) Installed Capacity: 4 x 75 MW Firm Capacity : 253 MW Firm Energy : 767 GWh/year Average Energy : 1587 GWh/year 6. Paute-Mazar - To be constructed upstream of Paute hydro-development. Paute-Mazar * dam will control sedimentation of Paute dam and also will increase Paute firm energy by about 1950 GWh/year. Its main features are described below: . - Dam and Reservoire Type: Gravity (concrete) Height: 170 m Length: 420 m 6 Volume: Gross: 500 x 10 m3 Net : 460 x 106 m3 - Powerhouse Turbines: Francis (net head 200 m) Installed Capacity: 2 x 70 .'l Fir= Capacity : 77 M.? Firm Energy : 680 Glh/year Average Energy : 1047 AWh/year ,A N -gN r.^ Attachment 6.2 - 80 - Page 3 of 3 In addition Paute-M!azar will increase Paute (Phases "A", "B" and "C") firm capacity and firm energy by 100 MW and 1950 GWh/year respectively. (3) THE10MELECTRIC DEVELOP%ENTS 1. Salitral Thermal Station (Steam) - Installed Capacity: 73 MW Steam Production Capacity: 295 tons/hour (continuous) Fuel: Bunker "C" (also natural gas) Steam Pressure: 105 kg/cm2 at 5130C Speed: 3600 r.p.m. 2. Esmeraldas Thermal Station (Steam) - IDstalled Capecaty: 125 MW Steam Productior: Capacity: 428 tons/hour (continuous) Fuel: Bunker "C" Steam Pressure: 139 'g/cm2 at 5380C Speed: 3600 r.p.m. 3. Quito Thermal Station (Gas Turbine) - Installed Capacity: 3 x 20 MW - 81 - ANNME 6 ECUADOR Attachment 6.3 POWVER SECTOR MEMORANDUM NATIONAL INTERCONNECTED SYSTEM SIMPLIFIED SINGLE-LINE DIAGRAM ail USMEAALD:T *13 kv 27N P.3W STO. DOMINGO 7 OUsTo a - Xv AMUATO aUinwO 730 kw ,TORASI 7O bv MANdASI 20 MW 1311 ' v I 1 41ANA914 T E E~~~~41., PASCUALES ! 230ow MILk RO kw PAU! 730 kv !STERO ~~~~~~~~~~~~~~~~~230 lo 133kv ~~~~~~~131ktv ESTERO SALADO EMELEC kw 172MW 114 MW PAUTE 500 MWn WOId3mk- 2231g I, - 82 - ZCUADOR ANNEX 7 POWER SECTOR MEMORANDUM Table 7.1 NaeionaL and SSI Ene'Te For-ac3t tCWh) 1/ National Forecast SNX rorecast Publlc Total TSoel Year Rauidentil Coaercial Industrial Liuthtinz Sale Lose.m Generation Total C 1970 279.7 103.4 320.8 87.1 791.0 157.8 948.8 C 1971 306.9 116.5 353.9 97.7 875.0 174.6 L049.6 - C C 1972 341.6 135.4 375.2 103.5 955.7 161.4 1117.1 - * C 1973 359.0 147.0 414.7 123.2 1,043.9 120.6 1264.5 - ACTUAL t 1974 405.9 177.4 464.5 159.0 1,Z06.8 223.1 1429.9 - t 1975 487.2 191.6 528.2 132.9 1,339.9 254.9 1594.8 - | 1976 587.7 234.5 590.1 163.9 1,576.2 254.6 La30.8 - C 1977 668.4 263.7 693.1 189.7 1.814.9 312.3 2127.2 - t 1978 792.4 299.9 863.3 226.2 2,181.8 391.7 . 2573.5 - C 1972 903.6 354.2 989.5 245.5 2,492.8 419.3 2912.1 - ( 1980 1131.9 405.5 125.9 266.7 2.930.0 476.9 3406.9 2421.8 C 1981 1158.7 455.4 1277.7 289.1 3,180.9 SC0.7 3681.6 2891.0 C 1982 1295.9 509.3 1447.1 313.6 3,565.9 547.0 4112.9 3644.0 FORECAST ( C 1983 1443.1 567.1 1634.5 34' .3 3,986.0 574.6 4560.6 4320.5 C t 1984 1582.5 621.9 1842.4 370.7 4.417.S 60E.1 5025.6 4771.2 C 1985 1756.9 690.5 2071.2 402.7 4,921.3 677.4 5598.7 5598.7 C 1986 1915.6 752.8 2323.7 437.5 5,429.6 733.4 6163.0 6163.0 1/ The SNI became operational in August 1980. The different isolated syste= would be gradually Integrated to the SNI during the 1980-1984 period. By end of 1984 it is forecasted that all isolated systems vould be integrated to the SNI. Source: 1980-1985 INECEL's short-term !.(asterplan Studies. - 83 - ECUADOR ANNE'C 7 -CUADOR Table 7.2 POWER SECTOR MEMORANDUM National and SNI Demand Forecast (MW) National National S''I Load SNI Demand Demand Factor Load Factor Year (.w) OMW) IZ) CV . C 1970 224.0 - 48.8 C 1971 250.5 - 47.8 C 1972 262.2 - 48.6 C 1973 281.5 - 51.3 1 1974 318.5 - 51.2Z- ACTUAL ( 5 1975 358.5 - 50.8 1976 413.9 - 50.5 C 1977 479.8 - 50.6 * - C 1978 564.5 - 52.0 C 1979 658.3 - 50.5 ( 1980 767.1 523.5 50.7 52.8 1/ 1 1981 827.3 696.5 50.8 47.4 2/ ( 1982 922.4 834.2 50.9 49.9 FORECAST ( 1 1983 1,047.5 966.3 49.7 51.0 C 1984 1,107.5 1,107.5 51.8 49.2 31 ( 1985 1,231.5 1,231.5 51.9 51.9 ( 1986 1,355.6 1,355.6 51.8 .51.9 1/ Guayaquil and Quito, Ecuador's main industrial centers,were interconnected during August 1980. 2/ The SNI load factor decreases as the loads of the isolated systems which will be interconnected to the S3I are mainly domestic, com=ercial and rural. 3/ The SNI load factor decreases as the bulk of transaission works become opera- tional (trans=ission works included in Bank financial project), thus inter- connecting mainly- do=estic and rural loads. Source: 1980-19S5 LNECEL short-term Masterplan Studies. 31MMwS101 J sa 4jo.hs 0guau1jjt:c a r i *,..e~uImDf2wJin ,pip. toaKd*4 -epJ4Its Ig,rflru 1is rn,oIIaru *'n vzIr UT UT ;. ~~~V ~~if I TLV Iji* I UT UT ITT 1W ITT £¶~~~~~~~~ UT ~TT ITI uva41819 ZPIUIIMO TvaoJew 7-tTr 7- T T W. SuW VW W.T -9 Lr V I9 f LTr T TM M W tr aguilM W u- Zr- r r- r u-- r-r r T, r F r- V gy SaLnTIIA11 1WiDPURD flt I a U S 911 i p I f GE 91 ft I H6 . -71iiui3i,.ii I.g :; i; at a 64 Ba It 9i W El It if "I SI - - - -mi,;1aa " p.'7,1 MuI.'rn-u'.usnp '~Z lTM W Wt r r at aT Tr W Jr aT VI T i Wt W r Ui - ri F r r r r IT Tr r, T-r u- r- r iol f 6 6 6 " StKAUI9I LI # cc * 9 1 1 i El £ 6 3 zT1, Irt 1T UTr W 9F riT aI i W F7 id F 71 __ IR j -or ' p"pI j4a 0 *. ~ ~ " r r c~- ~ V ~ d ~~ a - - - - -J * T b'. LI we U~~e et as LI at £1 at t9 a CZ I a' 6 .1.t' .-. IA ~w St El St @6 91 t II * IIIt It fit It I -*3iIJ(*9N lW -- m - - ~~~~~~~~~~~~~~~~~~~~~~~~~~~r I - r- T - wO71-11T A1 IL) t~'I (U - T I' I ~ I I Lis it It ITT ItT Wlalssi uuis aron wo Zff U - T- V Z-- r r w F IT r F F re JT.p..&aj) .iiaA%pj9 Tr rit Ic- V. - *- r r r- F F ri I"' "It sI - - 'I £"81SW 0 SI I- - -a 121VVT v r T I *uIIPb sPFIVI0.91 ill II1 -- I (t""', qV*u ':rns '-" PV~i ui1 u-1 Vwwr bsJ 31 tea-S arl'A-0 i._i "B.i 1-meg i' T - rn"Iz 11,1.1' T.-.. g'a. T~. .--;VI PVT 9T-3M2 Ir-U (sauTTOP SR 3Uu33OD 096T JO SuOHTTTT uT) mU9NOd 3USWMGUAUI 986T-086T HflGNVoNm4_0O3.DS3 ltO - 35 - 1pf¶IAIflN -N txWMIR ft Hijj lfl(jj ASSm Plied Assets gUras.'jm illwl. In a.rvtPn Ish1I.3 Pa1l.3 1rJS.'3 I.j:'*7 2flt .7 18st .5 Lema Accmulaed d"prP.cInon (l'. (Uw.n (n:.ra (33.-) (u1cn..N) [SAi RLt pl4aiti service (at cot) 112x5.2 16W0.0 1382.1 a2iU.9 3S9.1 17'f.9 L1171. b 351L I AnOUL rVaelumtton t eatiMOL / 71" .0 900.0 751..0 2300.0 129L.2 110.0 82.4 3101.6 bfrk In progsros d/ 3111.1 70.1 11.5 'oP.& J"t.1i 7.? Other (net) 5 130.3 0.7 Total fise muets (not) 8396.6 2661.5 2'147.6 518.9 U194.6 12580.6 3279.0 2461.? 6675.7 2"99 Inveeaantm Obareholdings Ln power cmpnl-/ 26 . 3620.5 Other 3/ 541..1 0.1 26.7 567.9 1541. 0.1 7-5 lb.d.0 Long te Loan _ 3-5 - 3.5 519.1 , 51S.1 Current Asectm Cash 267.3 £1.0 35.0 115.3 477.1 211.6 3C.2 113. 122.5 112.1 Accouts rweivable (ne)21 1059;7 127.6 1,511. 231m9 1573.3 927.7 13L.1 185.6 2b8.2 1512.b nwentodus 563.6 55".: 96.0 1070*5 2281.3 1071.6 752.0 98.6 932.4 2835. Total cunt asset s 1., 722.= S N.I 1' .r,.; Irj34.7 z.7 gis.1 jZl l.' wptw.3 ntbr 'case * Dsrrrd chper cm sudies 665.2 665.2 802.7 , l.7 Other 12411.0 52.7 181. 697.1 2009.6 1258.2 215. 7 27.3 1363.9 -2675.1 ToLot Asset 15381.6 310.6 2i778.2 7299.7 2M75 21151.2 1..38.1 22.. 91117.7 33936.2 Net Worth hntlc balance 711734 1176.3 571.1 3539.1 10671.4 1551.8 632.3 1*187.1 Revaluation roserv 724.0 900.0 7*.0 230.0 29.2 110C.0 982.4 3164.6 Annal profit (or lose) (16.7) 48.7 95.5 13.7 (160.3) C3e.4) 30.3 (31.9) Total Nr. lorth 8170.6 2a2'.0 1420.6 5852.8 1;041.2 11802.3 2613.4 31.5.0 7316.8 1977.0 Long tan debts 612B.9 676.2 653.6 10.0.? 8e69.4 8135.1 1397.7 820.6 1279.7 L1633.1 Short tern dabte 102.3 339.4 404.0 136.2 2263.9 1213.7 427.0 359.0 516.2 2545.9 total debts 7211.2 1015.6 1057.6 114W. 9 10731.3 938. 1821.7 117Y.6 1-ad,.9 14117.0 1tOal LiIuilitlsa & Not Worth 15381 . 1140.6 A711f.7 7:9l.7 :57T5.5 2151.1 4438.1 2824.6 91112.7 3393C.0 * Fges ma not add up because tacybthve bn roadad off. * 3/ h eept fOr ER end DZC , the 19l7 finawncal atementa bhar not bean diAtt. le 1979 fiancial ctat_enUt ar preliminry, end In the cam of sevel electric cooponial bave not yet been approved by their upper nasgesent; only W= a 1979 flancuial stiatmst hare ban auditeL Depreciation sad sset revalustion rlgures are lsoelon satiates. Asset rvalation estimtes wer develoed by tie aisseon on the basis or nloraatton provided by 1UIL. EX revalud tu atso In 1976 but ha not doo eo agaLn since. ELN revalued its asets to ma 1975 price leels {iW tho replacement coat criterion)but this revaluation has not ben approved b; the Oover.t nor to it show In WaC's ainnscial Statents. Tl revauation stimate for 1CEC sown is the wble w dmeoped by using nflation indces end Is likey to be significantly lowr than DflEC= estimSt on the bsis oa replacmnt ent. For 'other loapaes', work it pges and other ssets re lneluded In the not plant In mervce rigure, as e appropite breakdown is not currntly avslsabLs. / Firss sbown have not bee checied for connistency. in Lbe ;ast, IIIZL's records end those of Its subsidliries bave not mtaed. Consolidated totas may still inClude some doue countin as rPral. debts between companies bave not ben netted out. / a include inter-cmpy debts (hich would canceai out n a cosolidated basls). my Llso be inflated due to lsuffcie nt reserve for bad abt. A substantial pert of deferred arges is 5ke1l to inctuds losoo which should hav beon charged aganst Incom. -5- =5a ECUADOR - POk!OS HSWMR c n~~(cret 3/ miiin) 7Man noer - - - 1L ISL: ER DMW mues Tiota/ c m MR Za / E-" f Sales revenues 296.1 615.3 53L3 05.S 651.2 95. a5..2 ML! Other operating reveus 6.1 41.4 26 6 A...O4 1S L$ Total operating revenues --A4. wa -1M- yo-0 i7.e 2fi. 5 S Operating expenses Operation and mintenaue lb,.0 453.6 580.1 432.5 1306.0 29LS 558.7 81&5.64 S 167g Depreclation g/ 94.1 121.6 47.2 1i3.6 393 i14..4 x6.s 63.0 21SL 53. Amortization 2.9.1 .. 2D.3 22.3 Ibtal operating expenses 2a 7 6 l i *7jj W 22 7iai '.2 let operating ncome 3'.0 81.5 156.1 (LG) 27A.0 33.3 (2D.3) 9461 (64) 7A.7 Other incme 3.7 9.2 11.9 57.6 eL4 0.9 47 561 XL3 6(3. Other expenses Financial charel (54.7) (24.4) (67.1) (19.7) (Mg) (.1) Other (0.7) (35.j)4/ (182.2) (I) (51.6) y 35L3 Ret ineoe before taxes (16.7) 66.3 11G.9 13.7 171L2 (160.3) (v.5) l5.1 (3.6gl (23k4) income taxes (net)2/ _ (15.4) (15.4) - 15.2 15.2 Het income after taxes (16.7 66.3 95.5 13.7 1583 (160.3) 3DL3 (3l49) (35.4) Workers participation (1h.1 (11) (.5) (2L5) Contribution to CERAFE (3.5) (3.5) 60.*) (O4) Retained earnings (16.7) 48.7 95.5 lj67 14&L2 (2h.3) (38.4) 3M3 U3 .) RL3J) -~~ ~~~~~ - _ - _ * Figures ma* not add up because they have beoa rounded off. / Sector totals have been calculated assuming that all of 7NmweCE operating revenues originate from tbL other electrie pcn r csF ies, s lIz Pw the asounts biUed as an 0 & U cost. This is not totally accurate, as a s-2ll proportion ot ofZL'a sales iz to rfi 'Inrs. / Depreciation figures have been adjusted in rough proportion to tba increase in gross fired assets values eased by asset revs lsat . H a=EC is subject to income tazes (other taxes are included in 0 & N expenss). In 1979, DE3 Ld a get tax eretit. B Ireakdowns not available. -87 - AUMlI 8 Table 8.3 IIADOH - EWRS i KD§MUHUO EWS coINAIU' FUMIL mme or Rmn lg98 1979 Poaer Average Rate Rate of Average lkte IAe of Compay Tarift Y/ Be B/ eReurn Tariff/ 3no " 3 3,/ - ~~~~~~~(8/. /kth (13/. mIllilannr SJ /kWh) (V I ms (% INICeL V 3,1B.o0 0.9 P 5,20.0 o.6 15Q 1.07 2,499.0 3.3 1.1h 2,905.0 (0.1) nAW* 0.91 2,140.0 7.8 . . 0.96 2,13.0 3.8 AUl other electric copanfhies NA I,5os j5/ (N..) *.A. V 5,i.0 0O (0.7) Average 1.02 12,957.0 2.1 1.09 bi5.qO.0 0.5 not eignificant (leas than 0.1%) j/ Ratio of sales revenues to kWh mold. a/ mu of net fixed amnetW in operaL0inn (lene consuser cnntritutinasz) plus working capital (entti_ted on three bat of 0 & N uxpesse.). FiSure ahown In average or beginsitng nnml cnni-or-year. K3inlou ri lantes incorporat the eurreet of meet relvautil (mm reIred by exieting legialation). / Ratio of net operating Income (adjusted only to refleet higher depreciation charges dut to mxet revaltionl) to Ut rate be (s Ia). / Hinmion eatimate. For DeemAier 1977, fIxed sneta In operation ware calculated so am to Include aete n Ito UN flI;t statements as work In prtgrena but which, an per the Contralorials audit report, actually were In operation. i/ Rolgh estimates, am an accurat, breakbown to detirtnulmh between work in progreses d fixed asmeta In operatio. we. mt avallale. 6 Average tariff excltides 111CFLia bulIk rates from the computatlon; total rate base sa average rate of retur. do ifin 1. 7/ Filguree rane between 8/. 070/kWh to Riobnaib to 8/ 1.54/kWIi In Nmnabi, Upta Lena ead Oanto 1 | . INECEL ham contracts with 151 and IHfLEC defining the conditions for the *ale of eleetrioitytfbich distiaitmb bet a _mea to esnble the eleetrielty compn"y to meet a final demn4t in excess or ita gmaerating eQaity aud melee deatted to netitati con form of aeneration by anoua er (move economIcal) mourea. IBRD 15416 S iNKELtpowERcu ADO.R g o i - '' ' - ~~~~C o L O M b I A POWER'TRAN J,~~~~~~~~~~~~~~~~~~ ANAY I '"INECELPOE TASMISSION PROJECT -. C 0L 0M BI .NATIONAL INTERCONNECrED SYSTEM.(SNI)-i- K >., b '~--'OvtUIm ;- . - me ,(\ss ..---l 110 vtrumhl.lhe " ssLr s~r b~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ - kV tsuIn - 12 -136 kV rmnimniulmn hss - * Tinl pesr plants * Su'salai - MoUroods : - U)U0 -1, Rivem ' J55,7H MW ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~M 3.~~~~~~~~~~~6. mr- ' P E ~~~~~~Golf o f c G w - -Gveuini/w,IJ hgu9mds ~~~ + / eJ V s o~~~~~~~~~~~~ u T H X~~~~~~~~~~~~~~~~~~~~~~~~~~ M E R I C A1 - -::::;:G - / P E R U \ C^ Al uu NW' o : - a 19*- ______________S_