RETURN TO R ESTR I CTE D

REPORTS DESKWITHIN WH155

ONE WEEK Vol. 3

This report was prepared for use within the Bank and its affiliated orgonizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

AN APPRAISAL OF THE 1966-1967

PUBLIC INVESTMENT PROGRAM

OF PERU

in seven volumes)

VOLUME III

ELECTRIC POWER

December 28, 1965

Western Hemisphere Department

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CURRENCY EQUIVALENTS

1 US $ = 26. 82 Soles1 Sol (S/.) = 3. 7 US cents1 million Soles = US $37, 286

TABLE OF CONTENTS

Page No.

I.P INTRODUCTIONote ................. 1

II. ELECTRIC POWER LEGISLATION ........ ......... 5

Electric Industry Lai; (No. 12378) .............Q. . SLaw of Autonomous Enterprises (No. 13979) ............. 6Interconnection Law (No. 14080) 00o0.v0.000 ... 7

III. ENTITIES IN THE ELECTRIC POWER SECTORS ................. 9

IV., EXPANSION PLANS .......*@ .... **..**. * *o0eeo ** G.@O* 11

Government's Program ..... 4S.4*.4O*........... *4.*4. 11The Corporacion de Energia Electrica de Mantaro (CORIAN)

Mantaro Corporation ... ....... . ...... ... 4.. . 11The Corporacion Peruana del Santa - Santa Corporation.. 15Corporacion de Fomento y Desarrollo Economico del

Departamento de ITacna - Tacna Corporation .... -o 15Private Companies .......... a...... .. ...... .. .0. .. 16Empresas ElLectricas Asociadas and Hidrandina S.A.

(Lima Light) ................... ............. 16Pativilca - Grace and Company ..... 17Cerro de Pasco .. .e ...a.... 0.0.......... * 18Southlern Peruvian Yining Corporation .......... .. 18

V. FUTURE PLANS **.*..** 4*e**4*C eoo4**4* 19

VI. CONCLUSIONS ................. se..,*. 20

Electric Power Service to the Public ............... 20Captive Plants in Mining and Industry ............ O . ... 20Autonomous Government-owned Corporations ...4..........20

The Mantaro Corporation % .*......... 21Servicios Electricos Nacionales ...... 21

ANNEXES

1 - Empresas Electricas Asociadas (Lima Light)and Hidrandina S.A.

2 - Private Companies Serving the Public3 - Autonomous Government-owned Development Corporations4 - The Mantaro Project5 - Mantaro Hydroelectric Project - Actual and Estimated

Sources and Application of Funds6 - Public Electric Power Sector

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CHARTS

1 - All Peru: Installed Electric Generating Plant Capacity,19h0-1964.

2 - Lima Area: Energy Sold to Various Classifications ofCustomers.

3 - Central Region of Peru - Installed Capacity and MaximumDemand.

4 - Lima Area: Installed Capacity and Ilaximum Demand.

MiAPS

1 - Government's Proposed H.V. Trans,mission Line Program2 - Mantaro Transmission Line Program

P?I"'2ATOT.Y 'TOT-

The focal point of reference in this report is the investmentprogram prepared in early 1965 by the National Planning Institute (INP)as a proposed basis for the Government's investment outlays for 1966.Subsequently, the Goverrmentts Budget proposals of August 1965 introducedchanges in the INP prepared programi. }1hile it has not been possible torevise this report to take account of these changes and comment on them,certain comments are made and some new information included in the mainreport (particularly Chapter II and supporting tables). The main aspectsof the analysis and policy conclusions in the present report are stillapplicable in broad terms, and many of the de-tails provide usefiul referencematerial.

I. INTRODUCTION

1. Electric power was first introduced into Peru in 1886 by alocally formed private company which provided power for street lightingand some private lighting in Lima; by 1907 this company hae grown tohave an installed capacity of 9,500 kw. In the meantime other companieshad been formed in Arequipa, Huancayo, Cuzco and Trujillo.

2. The development of electric service continued at a steady paceto meet demand until the mid-thirties, when total installed capacity inthe country was just over 100,000 kw. From that time on demand began toovertake available capacity as a result of increased industrialization,principally in the Lima area. The advent of the Second World War furtheraggravated the situation as new generating capacity could not be obtained.After the war, expansion of power facilities was hindered by the lack ofadequate eLectric power legislation to establish satisfactory tarifflevels needed to create the incentives to stimulate investnents in newplants. Suitable legis'lation was enacted in 1955 and since then growthin power facilities has been rapid. In general the installed capaAityof about 1,100,000 kw is adequate, at the present time, to meet demandand new facilities are being constructed or planned to meet forecastloads of the future in the larger centers.

3. The Government had not taken an active part in the develop-ment of power facilities until the passage in 1955 of Law 12378 (Leyde la Indjastria Electrica). It then started, through the Directorateof Industries and Electricity in the Ministry of Development and PublicWorks, to install small diesel and hydroelectric plants in outlyingsmall villages and population centers which were not in the servicearea of any private company or autonomous public entity. Thus electricservice to the public has been and is now largely in private hands.More recently, in 1962, under Law 13979 (Ley de Servicios ElectricosNacionales) the Government decided to establish a new autonomous Govern-ment-owned power entity to be called National Electric Services(Servicios Electricos Nacionales-SEN) which would be responsible forand continue the program of providing rural areas and small villageswith power when these were without service. Very slow progress hasbeen made in implementing this decision but the Government hopes tohave the new organization fulnctioning later this year.

4. The most important and largest load center is Lima, thecapital, which has been served since 1910 by the privately-owned LimaLight and Power Company, now known as Empresas Electricas Asociadas,and its subsidiary generating company Hidrandina, having a total combinedgenerating capacity of 360,000 kw in 1965.

5. The next largest company after Lima Light, among the 12other private companies serving the public, is in Arequipa with aninstalled generating capacity of 22,000 kw. The other companies haveinstalled capacities of from 500 kw to about 4,000 kw and are mostly

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located in towns along the coastal belt. The aggregate installed capacityof these 12 smaller companies is 60,000 kw. There are also a number ofsmaller plants with capacities of 100 kwi each or less serving smallerpopulation centers which have an aggregate of about 16,000 kw of installedcapacity.

6. The greater part of the power facilities in the country areowned by private mining and industrial companies and operated for theirown use and by eight large autonomous government-sponsored and owneddevelopment corporations which are concerned with the industrial andagricultural development of their regions. These two groups combinedactually have about 58 percent of all power plant capacity in thecountry, amounting to about 640,000 kw in captive plants which alsogive some service to small communities in their vicinity.

7. In order to provide generating capacity for forecasted futuredemand in the larger centers throughout the country, there is now underconstruction and due to be completed during 1965 to 1968 about 380,000 Lwqof plant, from 20,000 kw to 60,000 kw capacity each. Of this capacity120,000 kw will be for public service in the Lima area while the re-maining 260,000 kw wil'l be in captive plants in industry and mining(150,000 kw) and in the autonomous development corporations (110,000 kw).

8. In addition to the new plants under construction, a number ofpotential projects are under study by the Government agencies and theprivate companies. By far the largest of these is the Mantaro projectwhich would have an ultimate capacity of about 2,600,000 kw and anestimated gross annual generation of about 15,000 millicn kwh. A consortiumof three European firms offered in 1962 to construct the first stageof this project and finance part of the cost. Mx5er this plan the civil'works of this project would initially be built for a ccpoacity of 660 1Mwh,ile the equipment would be installed in two steps of 330 UW eachutilizing units of 110 NW. The project site is on the Mantaro Riverin the Department of Huancavelica on the eastern slopes of the Andes.The power would be delivered by transmission lines crossing the Andesto the Lima area and the central region of Peru.

9. In view of the magnitude of this project, the Governmentcreated the autonomous Mantaro Corporation in 1961 to develop the powerpotential of the Mantaro River. This corporation is still in activediscussions with the consortium of European firms and no decision hasyet been published. The reason for the protracted discussions betweenthe consortium and the Government (Mantaro Corporation) is that theoriginal offer was not supported by a project description, firm costestimates or a construction timetable and the contract was signed sub-ject to the Government's later approval of these matters. In the interimthere has been considerable public debate about all aspects of the pro-posal. In particular the cost of the project and its impact on thenational budget have been of great concern, especially since the latestestimates of cost for the first stage alone are about S/. 7,000 million

(about US $250 million), which is more than double the original amountcontemplated. Furthermore, there is still some doubt about the timingof' this project; at present the Lima area has sufficient plant capacityin its present installations and those under construction or planned tomeet forecast demand until about 1973; therefore, if ivIantaro is to bethe next major power source for central Peru the decision to constructit could be taken some time within the next two years without prejudicingpower supply in the immediate future. There appears to be a need formore complete economic studies to establish optimum timing for Mantaroby taking into consideration the construction of other smaller potentialprojects to meet power demand until the annual load growth had reacheda level where the large blocks of Mantaro power could be absorbed quicklyenough to make the project viable considerably sooner and thereby reducethe heavy government subsidy othenrise necessary.

10. The procurement procedures to be followed could have a con-siderable effect on the final cost of a project of this size. The financ-ing terms also are a vital element in making the project viable. Thus,since this project alone represents 83 percent of the proposed 1966public investment for the power sector and in view of its large size,it is clearly the problem of major concern in electric power. ThePlantaro Corporation has the authority by government decree issued in1964 to reach an agreement with the consortium or to terminate the con-tract and seek other means of building Mantaro, Until a decision isreached it is not possible to give any other comment on this matter.

11. The regional public development corporations are consideringa number of potential power projects; many of these are part of irrigationprojects now being constructed or planned. The Government, through theDirectorate of Industries and Electricity in the iviinistry of Develop-ment, is also studying a number of smaller potential power projectsthroughout the country. Practically all these projects are in the veryearly stages of execution or investigation and in some cases no definitereports are yet available.

12. Thle private companies serving the public are also formulatingand studying plans for plants beyond those now in construction. Thelargest among these would be the 120 MW N7iatucana plant to be added tothe existing Lima system in about 1969 by Hidrandina with a further200 Nil in two other potential plants being given preliminary studyfor possible future construction.

13. In addition to generating plants, both the Government andprivate groups are discussing transmission and distribution system ex-tensions. The more important aspects concern the Government's planfor the gradual construction of transmission lines along the entirecoast eventually to form a continuous interconnection of all coastaltowns. This is at present simply in the general planning stage and itwill be a number of years before any practical steps would be economicallyjustifiable except for the gradual and progressive extension of existing

transmission systems. In the central region of the country, and as partof the Mantaro project, there is contemplated a high voltage loop whichwould interconnect 1!Iantaro with Cerro de Pasco, Lima, Ica, Pisco, Chimboteand Pativilca. These transmission lines have as part of their purposethe interconnection of load centers so as to provide a sufficientlylarge potential market for N5antaro power. There is some doubt as to thejustification of the proposed timing of the constructing of these linesand consideration should be given, along with the timing of Nantaro,to the possibility of a more gradnal development of this transmissionplan so as to keep construction and investment in line with the actualgrowth in demand. There has apparently been a tendency at times forsome planners in Peru to assume that electric power demand can be createdsimply by makdng power available; unfortunately, this is not al-ways thecase and such an approach can be financially very costly. There aresome very evident examples among the government-owned developmentcorporations to illustrate this point.

II. ELECTRIC POWER LEGISLATION

Electric Industry Law (No. 12378)- 4

1 The first law to regulate the Electrical Industry - defined asthe generation, transformation, transmission, distribution and purchaseor sale of electric energy - was enacted in July 1955 as Law No, 12378.The stated principal purposes of this law are: (i) to regulate the Elec-trical Industry; (ii) to promote the development and improvement of theElectrical Industry; and (iii) to stimulate the investment of privatecapital in the Electrical Industry by assuring its recovery and anadequate return on investments in installations for service to thepublic. The law also specifies that state or municipally-owned entitieswhich provide electric service to the public shall be subject to theprovisions of this law.

15. Law 12378 provides for the creation of the. National Tariff(ommission composed of seven persons. A Chairman appointed by the Pres-ident of the Republic serves a four-year term. Six other members servetwo-year terms and represent the Directorate, Industries and Electricity(of the iinistry of Development and Public Works), the Department ofTaxes, the National School of Engineers, the National Society of Industries,the Electrotechnical Association of Peru and the Association of PeruvianELlectrical Companies (the private power companies). The members mustbe professionally qualified and, except for the representative of thelLssociation of Peruvian Electric Com.panies, must not have direct orindirect interests in electric public service companies. The Commissionis empowered to authorize, modify and interpret electric tariffs and,wihen necessary, to impose fines as prescribed by the law upon entitieswhich infringe its provisions.

16. The law provides for electric tariffs to be established at alevel which will produce gross revenues to cover all operating costsand give a return of from 11.5 percent to 15 percent on the capita'linvested by the concessionaire. The higher rate of return applies tosmall companies only. The return is divided into two portions: (a) from86.5 percent to 12 percent annual dividend on invested capital and(b) a three percent "commercial profit" to give the total return mentionedabove. The operating costs allowed include all direct costs, interestpayments, depreciation, contributions to the System Expansion Fund(described below) and all taxes.

17. The electric tariffs are subject to a statutory review andadjustment as needed every three years to meet the provisions of thelaw. At that time the Tariff Commission will appoint experts to revaluethe physical assets of the concessionaire by appraisal. The DepreciationReserve will be correspondingly adjusted. The concessionaire is obligedto reflect the resulting increase in the value of his assets in an appro-priate increase in the value of his capital stock. An extraordinarytariff adjustment and revaluation of assets may be requested by theNlinistry of Development and Public Works or the concessionaire at anytime.

18. The law obligates the concessionaire to expand the distri-bution system in his service zone and to create a "Fondo de Ampliaciones"(System Expansion Fund) out of which the concessionaire is obliged toextend the distribution system beyond the original service zone tomeet demands for electric service. The annual contributions by the con-cessionaire to this fund may not exceed five percent of the investmentsmade by the concessionaire nor may the accumulated amount of the fundexceed 20 percent of the total investment in system expansions. TheSystem Expansion Fund and the part of the Depreciation Reserve pertainingto assets financed out of the proceeds of the System Expansion Fundbe:Long to the public domain.

19. The annual contribution to the Depreciation Reserve may notexceed five percent of the total amount of the physical assets in service.Also, the Depreciation Reserve will be kept in two accounts, so thatthe part pertaining to the depreciation of the assets belonging to thepublic domain and financed from the System Expansion Fund will be keptseparate and only used to replace or expand these same assets.

20. The law also creates the Superior Electrical Council (ConsejoSuperior de Electricidad) consisting of four regular members (representingthe College of Engineers, tne Peruvian Electrotechnical Association, theAssociation of Electric Companies of Peri and the College of Lawersof Lima) and two ex-officio members, namely the Minister of Developmentand Public Works, as chairman, and the Director of Industry and Elec-tricity. The stipulated duties of this body include granting and can-ceLlation of concessions, proposing measures to stimulate the develop-ment of the electric industry, suggesting modifications to electricpower laws and making suggestions to the Executive for the better ap-pl:ication of the existing law.

21. The Electric Industry Law has stimulated the development ofthe electrical sector and it has enabled the private companies toobtain financing to expand their plants to meet substantial increasesin electric power demand. Prior to 1956 the average annual increasein total installed capacity in the country was 17,000 kw whereas since1956, when the Electric Law became effective, the average has risen to68,000 kw a year. Chart 1 shows this trend.

Law of Autonomous Enterprises (No. 13979)

22. In February 1962, Law 13979 was enacted to authorize theExecutive to organize as autonomous enterprises the National Railroads,the Potable Water Service of Lima and the National Electric Services.In July 1962 a supreme decree was published to authorize the creationof National Electrical Services (Servicios Electricos Nacionales - SEN).The decree states that SEN would be responsible for providing the countrywith sufficient electric energy to stimulate its economic developmentand to raise the standard of living of its people, in conformity withthe National Electrification Plan. It would collaborate with private

capital by encouraging the channelling of private investments into theelectrical industry.

23. SEN would start by taking over and operating the small dieseland hydroelectric plants already built by the Directorate of Industriesand Electricity (DIE) with government funds in several hundred smallvillages and population centers throughout the country. These plantsrange from 10 kw to 1,000 kw in size, most being small; aggregate capacity:is about 25,000 kw. SEN would continue the Govermnent's program of in-stalling plants in rural locations and would encourage the organizationof cooperatives and concessionaires, principally in rural areas and,where the private companies are not providing service, would form in-dependent electric power entities. The decree further states that SENwould have the obligation of making itself self-financing within fiveyears out of its revenues and foreign and local borrowings. Prior to thattime the Government would make annual contributions from the national bud-get to SEN to cover its deficits, which presumably would include thoseiresulting from operations and investments in new plants. SEN has notyet been formed although the DIE has made progress in planning an organ-:izational structure and is now giving attention to the problems ofselecting staff for the futiure entity which is expected to begin operationsby the end of 1965.

24. The creation of an organization to operate and maintain thelarge number of existing small plants seems necessary to safeguard theinvestment already made. However, it is questionable whether the programof installing small plants should be continued. It would seem betterfor SEN to encourage and foster the formation of municipal, private ormixed independent enterprises of such a size that they would have areasonable chance of being viable entities which could provide acceptably(efficient electric service at reasonable cost. Later on, the programcould be directed at gradually integrating as many as possible of thesesaall entities into larger groups by transmission line ties. Whereverpossible the generation of power is more economically accomplished bylarge entities which can then sell power in bulk to smaller distributors.Therefore, SEN should serve as a catalyst to stimulate the creation anddevelopment of the initial small groups and then encourage them toamalgamate in the manner suggested above.

Interconnection Law (No. 14080)

25. In May 1962 the Interconnection Law was enacted for the purposeof' encouraging and fostering the interconnection of the electric systemsirL the country in order to secure a more efficient and economical use ofpower generating facilities by the interchange of energy. The lawstipulates, however, that no public or private power entity will becaused to supply energy to the interconnection until its own demand has'been satisfied and no entity will be caused to accept energy when itsown facilities are still able to supply the demand. At present, the

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widely dispersed location and small size of most of the power systemsarid entities in Peru does not lend itself to interconnection. However,the possibilities of interconnection have been under study by individualprivate companies and it can be expected that at a suitable time inter-connections will take place. In all probability, they will first occurin the central region where the larger power entities are situated.

III. ENTITIES IN THE ELECTRIC POWER SECTORS

26. The entities in the electric power sector may be placed infour main groups:

(a) The private companies serving the public - about 434,000 w-.(b) The captive plants in major private industry and mining -

about 5h0,oo0 kw.(c) The government-owned autonomous corporations - about

100,000 kq.(d) The small government-owned plants supplying rural popu-

lation centers - about 25,000 kw.The generating capacity of all these groups aggregates about 1,100,000 kw.The largest power entity is the Empresas Electricas Asociadas and itssubsidiary Hlidrandina with a combined capacity of 360,000 ku which servesthe greater Lima area. (See Annex 1 for a brief description of theEmpresas Electricas Asociaclas.) Lima is the capital city and the commercialand industrial center of Peru where over two million of the country'seleven million population live; there is no other town of csmparable sizein the country. The electric energy generated is utilized at present in-the following proportions:

Category Percentage of Totalof User Entire Country Lima Area

Mining 37 -Industry 28 36Domestic 15 35Agriculture 9 -Commerce h 22Others 7 7

Total 100 100

Chart 2 shows the growth rates for these various classifications of usersin the Lima area during the past 18 years.

27. Fourteen other larger private companies serving the publichave an aggregate of 60,000 kw of installed capacity (see Annex 2 forlist) of these the Sociedad Electrica de Arequipa with an installedcapacity of 22,000 kw is tihe largest. Servicios Electricos serves agroup of small towns and has an aggregate capacity of 18,000 kW butthe individual units are much smaller. The remainder of the companiesrange from 100 kw to 4,000 kw in installed capacity. There are inacidition a number of very small companies with an aggregate of about14,000 kw of installed capacity serving small population centers.

28. The captive plants in mining and industry aggregate the largestgroup of electric power plant capacity having 540,000 kw. The largestentities in this group are three mining companies - Cerro de Pasco,Southern Peru and Marcona - and the Pativilca industrial complex whichaggregate over 270,000 kw or half the total of captive plants. The re-maining half is in six plants of from 10,000 kw to 15,000 kw each,totalling 70,000 kw and a large number of much smaller plants in indi-v:dual industries totalling 200,000 kw.

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29. Of the eight autonomous government-owned development corporations,(see Annex 3), the Corporacion de la Santa has the largest electric gen-erating capacity in a hydroelectric plant of 50,000 kw. The Santa Corpo-ration has built a steel mill at Chimbote and is studying plans to ex-pand it by the addition of a rolling mill and other facilities. It isa:Lso involved in coal mining, irrigation and colonization. The otherdevelopment corporations, except the Mantaro Corporation described separate-lyr under expansion plans below, are involved in public works, irrigation,colonization, industrial development and general area development. Inmost cases the power facilities serve their own needs and the small ccm-mtnities in their area. The power sources usually result from the irri-gation plan and form part of it; although in some cases separate hydro-electric sources have been built. Most of the existing plants are under10,000 kw capacity, with the exception of the Santa Corporation (50 IlM)and the Cuzco Corporation (0 hM).

IV. EXPANSION PLANS

Government's Program

30. The Government's expansion plans for the electric power sectorare being implemented through the autonomous government-owned corporationsand through DIE (Ministry of Development), discussed above. The majorexpansion plans are summarized below. The investment program proposedby the Government's National Planning Institute (INP) for 1966 and theBank .ission's proposed investments for 1966 and 1967, are set forth inAnnex 6.

The Corporacion de Energia Electrica del Mantaro (CORNAN)

31. The Mantaro hydroelectric project would make use of the threebends in the Mantaro River to develop a total of about 2,000 metershead for a proposed two-stage, five-step development of an ultimateelectric generating capacity of 2,650 MW. Annex 4 gives a resume of thedetails of the proposed project.

32. The Mantaro project has been discussed for over 20 years as thelargest potential electric power project to supply central Peru. Itwas described in the l956 report by Slectricitede France concerning ageneral plan of electrification for the country and in tihe 1960 ArthurD. Little report on a national development plan known as "Peruviarr. Inview of the large size of this project, the Government created the MantarcCorporation in December 1961 by Law 13769, for the purpose of developingthe electric power potential of the Mantaro Valley.

33. In 1962 a consortium of European firms (The English ElectricCompany, George Wimpey and Company, Ltd. and Siemens-Schuckertwerke A.G.)offered to construct the first stage of the project and through LazardBrothers and Kreditanstalt fur Wiederaufbau offered to provide up toabout $52 million equivalent of financing to cover a substantial partof the cost. The contract offered did not specify the extent of thework or the estimated cost but was subject to the Government's approvalof the preliminary plans, cost estimates and construction schedule whichwere to be submitted by consulting engineers at a later date. The con-tract was signed by the Government in May 1962 and the firm of Electro-consult was engaged to prepare the engineering and construction plansand cost estimates for the Government's approval.

34. The amount being considered at the time of the signing of thecontract with the consortium, based on a memorandum from English Electricand Siemens of June 1961, was S/. 2,407 million as the cost for a300-400 MW plant. In their report of May 1963 Electroconsult increasedthis estimate to S/. 3,771 million and in February 1964 again raised theestimate to SI. 5,251 million, after more detailed plans and specifi-cations had been prepared and some site investigation had been under-taken. In general the Electroconsult plan envisaged the constructionof the civil works for about a 660 P1M plant in the first bend of theriver and the installation of the equipment in two steps of 330 IW eachto meet system demand as this developed. The subsequent stages andsteps wouild depend upon future pow-yer demands.

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35. This project is the largest single project in Peru's nationalinvestment plan for the public power sector, representing 83 percent ofthe total proposed. In view of its very large size and the considerableinvestment involved, particularly the large annual contributions theGovernment would be required to make, the contract with the consortiumand every aspect of the Mantaro proposal has been the subject of con-siderable ciiscussion which is still going on.

36. Another very important aspect which has given rise to extremeconcern has been the more than doubling of the cost estimates whichcaused the Government, through Supreme Decree No. 67-5 of August 1964,*to authorize the Corporacion de Energia Electrica del Nlantaro (CORMAN)to carry out the Mantaro Project and to renegotiate or terminate thecontract with the consortiuzm. These negotiations are still going onbut at the time of writing no announcement had yet been made by CORI,ANor the Government. The purpose of the negotiations, as declared byCORiAN in its published report of August 1964, is to obtain a firm priceon acceptable conditions and to obtain financing terms that the Govern-ment could find manageable. The stated alternative would be to cancelthe contract with the consortium under mutually agreed conditions andfor CORMAN then to seek financing from other sources on more advantageousterms.

37. CORIAN engaged the French consultants, SOFRELEC, in 1964 toreview the Mvantaro project and to make certain economic comparisionswith two other projects (a) the Huaura hydroelectric project (330 MW),(b) the construction of a thermal plant (150 MW) to burn newly discoverednatural gas at Aguaytia. The economic comparisons made by SOFRELECshowed that Mantaro would be more advantageous than these alternatives,This comparison was not a sufficiently complete study of alternativesto Mantaro, neither did it provide an adequate basis for a judgment ofthe timing of Mantaro in relation to the possibility of first constructingother projects. SOFRELEC clid, however, in consequence of its study,increase the estimated cost of Mantaro by raising the cost of the firststep (660 1N civil works with 330 IMW equipment) to S/. 5,990.2 millionand the second step (330 MiT equipment) to bring the total to SI. 7,002.7million as compared with the lower estimates previously submitted byElectroconsult (see paragraph 34).

:38. The Nlantaro project forms the focal point of the Government'selectric power expansion program for central Peru and would provide thepower requirements for that region for one to two decades. In additionto the generating plants the program includes a high voltage (220 kv)transmission ring (see Map 2) connecting Mantaro, Lima and Pisco withlater extensions to Pativilca, Chimbote and Cerro de Pasco. The purposesof this interconnection would be to provide a larger potential marketfor Mantaro power and an attempt to stimulate load growth by makingMantaro power available at these locations. It is also hoped thatgradually the existing diesel power plants in public or private servicewould be replaced by power from IIantaro. This aspect receives furthercomment when the power market is discussed below.

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39. Reference has already been made (see paragraph 36) to the impactthis very large investment would have on the national budget; Annex 5gives a cash flow prepared by COalAN and based upon estimated figuresgiven by SOFRELEC in their 1964 review and made available by CORIIAN inFebruary 1965. According to this estimate the Government would becalled upon to contribute substanuial amounts of about SI. 350-500mdllion a year during the construction period (1964-1970) and wouldhave to continue contributing during 1971, 1972 and 1973 in the amountof S/. 187 million, S/. 150 million and S/. 66 million, because Niantarot srevenues during that periodi would be insufficient to provide the fundsto meet debt service. Thus the total Government contribution duringthe period 1964-1973 would be at least SI. 3,396.5 million. Moreover,the cost could be substantially increased during the construction periodof at least five years as a consequence of the rising trend in locallabor and material costs.

W0. The financial aspects of any project of this size are alsogreatly influenced by the financing terms and the procedures to befollowed in the procurement of goods and services which affect the finalcost. Since discussions are still proceeding with the consortium itis obviously not possible to comment further on these aspects. TheGovernment in Decree 67-F deduces from the reports of consultants thatthere is a possibility that a lower price could be obtained if inter-national competitive bidding procedures were followed for the constructionof the project, and it is aware that long-term debt amortization wouldbE much more advantageous to the financial viability of the project thanthe period contemplated in the cash flow prepared by COR14AN.

l1. It is generally conceded by the consultants and others whohave been involved in reviewing the Mantaro project that it is technicallyfeasible. However, the main questions center around the timing of theproject and the size of the steps to be undertaken. In a project ofthis size there is clearly a minimum first stage, which both Electro-consult and SOFRELEC appear to agree should be about 660 EN. It wouldalso appear from the cash flow prepared by CORMAN that, once started,this stage of the project should continue until completed in order toobtain a viable project.

h2. In order to examine the feasibility of adding this proposedgenerating capacity to the power system, several market studies havebeen made. The earliest was in 1961-62 by Ing. Juan Orellana Z and wasfollowed in 1963 by a study by Electroconsult and in 1964 by a furtherreview by SOFRELEC. All these studies have again been reviewed andbrought up-to-date in a recent (March 1965) market survey report byCORMAN. Chart 3 shows the forecast demand and the proposed generatingcapacity installations prepared by CORMAN, which assumes that Mantarowould enter the system with a capacity of 220 NIW in 1971 and 110 SWeach year in 1972, 1974, 1975 and 1976, to complete the first stage of660 IW. It is interesting to note that this forecast, which should beconsidered optimistic, estimates the construction and loading of Mantaroat the rate of about 110 MW annually over a period of six years. During

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all that time substantial annual government contributions are requiredand these can only cease if load growth matches the forecast so thatthe entire energy output of' the first step of Mantaro can be sold att;he revenues estimated.

43. In analyzing the power market CORNIAN gave the following tabu-lation of energy consumption for the large consumers in the region whichcould be served by Mantaro.

Percentage of Energy Consumed by

Large Consumers in Central Region

1960 1964 1970 1975 1980

Empresas Electricas Asociadas 52.5 48.8 45.9 44.h 45.h(Lima Light)

Cerro de Pasco 31.3 28.1 24.5 21.7 20.1Crrace and Company 3.9 4.0 4.4 5.0 5.9Zinc Refinery (proposed) - - 4.0 2.5 1.7NIarcona Mining Company 0.9 4.2 4.8 5.3 5.3Irrigation 1.0 1.2 1.5 3.2 2.4Others 10.4 13.7 14.9 17.9 19.2

Total 100o 100d 100% 100% 100%

L4. The major share of the demand in the central region is beingserved by Empresas Electricas Asociadas in the Lima-Callao area. It isexcected that this will continue to be the case for many years to come.Lima Light has its owm expansion program which is described below (seeparagraphs 54-58) and which. is designed to satisfy forecast demand untilabout 1973. Furthermore, preliminary studies are being made of otherpotential plants which, if the projects prove feasible, would provide apossible 200 NWl to 225 MW to add to the present program of system ex-pansion.

45. The next largest consumer in the tabulation above is Cerro dePasco mining company which has its own power plants and has its ownprogram for expanding these (see paragraph 60). This is followed byGrace and Company which also has its own expansion program (see para-graph 59).

L6. The load growth in the Lima-Callao area is estimated byEmpresas Electricas at about ten percent per year. According to theforecast by Lima Light, its system demand is expected to be about 550 IWin 1973. Therefore the annual increment in demand would be about 55 MWat that time and would increase progressively thereafter. This wouldbe only half the growth in demand needed to load Mantaro even over thesix-year period contemplated. The tabulation above shows that the majorshare of the remaining increase in demand is assumed to take place among'lother" consumers; Marcona Mining Company and Grace and Company. There

- 15 -

is sound reason for being skeptical of this part of the forecast untila complete economic study is available to show that existing consumerscould be offered tariffs which would induce them to shut down their ownplants in favor of purchasing power from Mantaro and that such tarifflevels would enable Mantaro to be viable.

147. It would seem that a more complete economic study of systemdevelopment in stages by first starting other smaller projects comparedwith the immediate starting of the larger and more spectacular Mantaroproject would be essential to a decision on the best program to followand to determine which course would place the lesser financial burdenon the national economy. Ihe load forecasts indicate that there isstill the possibility of a one or twio year delay in starting Mantarowithout prejudicing the future power supply to the region. This timecould be used in completing all the studies required to form the basisof a sound judgment. This course of action would, of course, be con-tingent upon COBMAN's ability to deal with problems related to thepresent contract.

The Corporacion Peruana del Santa

48. The next largest power expansion wqas started in 1964 by theSanta Corporation, the largest of the autonomous government-owned develop-ment corporations located in the departments of Ancash and La Libertad.I't has constructed a steel mill at Chimbote and is studying the feasi-bility of enlarging it by adding a rolling mill and other facilities.It is also concerned with the irrigation and colonization project inthe coastal belt between Chimbote and Trujillo known as the Chao Viruproject.

49. The Santa Corporation has an existing hydroelectric power plant(50NW) on the Santa River to which another 50 MW unit is being added andscheduled for service in 1966, principally to meet the anticipated in-crease in demand which would result from the proposed steel mill expansion.The power plant expansion is being financed by a US $7.9 million loanin which the Export-Import Bank, US AID and Westinghouse Electric Company

are participating. The Santa Corporation is providing about S/. 30million towards the local costs.

50. Consultants have been engaged by the Santa Corporation to studythe feasibility of certain proposed irrigation projects, further hydroand thermal power plant expansion and other development projects in itsarea. Until the consultant's report is available no judgment can bemade as to the feasibility of these projects.

Corporacion de Fomento y Desarrollo Economicodel Departamento de Tacna (Tacna Corporation)

CS1. After the Santa Corporation, this autonomous government-owneddevelopment corporation, located in the Department of Tacna on the borderwith Chile, has the next largest electric power plant under construction,

- 16 -

It has obtained a US $70 million Japanese Government credit for area develop-ment including a 35 M4W hydro plant now being constructed and scheduled forservice in 1966. The plant would drain the waters of Lake Aricota whichcontains sufficient water (700 million cubic meters) to operate it at fullcapacity for 20 years. The inflow to the lake would not make a significantcontribution to the water needed to operate the plant.

52.. At the present time there is no market for the power to be gen-erated by this plant, which originally was planned partly to supplypower to the Southern Peruvian Mining Corporation and partly to attractindustry to the area. The mining corporation is installing its own plantextension which will meet its needs for several years and the other an-ticipated loads have not materialized. More careful planning and thephasing of power plant construction on the basis of accurate load fore-casts would avoid premature investments of this nature.

Private Com)anies

53. The expansion plans of the private companies are essentiallythose of Lima Light and Hidrandina. The smaller companies are concernedwith small plant additions and distribution system expansion; the largestof these being Arequipa where a 5,000 kw hydro unit is being added tothe existing system.

Exnpresas Electricas Asociadas and Hidrandina S.A. (Lima Light)

54. Lima Light'.s system serving the greater Lima area obtains itspower from a series of hydrc, plants along the River Rimac and its tribu-tary the River Santa Eulalia, both of which are fed from natural andman-made lakes on the western slopes of the Andes. In addition thecompany has constructed a tunnel through the Andes to bring water fromthe eastern slopes by another system of man-made reservoirs and diversionworks to greatly augment the controlled flowi in the Santa Eulalia andlower Rimac Rivers. See Annex 1 for details.

55. During 1964-65 Lima Light commissioned the first two units(2 x 60 MW) of the Huinco plant on the Santa Eulalia River. Units 3and 4 of the same size are scheduled for service in 1966 and 1967 tobring the plant to its final capacity of 240 M4W. In addition the companyis adding to the capacity of the Marcapomacocha reservoir and diversionwiorks to provide the increased water flows needed for the final stagesof the Huinco plant expansion. The project is being financed by aU1S $24 million Bank loan made in 1960 and a second loan of US $15 millionmiade in 1963. The company through its Swiss affiliates and throughstock sales and internal cash generation is providing an amount aboutequal to the Bank loans to complete the financing required.

56. The company is preparing the feasibility report and designs forthe next hydroelectric plant development on the Rimac River, to becalled the Matucana plant (120 MW), scheduled for service in 1968 andestimated to cost about US $35 million. In addition, the company has

- 17 -

an extensive program of distribution system expansion estimated to costabout US $8 or US $9 million equivalent annually through 1969. Thecompany intends to ask the Bank to assist in financing this plant ex-pansion. Such plant and distribution system expansion would meet theforecast demand of the Lima area through 1972 or 1973 as shown in Chart 3which also shows the progressive, step by step, expansion being carriedout by the company to meet service requirements while keeping its invest-ment program within manageable bounds.

57. In order to be prepared in case the Mantaro project does notcome into service by 1973 the company has given preliminary considerationto other potential plant sites and is studying tentative plans for the1]illoc (100 nil) and Yanacota (120 }XW) projects, both on the Santa EulaliaRiver. Moreover, the company has had discussions with the Governmentconcerning the possibility of constructing a high-voltage transmissionline from Lima to Ica and Pisco in the south and from Lima to Chimboteand Pativilca in the north., These lines would form a large part of thehigh voltage system plannecd for the Mantaro project so that if and whenHlantaro was built it would simply complete this system development.The two plants (Milloc and Yanacota) and the transmission system are-tentatively estimated by the company to cost US $35 million plus interestduring construction. The advantage of first building the transmissionlines between Pisco and Lima and Pativilca is that they would start the:interconnection of load centers and foster load growth which the existingsystem of Lima Light could supply with its present program of plantconstruction. There would then be a slower investment program than ifIMantaro was started immediately and when it finally did come in, therate of annual load increase would be at a higher level which wouldenable the larger blocks of Mantaro capacity to be more readily absorbedas they were built.

58. It would be necessary to study the economics of this proposalbecause the existing potential demand at the load centers outside Limawould probably not justify the cost of the transmission lines at thebeginning and some form of government participation in the financingmight be necessary. In any case, some form of graduated developmentof the whole Mantaro plant and transmission line complex would seem tobe the more prudent course for the Government to take.

Pativilca

59. The River Pativilca valley and the town of the same name formpart of an industrial complex owned by Grace and Company since the endof the last century. It was originally a sugar cane producing projectbut in recent years has been developed to produce many basic materialsfor industry. Grace and Company have firm plans to expand the industrialcapacity of this complex and requires a 40 PW hydroelectric plant ad-dition to meet these new loads. Arrangements have been made for Hidrandinato build the plant and to own it jointly with Grace and Company. Partof the US $114 million cost of the project is being obtained throughsupplier credits, a US AID loan and a small loan by the Banco Industrialof Peru.

- 18 -

Cerro de Pasco

60. The Cerro de Pasco Mining Company is increasing its present1L45 F1W hydro plant to 167 NM by adding another unit to the existingplant to serve its own needs. This expansion will be financed from thecompany's oam resources.

Southern Peruvian Mining Corporation

6S1. The Southern Peruvian Mlining Corporation is adding a new 60 NWsteam plant to its existing power facilities to serve its own needs; thiswill be financed from its own resources.

V. FUTURE PLANS

62. The Government's policy, as stated in the decree creating theServicios Electrico Macionales, is to stimulate the demand for electricpower so that an annual growth in demand of at least eleven percent maybe attained for the purpose of reaching an average annual consumptionper inhabitant of 1,000 kwh in ten years. To achieve these goals about1,000 3W of new planit will have to be added by 1970. As steps in thisdirection, a great many studies of potential projects are being made inaddition to the major projects already mentioned in this report. Mostof the autonomous government-otvmed development corporations are study-ing possible power additions to their irrigation projects or installationselsewhere in their areas. Consultants have been engaged to study 14potential hydroelectric projects which would provide an aggregate capacityof 1,000 1W and 29 other small projects.

63. There is evidence of a tendency, illustrated by the powerpolicy and by past actions in some regional corporations, for planners tobelieve that a demand for power can be created simply by making it avail-able. The fallacy of this basis of planning for power exspansion hasbeen amply demonstrated by the present situation in Tacna where a powerplant is being completed although no load exists and there is no evidenceof any new industrial or other development even being planned. Itwould therefore seem much more prudent first to make market studies orsurveys to ascertain the need for new or additional power facilitiesand then to seek the most economical means of providing it.

VI. CONCLUSIONS

64. The following will summarize the conclusions reached in thisreport.

(1) Electric Power Service to the Pubic

Electric service for the public has been and is almost entirelyin private hands. The Empresas Electricas Asociadas (LimaLight serving the Lima-Callao area) is the largest among the1l larger companies serving the public, having five times thegenerating capacity (360 MO) of the aggregate in all the otherprivate companies (74 MW). The Electric Industry Law providesa clear and comprehensive legal basis for regulation of theelectric industry. It stipulates the procedures and basisfor establishing tariffs at levels to give the industryadequate returns on its investment, so that it can keep ob-taining the financing needed to make the continuous invest-ments in plant necessary to meet growing demands for service.Since the enactment of this law in 1955 the private companieshave expanded their systems to meet demand, so that the presentgenerating plant capacity is adequate to meet the power demandin the major load centers and forecast load increases arebeing met by planned new plant construction which is scheduledfor service in time to meet the higher demands until about1970 to 1973.

(2) Captive Plants in Mining and Industry

The largest aggregate of electrical generating plant capacityis in the captive plants in private mining and industrialcompanies which comprise 58 percent of the total generatingplant capacity (1,100,000 kw) in the entire country. Theseplants serve the private needs of these companies and aregenerally adequate for the demand and are efficiently operated.

(3) Autonomous Government-owned Corporations

Among the government-owned autonomous development corporationsthe picture is not as clear. These corporations have notalways planned their programs adequately and in some instancesexpensive projects in electric power have been constructedprematurely or larger than was needed at the time, thus im-mobilizing capital unnecessarily and over-burdening the pro-jects with capital costs. The Government would benefit byinsisting on more realistic planning and accurate powermarket forecasts, so that generating capacity would be phasedin to meet growth in demand.

- 21 -

(4) The Nantaro Corporation

This corporation, which was created mainly to develop theelectric power potential of the Mantaro River, re-resentsthe Government's major effort in the power sector. Theproject itself, which would have a first stage of 660 MWand a potential ultimate capacity of 2,600 MW, is by farthe largest single project in Peru. It alone representsmore than 2-1/2 times the total existing installed capacityin the entire country. The Mantaro project is not only avery large project which has to be constructed in relativelylarge steps but, in consequence, is costly and even the firststep alone would have a most important impact on the nationalbudget during its construction period of five years and, forseveral years thereafter wou'.d require government assistanceto meet its debt service payments. The economic studies sofar made have not been sufficiently complete to provide thebasis for a judgment of the timing of Plantaro in relation tothe possibility of constructing other smaller projects beforeMantaro. The market studies show that about half Mantaro'senergy output and capacity would have to be absorbed by LimaLight, thus leav4ng the remaining half to be absorbed byfuture loads still to be created and to replace the outputof existing private plants. Even on the basis of optimisticforecasts it would take at least six years to load the 660 MIVTfirst stage. There would appear to be a real need for morecomplete examination of the timing, cost estimates, financingterms, economic justification and investment program of thisproject before a final decision is made. The load forecastsand planned system expansion program by the existing powerentities in the central region appear adequate to meet powerdemands until about 1972 or 1973. There would, therefore,appear to be a year or two of time during which this exam-ination could be made, so that complete information wouldbe available to make the final decision wyithout prejudicingthe future power supply for the region.

(5) Servicios Electricos Nacionales (SEN)

Sen is the proposed governrment entity to be formed by theDirectorate of Industry and Electricity to operate the manysmall plants the Government has already built to serve smallrural villages and population centers and to continue thisprogram. SEN could serve a useful purpose by operating thepresent installations but it is doubtful that the programof installing these small plants should be continued, exceptperhaps at a very limited pace. It is considered that SENwould perform a muich more useful service by concentrating onfostering the forrmation of small power companies or entitieswhich could later be integrated into larger units to pur-chase power in buLk from the big power generators for dis-tribution to their customers.

ANNEX 1

EMPRFESAS ELECTRICAS ASOCIADAS (LIIVIA LIGHT)

AND HIDRANDINA S.A.

1. Empresas Electricas Asociadas serves the Limna-Callao or greaterLima area (shown on Attachment 1). This is a private company firstformed under Peruvian law ;in 1910 under the name Lima Light Power andTramway Company (Lima Light). About 60 percent of the shares are heldby Swiss interests and the remainder are widely distributed with a largenumber held in Peru.

2. Energia Hidroelectrica Andina (Hidrandina S.A.) is a subsidiaryof Empresas Electricas Asociadas and was established in 1946 to finance,operate and construct poaer plants. Hidrandina owns the hydroelectricplants constructed since 19h6 and has a contract with Empresas ElectricasAsociadas to sell them the entire output of these plants. Attachment 2lists the plants serving the Empresas Electricas Asociadas system andAttachment 1 shows the plants and the water sources feeding them. Theseplants now have a total installed capacity of 360 Pi-V with a further 120 1iiWunder constructicn at Huinco and 120 YNW being designed for constructionat Matucana.

3. In addition to the power plants serving this system a veryimportant water diversion project was started and is now in its finalstage of expansion to double the minimum flow of water to the chain ofplants on the Eulalia and Rimac rivers. This project, also shown inAttachment 1, was planned in two stages. The first stage consisted ofthe construction of the 10,122 meter long transandian tunnel throughthe continental divide at an altitude of 4,330 meters above sea level;the construction of two concrete gravity dams to convert two naturallakes into controlled reservoirs and the construction of five km of canaland ten km of diversion tunnel to divert the waters of the Tuctu,Antacasha, Cuevas and Sanagar streams and from the two reservoirs, allsi-tuated on the eastern slopes of the Andes, through the tunnel to thewestern slopes to join the sources of the Eulalia River. The secondstage, now being constructed will convert the lMarcapomacocho and Antacolakes into reservoirs and connect them to the transandian tunnel.

L. The first stage of the diversion project added two cubic metersof water to the minimum flow to the power plants, thus increasing itto eight cubic meters/sec. The second stage will bring the minimum flowto 12 cubic meters/sec and make feasible the addition of the secondstage of the Huinco plant (120 MW) now also under construction.

5. The following statistics illustrate the general size ofEmpresas Electricas Asociadas at the end of 1963.

ANWEX 1Page 2

Classification Number ofof Customers Customers Kwh Sales

(millions)Industrial 3,156 343Domestic 189,748 333Commercial 46,568 205Others 703 66

Total 240,175 947

6. Since the enactment of the Ley de Industria Electrica in1955 the company has been in good financial condition and, with thehelp of new capital investments by its shareholders in Switzerlandand Peru and through loans from the Bank, has been able to financethe phase of rapid expansion illustrated by the plant capacity datagiven above and illustrateld in Chart 2. The company maintains a goodstandard of service in its concession area.

ANNEX 1Attachment 1

/ _

1,74 M rcococh Z \r>,^P, --ffi ; l *, c

MO1 ,COPOO,OOO_ _ C F O O N L !

0-< 1 V.o.coroomOCocho \ ~ -> ~ "'-\ Ma

RtOICATtON = ' S' AMATUCANA A

CANTA

LIMA~~ ~ ~ LIH and POWER COMPAN

/Hchopompo 7

S/roge ~ ~ 4 29

RERE LLAT //UINCO t t

PERU \;

LIMA LIGHT cond POWER COMPANY t-\si.MY0OPAMPA

HX COICA

EXISTING PROPOSEl)

Hyv,ro Pl.nts U U YANACO../.COLOMBIA '

Diversion Tu,nnels HUAMPA// "s Choclocoyo ECUADOR) - /

Canal.s -- ! .I ., a '

Tra-- -r1-er Stations B _ ' ERAZIL

Trannnission Liles _ *C) 620KV_ ?Cacessias Area .. .. :.j n...s .. o

Catchment Area -= I z _ . 6'

Rese-s-irs 0 Q

O 5 10 1 ZOR2 K.

¾ ~~~~~~Atoc-ogo5ANCN R N- - p 0 AA/TA -. 0 L GRIN

* R'/O;A +

... ...... a

-- i / {Thero/2 <ogAARSI

CALLAO /

JUL, 5953 IBRD-669RI

ANNIEXAttachmen-t ,'

EIHPRESAS ELECTRICAS ASOCIADAS AND HIDRANDINA S.A.

POWER PLANTS

Year Capacityin Service Plant Type SSf _

1930 Santa Rosa Thermal) 28Yanacoto Hydro )

1934 Callahuanca Hydro 35

1948 Moyopampa Hydro 42

1949 Santa Rosa Gas Turbine 10

1953 Callahuana Hydro 32

1955 Moyopampa Hydro 21

1957 Huaplpani Hydro 30

1960 Santa Rosa Gas turbine 20

1962 Santa Rosa Gas turbine 22

1965 Huinco Hydro 120

Total 360 PH

Under Con-struction

1965 Huinco Hydro 120

Planned

1968 Matucana Hydro 120

AINEX 2

PRIVATE COMPANIES SERVINTG THE PUBLIC

Company Installed CaDacity in Kw

Sociedad Electrica de Arequipa 9,592 22,COO

Servicios Electricos 7,630 18,030

Sociedad Industrial de Huancayo 1,280 2,750

Empresa de Energia de Piura 800 4,080

Empresa Electrica de Chimbote -1/ -

Alumbrado Electrico de Huacho 1,630 3,980

Empresa de Luz y Fuerza de Huaral 420 1,288

Servicios Publicos de Nlegritos 2,000 2,000

Empresa Electrica de Paita 300 900

Empresa Electrica de Tacna 967 1,700

Empresas Electricas Asociadas 133,500 360,000

Luz Electrica de Trujillo 1,900 3,000

Empresa Electrica de Concepcion 40 100

Servic:ios Electricos Ancon St. Rosa 500 500

160,559 kwl 420,328 kw

1/ Distribution System only, served by Santa Corporation plant.

ANNEX 3

AUTONOPiOUS GOVER)OIENT-OWNED DEVELOPMENT CORPORATIONS

This is a list of the autonomous government-owned corporationswhich have been created by the Government for the purposes indicated.

(1) Corporacion Peruana del Santa

This is the largest of the corporations and is concerned withthe development of the Santa River valley and the surroundingarea. It has a 50 HVID hydroelectric plant, the largest ownedby the development corporations, and is expanding it by theaddition of another 50 MI unit. This corporation owns theonly steel mill :Ln Peru, at Chirmbote, and is considering ex-panding it by adding a rolling mill. The Santa Corporationis also concerned with irrigation and industrial developmentin its area.

(2) Corporacion de Energia del Mantaro

This corporation was created exclusively to develop the electricpower resources of the Mantaro River, specifically by con-structing the Mantaro power project, see Annex 4, and theassociated high voltage transmission lines. The corporationhas been studying the Mantaro project and engaged consultantsto assist in certain phases of these studies. It is now innegotiations with a consortium of European firms (as explainedin the paragraphs 31-47 in the main text) under the author-ization of Government Decree 67-F for the purpose of renego-tiating the terms of a contract with the consortium or can-celling it.

(3) Corporacion de Reconstruccion y Fomento del Cuzco

This is one of the first development corporations created bythe Government and was first formed to rehabilitate the Cuzcoarea after it had suffered a very severe earthquake. Laterthe corporation engaged in the construction of the iMlachuPicchu power plant (40MW) in an effort to stimulate industrialdevelopment which has not materialized. To help absorb thepower available, the Cuzco Corporation is proceeding withconstruction of a fertilizer plant at a cost of some US $19million equivalent; this will take 27 M>.

(4) Corporacion de Fomento y Desarrollo Economico delDepartamento de Tacna

This is the southernmost of the development corporations locatedin the department of Tacna on the border with Chile. It hasobtained a US $7C) million credit from the Japanese Governmentwhich is being used by Japanese contractors to build a 35 mW

ANNEX 3Page 2

hydroelectric plant, commented on in the text of this report.A team of Japanese experts recently visited the Tacna Depart-ment to help the corporation to study the possibility of ir-rigation and other projects to foster the development of theregion.

Corporacion de Promocion Social y Eccnomica del Departamentode Puno.Corporacion de Reconstruccion y Desarrollo de Ica.Corporacion de Desarrollo Economico de Moquegua.Corporacion Departamental de Servicios Electricos de Lambayegue.

These are the other four development corporations which areresponsible for area development in their departments. Atthe present they are essentially concerned with irrigation andagricultural development.

ANNEX 4

THE MJANTARO PROJECT

CL. The Mantaro River flows down the eastern slopes of the Andesfrom its source near Cerro de Pasco past Lake Juniin to join the RiverApurimac and Ene. At the lower end of the river, before it joins theother rivers, there are two great bends, which include a third smallerbend, and which together form an S in the river. The Mlantaro hydro-electric project would make use of these bends by cutting across themwith tunnels and thereby utilizing the drop in the river to providea total of 2,075 meters of head. Three power plants are proposedWMRl in the first bend and RP1 and RP2 in the second bend,shown inAttachment 1). The total capacity installed would be 2,600 I4W and wouldgenerate about 15,000 million kwh. annually. Attachment 1 also shows thecapacities proposed for each stage of development and the estimatedenergy to be developed.

2. It is generally conceded that the Mantaro project is technicallyf'easible and is undoubtedly the largest hydroelectric potential power3ite in the country. It is also generally recognized that the first twosteps of stage one should be constructed at one time to give 660 IN ofinstalled capacity and makce available about 3,000 million kwh. However,the problem is that the annual growth in demand, even by 1973, wouldtake at least six years to absorb that amount of Dower.

ATTACHMENT 1 ANNEX 4

PE R U

MANTARO RIVER ELECTRICPOWER PROJECT

L. Junin-r. _ , (4090)

'-o

° X La Oroyo Second Bend t0: v (37) 10

Third Bend, SecondStoge

.(.j4Eicl

Huoncyo nRPc 1yTg > (3 260) (620)

0 / ~~~~~~MAR I 42S

Montacro *~::~ty(1840)

(2.00 First

Stage K

\-'First Bend

o/ vea~ rO

CAPACITY AND ENERGY

F I R S T H E N D

STAGES S T EPS C AP AC IT Y ENERGY( K W ) (KWH Millions)

1st. Step 330 000 1700Ist . S tog 2nd.Step 330 000 1350

Total Ist.and2ndSteps 660 000 3050

2nd. stage | 440 000 2200

Total: 1st. Bend I 100 000KW 5250 GWH

S E CO N D B E N D

C AP AC IT Y E NE RG YSTAGES STEP S (KW) (KWH Millions)

lst. Stoge 750000 4800

2nd.Stage 800000 4900

Total: 2nd. Bend 1550000 9700

Totol: Both Bends 2650000 KW 14950 GWH

APRIL 1965 IBRD-15 34

AIN= 5

PERU

MANTARO HYDROEI.FCTRIC PROJECT

ACTUAL AlND ESTIMATED SOURCES AND APPLICATION OF FUNDS

(in millions of Soles)

1962-6L 1965 1966 1967 1968 1969 1970 1971 1972 1973 1971 1975 1976 1977 1979 1979 1980

Revenoes and Income

Cross Reveos - - - - 1i60. 13o.0 527.3 617.3 696.9 733.1 773.1 817.1 828.0 828.0 828.0Operating Costs - - 71.C 135.0 142.0 151.0 i65.o 165.0 165.0 165.0 165.0 165.0 165.0Depreciation - - - _ _47 o7. 124.0 133.0 lS5.0 147.1 117.1 117.1 117.1 117.1 117.1 141.1Interest on Long-term Debt - - - _ _ _ - 165.0 153.0 139.0 124.0 110.0 92.0 75.o 57.0 35.o 16.0Net Inoome - - - _ _ _ 12.1 30.0 90.3 182.3 265.8 311.0 369.0 130.0 458.9 180.9 199.9Net Ircome Before Interest .. _ - _ _ _ 12.1 175.0 252.3 321.3 389.8 421.0 461.0 505.0 515.9 515.9 515.9Net In-e Before Interest ood Depreniation - - - - - _ 89.4 299.0 385.3 166.3 536.9 568.1 608.1 652.1 663.o 663.0 663.0

Sources of Funds

Income Before Interest - 42.4 175.0 252.3 321.3 389.8 421.0 461.0 505.0 515.9 663.0 663.0Depreciation - - - _ _ - 47.0 121.0 133.0 115.0 117.1 17.1 117.1 147.1 117.1 147.1 147.1Extermal Long-tern Ltans

First Step - 356.3 399.6 589.3 635.3 571.9 117.6 - - - - - - - - - -Second Step - - - - - - - 81.2 235.0 235.o 171.5Third Step -- - - - - - - - 560.0 560.0 525.o 120.0Sub-total - 356.3 399.6 589.3 635.3 571.9 111.6 ____

Total Sournes - 356.3 399.6 589.3 635.3 571.9 237.0 380.7 620.3 701.3 711.4 578.1 608.1 1,212.1 1,223.0 1,335.1 1,230.1

Application of Foods

Construction Cost

First Step: Foreign Exchange 155.3 339.2 463.9 692.2 775.2 752.5 273.2 Tota] 3,151.5Local Currency 258.7 506.7 317.6 408.8 138.2 387.1 218.1 Total 2,535.8Total 414.0 845.9 781.5 1,101.0 1,216.1 1,139.9 191.6 Total 5,990.3 - -

Second Step - - - - 113.3 328.0 328.0 213.1Third Step - - - - - _ - - - - - - - BOO.oo 800.00 750.0 60ooSob-total 111.0 845.9 781.5 1,181.0 1,716. 1,139.9 191.6 115.2 328.0 328.0 273.1 - - 800.00 800.oo 750.o 600 o

External Debt Serviie

Loans First Step - - - - - - - 373.0 368.0 368.o 369.0 371.0 370.0 370.0 369.0 360.0 346.0Loans Second Step - - _ - _ _ _ - _ _ _ 97.5 97.5 97.5 97.5 97.5 97.5loans Third Step - - - - - - -

Sub-total - - - - - - 373.0 368.0 368.0 369.0 468.5 467.5 467.5 466.5 457.5 443.5

Replaoeeent of Equipnent - - - - - - - 10.0 20.0 50.0

Total Appl-atdona 41.0 845.9 781.5 1,101.0 1,216.4 1,139.9 491.6 1,88.2 696.0 696.0 621.1 468.5 467.5 1,267.5 1,276.5 1,227.5 1,093.5

Surplus (Deficit) - 489.6 381.9 511.7 581.l 568.o 256.6 (108.0) (75.3) 5.3 99.3 99.6 140.6 (55.1) (53.5) 107.6 134.6

Short-tern Credits - 10.0 30.0 71.0 95.0 85.0 - - - - - - - -A.ortia-ion of Short-ters Credits - - - - - 61.8 64.5 61.8 64.8 61.8 -Doterent 00 Short-tce- Credits - o.6 2.4 4.2 8.4 1.3 15.4 14.6 10.7 6.8 2.9 - -Go,ernment Contribution 41.0 150.2 354.3 441.9 491.5 197.3 339.8 187.4 150.8 66.3 (31.6) (99.6) (110.6) 55.1 53.5 (107.6) (131.6)

April 26, 1965

ALL PERu: INSTALLED ELECTRIC GENERATING PLANTCAPACITY, 1940 -1964(MEGAWATTS)

1,500 1I I I IX I I I

1,000 9

900

800

700 165

600

500

400 4= ___ p _ 4

32a 9 _ | 39~~~~~~~~~~~~~~0. !

300

120 2 I I I I I I I I I I I ILOGARITHMIC SCALE \n

'40 '41 '42 '43 '44 '45 '46 '47 '48 '49 '50 '51 '52 '53 '54 '55 '56 '57 '58 '59 '60 '61 '62 '63 '64 (

END OF YEAR >

IBRD-2620 _

ANNEX 5 CHART 2

LIMA AREA: ENERGY SOLD TO VARIOUSCLASSIFICATIONS OF CUSTOMERS(MILLIONS OF KWH)

400 1400

380 - 380

360 _ ____360STREET LIGHTING OTHERS 20%

340 - ~~~~~~~~~340

260 _ < < ,,>1 ~ ~~~~~~~/ 26

320 3 v 320

300 1' 300

1 80 _ ,,' ...... ... ... ..

,COMMERCIAL T280 22 4-o 361 2 , 280

260 'I 260

240 240_

220 220

200 ; -200

180 ~~~~~~~~180IND'.USTRY- / ~ DOMESTIC

160 y-~.160

140- 1 140

120 - ~~~~~~~~COMMERCIAL-~%J

60 ~~~~~~~~~~STREET 60(LIGHTI40

20 . - TES20

0 01945 1947 1949 1951 1953 1955 1957 1959 1961 1963

IBRD - 2621

AHNEX 5 CHART 3

CENTRAL REGION OF PERUINSTALLED CAPACITY AND MAXIMUM DEMAND(MILLIONS OF KILOWATTS)

3.0 -, I,-T 3.0

2.5 -- 2.5

2.0 2.0

PROPOSED CAPACITY ADDITIONS /

S ~~~/s

1.5 1-_ 1.5

/ DEMAND BASED ONMARCH 1965 STUDY

1.0 1.0

.5 / " ~~~~~~~~~~~~~~~~~~.5

1960 1965 1970 1975 1980

---- ACTUAL--3- '*- FORECAST

IBRD-2664

A ;. E CHART 4

LIMA AREA: INSTALLED CAPACITY ANDMAXIMUM DEMAND(MEGAWATTS)

650-

6000

TOTAL CAPACITY0 HTHYDROELECTRIC

550 CAPACITY

500

4250; , s / A X MU M DE M A h D400~~~~~~~~~~~~~~~~~~~~z.010 00~~~~~~C.,0

_ 5 -- __ _ _ 0

u

150200~~~~~~~

250

1100~ ~

50

1963 1964 1965 1966 1967 1968 1969 1970 1971 1972

IBRD- 2622

GOVERMENT'S PROPOSED H.V.TRANSMISSION LINE PROGRAM

< r\/;C r MA P I

0

0 /

*o-

_ / /

ZORRI UITOS /

TO~~~~~~~*

F,oI v '-PIURA

ULCUBAM19A 2OMOYOBAMBA

CHICLAYO /

CAJAM.RCA

B R A S I L: rRUJILLo

PUCALLPA

HUALLANCA .*GANSO AZUL>.

CHIMBOTE \

% HUARAZ -- -

ARMAY *HUANUCO -

CERRO

*UCH", PASCE~~HUACHO., -- .

7,' ~~~QUILLABAMBAL~~ ~~~ /. ¶- 'IUANC

.e ! , o ss O U ~I L AB MB

CANET E ( AYACUCHO

. CHINCHA ALTA _

- XISCO A 2CUZCO

\ ARCONA r

JULIACA %%.

AREOUI PA

I\MOQUEGUA

Existing transmission lines -: T)QUEPALA

Proposed transmission lines - -----u uSAL TACNA

C H I L E

XDVTT lQ qR IBRD-lS29

,vr MAP 2

PE RU

MA NITARO TRANSMISSION

LINE PROGRAM

t PotivilcaCERRO DE PASCO

LPnrtn L.

l'umlf L.

HuOI' 'L.

H .U AC HO

: arcopornacochoLA-OROYA

Morococho* P _ ACHACHACA

*A F' ActucnoCALLAO

LIMA b

MANTA HO

p ISCO *\ (NDEPENDENCIA.. (PISCO)

EICA

CHANGUILLO0

Existing transmission lines

MARCAProposed transmission lines

Transformers stations

0 20 40 60 80 t00KM

APR:[L 1965 IBRD-1530

ANNEX 6

PUBLIC ELECTRIC PER SECTOR

Government (INP) Proposed Investment Program for 1966and

Mission's Recommended Investments for 1966 and 1967

Bank missioninvestment

INP Estimates&/ recommendation

ProposedInvestment

Budget Program1965 1966 1966 1967

(Millions of Soles)

COPHAN (Mantaro Project) 155 160 4 4

Santa Corporation (Canon del Pato) 135 32 6h

T'acna Corporation (Aricota) 119 41 41 40

Cuzco and Moquegua Corporations 4 12 12 1'

Atomic Energy Commission 3 13 13 17

National Economic Development Fund 22 13 13 10

Sub-division of Electricity(Ministry of Development)

SOCflIPEX contrac t 61 0 40 16

Provincial programs 45 110 80 80

Total Program 545 421 267 182

1/ National Institute of Planning, Public Investment Program for 1966.2/ Nine small plants, mostly hydro, in various parts of the country and

partly financed by a French group SOCIINPEX.