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Report No. 1028b-BR FILE COPYAppraisal of COPEL Distribution ProjectCompanhia Paranaense de Energia Eletrica(COPEL)BrazilApril 22, 1976
Power and Telecommunications DivisionLatin America and the Caribbean Regional Office
FOR OFFICIAL USE ONLY
Document of the World Bank
This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS 2
Currency Unit Brazilian Cruzeiro (Cr$)Cr$1.00 = 100 centavos US$0.11Cr$1,000,000 US$1100,253US$1.00 Cr$9.07US$1,000,000 = Cr$ 9,070,000
ABBREVIATIONS AND ACRONYMS
BADBP = Banco de Desenvolvimento do Estado de ParanaBNDE - Banco Nacional do DesenvolvimentoBNH = Banco Nacional Da HabitacaoCAEEB Companhia Auxiliar de Empresas Eletricas BrasileirasCEEE = Companhia Estaduial de Energia EletricaCEF = Caixa Economica FederalCESP = Centrais Eletricas de Sao Paulo S.A.COPEL Companhia Paranaense de Energia EletricaDNA.EE = Departamento Nacional de Aguas y Energia EletricaELETROBRAS = Centrais Eletricas Brasileiras S.A.ELETROSUL = Centrais Eletricas do Sul do Brasil S.A.FINANE Agencia Especial de Financiamento IndustrialFINEP - Financiadora de Estudos e ProjetosFURNAS = Furnas Centrais Eletricas S.A.GCOI = Grupo Goordenador para Operacao InterligadaIDB = Inter-American Development Bank
MEASURES AND EQUIVALENTS
kW KilowattMW = Megawatt (1,000 kW)kWh = Kilowatt hourGWh = Gigawatt hour (million kWh)kV = Kilovolt (1,000 volts)kVA = Kilovolt - amperesMVA = Megavolt - ampere (1,000 kVA)km= Kilometer (0.6214 mile)km2 = Square kilometer (0.386 sq. mile)
FISCAL YEAR
January 1 to December 31
2/ The exchange rate on December 31, 1975 was used to compute currencyequivalents in this report.
FOR OFFICIAL USE ONLYAPPRAISAL OF COPEL DISTRIBUTION PROJECT
CO(PANdZk PARANAENS DE ENERGIA ELETRICA (COPEL)
BRAZIL
Table of Goutents
Pate No.
Summary and Conclusions i - ii
1. Introduotion1
2. The Power Sector 2
E&rgy Resources 2Power Sector Organization 2South-Southeast Power Market and Expansion Program 4State Sub-sector 4Electric Power Tariffs 5Tariff Structures 6
30 The Borrower 7
Organization, Management and Staff 7Management Information Systems and Audit 7State Power Market 8Performance Indicators 9
4. The Project
The Program 10The Project 10Engineering 13Project Execution 13Procurement and Disbursement 13Environment 14
5. Justification of the Project
Project Objectives 15Load Forecast 15Least-Cost Solution 16Return on Investment 16
6. Finances
Summary 17Past and Present Financial Perfozuance 17Capital Investment and Financing Plan 17Financial Outlook 19
7. Agreements Reached and Recommendations 21
This report was prepared by Messrs. C.F. Mena, U. Aguirre, P. Birabenand E. Wessels.
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
List of Annexes
1. Estimated Energy Consumption
2. Load Forecast for the State of Parana
3. Energy Balance
4. COPEL's Generating Stations
5. Transmission and Subtransmission Expansion Program, Excluding Project
6. Project Costs and Construction Schedule
7. Project Costs - Summary
8. Estimated Loan Disbursement Schedule
9, Performance Indicators
10. Electricity Tariffs
11. Project Implementation Schedule
12. Finances
13. COPEL's Organization Chart
14. Return on Investment
Map - IBRD 12133
APPRAISAL OF COPEL DISTRIBUTION PROJECT
COMPANHIA PARANAFNSE DE ENERGIA ELETRICA (COPEL)
BRAZIL
Summary and Conclusions
i. This report covers the appraisal of a project forming part of the1976-1979 expansion program of Companhia Paranaense de Energia ELetrica (COPEL),a joint-stock corporation whose principal owner is the state of Parana.
ii. The propcsed loan would be the first by the Bank to COPEL, whichrecently assumed Loan 476-BR approved in 1966 for a distribution project ofCompanhia Forca e Luz do Parana, since absorbed by COPEL.
iii. The project canprises most of COPEL's distribution expansion programfor the period mentioned above as it consists of facilities to be initiated byJuly 1, 1976 and to be completed by June 30, 1979. It includes investments insubtransmission and distribution needed to meet increased demands on theutility's system; related inspection and training; and acquisition of laboratory,maintenance and system operation equipment.
iv. In addition to the above, the project would lead to the extension ofservice to about 20,000 low-income households. The project's estimated costamounts to US$188 million of which US$52 million represents the foreign exchangecomponent to be financed by the proposed loan. The remaining costs would becovered by COPELts net internal cash generation and reinvestment of power salestaxes.
v. The rate of return on COPEL's entire investment program (includingthe project) is estimated at 19.5%. A sensitivity analysis shows that thisreturn would be reduced to 17 % if sales are assumed to be 10 % lower and projectcosts 10 % higher. These rates of return are sufficiently high to suggest thatconsumers will be requested to pay a price for power considerably in excess ofincremental system costs. This in turn means that wasteful use of electricityshould be avoided. In view of the complexity of the systems effects and of thedifficulty in interpretation, a rate of return on the project has not beencalculated.
vi. COPEL's present local consultants would assist the utility's engineeringand procurement staff in preparing all contract documents for procurement. Allother engineering (designs, specifications and construction supervision) willbe performed by COPEL's staff. Local firms would construct the project'sfacilities and equipment installation will be carried out mainly by suppliers.Some construction and equipment installation will also be performed by COPEL'sown forces.
vii. Procurement of Bank-financed items would be through international competitivebidding (ICB) in accordance with Bank guidelines for procurement uader its loans, with
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suppliers whose bids contain components manufactured in Brazil eual to at least 50%of the value of the bid being granted a preference of 15% or the applicable custom dhty,
whichever is lower. Up to US$1.8 million of the proposed loan would be allocac-edfor direct purchases of special imported metering and protection equipment notsuitable for ICB because of standardization requirements. Approximately US$0.8million of the proposed loan would be used for direct purchase of importedequipment which is required in small quantities throughout the execution of theproject, making IOB impractical. No retroactive financing or financing ofinterest during construction is proposed.
viii. COPEL is a suitable recipient for the proposed Bank loan. It is wellmanaged, enjoys the benefits of favorable tariff legislation and the financialsupport of ELETROBRAS and the state of Parana. Its present and prospectivefinancial performance is good. It will cover 28% of its total expansion programduring the project period with funds provided directly by its customers.
ix. The project provides a suitable basis for a Banlk loan to COPEL ofUs$52 million with a term of 20 years including 3-1/2 years of grace. Theloan would be guaranteed by the Federative Republic of Brazil. A projectagreement between the state of Parana and the Bank would cover pertinentobligations by the state.
APPRAISAL OF COPEL DISTRIBUIION PROJECT
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
BRAZIL
1. Introduction
1.01 Companhia Paranaense de Energia Eletrica (COPEL) a joint-stock'corporation whose principal owner is the state of Parana, has asked the Bankfor financial assistance to carry out its distribution expansion program.
1.02 The project consists of urgent subtransmission and distribution works
to be carried out in the state over the period 1976-79. These works are a
part of a large construction program being undertaken by COPEL to provide the
power facilities needed to support a continuation of the rapid expansion ofParana's industrial sector in recent years as well as an accompanying rise in
commercial and residential consumers. The industrial growth has been concen-trated in the agricultural processing and forestry industries and has beenaccompanied by rapid urbanization and immigration from other regions of Brazil.
By eliminating a potential constraint on the continuation of this growth, theproject (estimated to cost US$188 million equivalent with a foreign exchangecomponent of US$52 million) would support the Brazilian Government's efforts
to create growth poles outside the country's traditional industrialized areas.
1.03 The proposed loan of US$52 million would finance the project's foreign
cost. It would complement foreign financing of US$79 million which COPEL isarranging for its 1976-79 construction program. Included in this foreignfinancing are US$56 million to be disbursed from a US$74 million loan approved--n December 1975 by the Inter-American Development Bane for COPEL's Foz doAreia hydroelectric project and suppliers' credits. COPEL may also succeedin obtaining additional financing from foreign private financial institutions.The Bank would be prepared to assist COPEL in obtaining better terms fromthe private sources through appropriate co-financing arrangements.
1.04 As noted above, the main thrust of the project would be support of
resource-based industries in the state of Parana. However, the project wouldalso allow the connection of some 20,000 low-income households which have not
been able to afford the customary connection fee. To enable these householdsto be connected, COPEL would finance the fee on a 36 - month deferred paymentplan.
1.05 The proposed loan would be the first by the Bank to COPEL, although
recently COPEL assumed Loan 476-BR made in 1966, to Companhia Forca e Luz doParana (since absorbed by COPEL), for a distribution project.
1.06 This report is based on a feasibility study of COPEL's 1975-1980distribution expansion program prepared by the utility and on the findings
of an appraisal mission consisting of Messrs. Jaime Acevedo-havas, Pierre Birabenand Carlos F. Mena, who visited Brazil in October 1975 and a mission by Mr. Bernard
Montfort to discuss power tariff structures with the Brazilian authorities inMarch 1976.
2. The Power Sector
Energy Resources
2.01 The estimated total gross consumption of energy in Brazil in 1975was 107,880 M.T.o.e. (0.99 T.o.e. per capita)! and it is expected to grow atabout 8% p.a. in the next 5 years, reaching about 1.26 T.o.es per capita in1980. Oil products account for about 50% of the rational energy consumption,wood products and wastes 27% and hydroelectricity 20% (see Annex 1).
2.02 Brazilfs proven oil reserves are limited. Present domestic productionof crude covers only 18% of the country's requirements and is concentrated inthe Northeast. To increase domestic production, the Government intends toaccelerate prospection. To this end it has recently authorized the contractingof the services of foreign firms for exploration and exploitation in certainareas; putting an end to the policy of government monopoly. Bituminous and sub-bituminous coal reserves, which are located in the South are estimated at 3200million tons. Coal extraction is rather costly because shaft mining is predom-inantly required. Brazil is well endowed with hydroelectric resources with apotential of about 100,000 MW of which less than 15% has been utilized so far.Further economic utilization of these resources would require installation ofa proportion of non-hydro generating capacity to firm up hydroelectric generationand to this end 3,000 MW of nuclear generating capacity are expected to be inoperation in the Southeast region by 1985. Gross consumptian of electric energyin 1 975 was 80,200 GWh (25% of total energy consumption) and has increased at arate of 12.31 p.a. during the last 5 years, reaching a per capita gross consump-tion of 739 kWh.
2.03 The Southern region, with 18'% of Brazil's population, accounted forabout 15% of the total energy consumption of the country in 1975, with a percapita consumption of about 0.6 T.oe., almost half of which comes from woodproducts and wastes. In 1970 the consumption of oil products accounted for 292,coal 13% and hydroelectricity 10% of the total Southern region consumption(see Annex 1).
2.04 Electric energy consumption in the Southern region has grown at a rateof 14.5% p.a. in the last 5 years, reaching a consumption per capita of 404 kWhin 1975 and it is expected to reach about 618 kWh by 1980.
Power Sector Organization
2.05 The legal, technical and admi.nistrative structure of the electric powersector is established by Decree No. 68,024 of June 7, 1967, which defines thestructure as consisting of the National Department of Water and Electric Energy(INAEE), ELETROBRAS and the various federal, state, municipal and privateconcessionaires, all under the jurisdiction of the Ministry.of Mines and Energy(MME). INAEE performs regulatory functions including the granting of licenses
j9, T.o.e.: tons of oil equivalent, approximately 107 Kcal.M.T.o.e. = 1000 T.o.e.
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for hydroelectric sites, assignment of cmncession areas, setting of tariffs andapproving expansion plans. ELETROBRASJ Which operates as an executing agencyunder the jurisdiction of the MME and in coordination with INAEE, performs thefunctions of (a) holding company for those utilities where the Government hasacquired financial control, (b) financial institution administering and allocatingpublic funds among its subsidiaries and electric utilities owned by state govemn-ments and coordinating sector borrowings from abroad, and (c) coordinating andassisting the development of the country's electrification programs includingthe rendering of technical, managerial and training services.
2.06 In accordance with Government policy, the power generation functionand related high voltage taansmission is reserved largely to four of ELETROBRAS'subsidiaries which cover Brazil's five natural regions. They are CentraisEletricas do Norte do Brasil (ELTrRCNORTE) covering the North and part of theCenter-West, Companhia Hidro Eletrica do Sao Francisco (CHESF) covering theNortheast, Furnas - Centrais El6tricas (FURNAS) covering the Southeast and partof the Center-West, and Centrais El6tricas do Sul do Brasil (ELETROSUL) coveringthe South. ELETROBRAS is the major source of funds for generation andmajor transmission projects in Brazil, which are derived from a series of leviesdiscussed in Annex 10. This has allowed it to influence the activities ofutilities in which it does not hold a controlling share of the equity.
2.07 Also in accordance with Government policy, the power distributionfunction at the state level is carried out mainly by utilities controlled bythe state governments. In line with this policy, there have been in recentyears a number of acquisitions and mergers of smaller municipally-and-privately-owned distribution companies by state-owned utilities as well as transfers tothem of some of ELErROBRAS' subsidiaries engaged in distribution. Today, withthe exception of the Rio de Janeiro and Sao Paulo areas which are servedprincipally by Light-Servicos de Eletricidade, S.A. (LIGHT), a privately-ownedenterprise, most of the power distribution is made through one company in eachstate. ELETROBRAS is a minority shareholder in most of these state utilities.COPEL in one of the largest of these affiliated utilities and its concessionsare located within the state of Parana, in the southern region.
2.08 Sector planning and development is carried out b ELETROBRAS, whichhas been issuing multiannual budgets for the sector (OPE_/) which cover 5-yearperiods and are revised and updated annually, since 1968. These budgets enableELETROBRAS and the Government to select projects to meet anticipated demandand to provide for them adequate financial support. Because the OPEs containinformation regarding equipment requirements, they also afford manufacturersof electrical equipment opportunities for better planning of their activities.
2.09 In order to properly operate the interconnected system, the CoordinatingQroups for Interconnected Operation (GCOI)_/ were established by law of July 5,1973. Their principal objective is to provide for the rational operation ofexisting and future generating and transmission facilities in the interconnectedsouth-southeastern regions. COPEL_, ELETROSUL and FURNAS are members of theExecutive Committee of GCOI.
j Orqamento Plurianual do Setor de Energia Eletrica.31 Grupos Coordenadores para Operacao Interligada.
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South-Southeast Power Market and Expansion Program
2.10 The 1968 market study prepared by ELETROBRAS for the south-southeasternregion forecast an average 9% rate of growth from 1968 to 1974. The actualgrowth in electric energy consumption has been 12% on average, due mainly tohigher than expected GNP growth in the regions. The combined sales in the tworegicns in 1975 amounted to about 60,000 GWh.
2.11 In connection with Loan 923-BR (Itumbiara Hydroelectric Project) theBrazilian Government agreed in 1973 to prepare and submit to the Bank forcomment plans for expanding generation and major transmission facilities inthe southeast and south regions in two stages: the first covering the periodthrough 1981 and the second through 1990. The least-cost generation andtransmission program for the first of these periods includes 14,460 MW of hydro,1,040 MW of conventional thermal and 600 MW of nuclear capacity. The hydrocapacity includes two projects currently under construction in the south region:ELETROSUL's Salto Santiago project (first stage 1,330 MW, ultimate capacity1,995 MW) and COPEL's Foz do Areia project (first stage 1,125 MW, ultimatecapacity 2,250 MW). The Inter-American Bank (IDB) has approved loans toELTROSUL and COPEL to finance a part of the foreign cost of these projects.
2.12 A program for expanding generation and major transmission in the tworegions after 1981 was presented to the Bank in 1975. Considerable uncertaintyexists at present about some of the basic assumptions underlying this program,which is the subject of a continuing dialogue between the Bank and the Brazilianauthorities. These uncertain factors include the impact on power demand of theslowdown in the growth of GNP (which appears to have been much greater in thesoutheast region than in the south); the timing of operation of the Itaipuhydroelectric project; and the degree of substitution of petroleum by electricity.A review of the Brazilian energy sector by the Bank which is currently inpreparation will1address these and other related issues.
2.13 The uncertainties noted above would not affect the justification ofthe projects which is part of a program designed to meet the immediate needsfor power in COPEL's service area (see paragraph 5.05). They will, however,affect projectsthat have not yet been started, such as the proposed high-voltagesystem linking the southeast and south regions with 500 kV transmission linesto be built by ELETROSUUL and 750 kV lines by FURNAS. The Bank has been requestedto finance ELETROSULfs portion of the proposed high-voltage system and willtherefore have an opportunity to review its timing and justification in thiscontext.
State Sub-Sector
2.14 In 1975, the population of the state of Parana was about nine millionpeople. Of these 30% lived in cities of more than 10,000 inhabitants, thelargest of which is Curitiba, the state capital (population 1,000,000).Consumption of electric energy amounted to 2,982 GWh (331 kWh/capita)of which 83.8% was supplied by COPEL, 15.6% by captive plants and o.U by smallpublic utilities. The latter are expected to be absorbed by COPEL in the not-too-distant future. The development of the power market in the state issummarized in paragraphs 3.06-8.
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Electric Power Tariffs
2.15 Since 196 4 Brazilian electric power tariffs have been based on aservice-at-cost system, whereby customer's rates have been set at the levelsrequired to produce sufficient revenues to ?oqver operating expenses (excludingfinancial charges), depreciation, reversion_J and a reasonable return oninvestment. Since 1966 the annual revaluation of assets has been mandatory,and since 1971 a statutory rate of return2/ of 10% to 12% (at INAEEtIs discretion)has been in effect. This system, which is consistent with sound financial andpublic utility practices, has been the cornerstone to the development of thesector, which since its inception increased installed capacity at an averageannual rate of 10.1% reaching about 20,100 MW in 1975, to keep pace with anaverage annual growth in gross consumption of 9.2% and improve reserve margins.
2.16 1NAEE has in recent years used its discretiomry powers to acbLeveprogressive equalization of customer rates throughout Brazil, a governmentpolicy enacted into law in 1974. While the social objectives of this policyare appreciated, the possibility of economic demerit arising from it should beinvestigated further (para. 2.20). Because the rate equalization was effectedby granting lower tariff increases to the comparatively higher cost utilities,it resulted in some erosion of tariffs in real terms and adversely affectedtheir rates of return. It should be noted, however, that the more efficientutilities, such as COPEL, continued to achieve rates of return on averagerevalued net fixed assets in operation well in excess of those curreitin othercountries (see Annex 12). Although the shortfalls were carried forward inthe utilities' accounts to be offset over time against future surplus returns,this practice was somewhat incongruent with the service-at-cost system.
2.17 With the establishment in 1975 of the Global Guarantee Funa/3, a cross-subsidization mechanism intended to assure qualifying utilities a statutoryreturn of up to 10%, the technical incongruence mentioned in the previous para-graph has been mitigated. This mechanism is funded by an increase of up to2% in reversion charges and the proceeds used to supplement the tariff revenuesof qualifying utilities. Along with thts redistributive mechanism, wherebygreater sums are collected from the regions where the comparatively more finan-cially efficient utilities operate to be reallocated to the less developed regionswhere the comparatively higher cost utilities operate, BNAEE put into effect anumber of measures to control the latter utilities' operating efficiency with aview to increasing their productivity. In substance, these measures restrict theutilities benefitting from this mechanism from increasing their operating costs,undertaking investments and expanding their markets without ]N1AKE's prior approval.In addition, to qualify for the benefits of this mechanism, a utility must submitto DNAEE evidence that it has (a) signed an agreement with its respective stateproviding for the settlement of any overdue accounts, and (b) entered into anagreement with the majority government shareholder providing for the reinvestmentin share capital of all its future dividends. COPEL received a small transferfrom the Global Guarantee And in 1975, but its financing plan is based on theassumption that it will not require any further transfers from the Fund prior
/ A special electric power sector tax. Refer to Annex 10 for details.Because of the inclusion of reversion in its calculation and the use of year-end, rather than average values, this statutory return is not comparable tothe rates of return on average net fixed assets in operation commonly usedin appraisals of public utilities (see Annex 12).
]/ "Reserva Global de Garantia." Refer to Annex 10 for details.
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to project completion. However, the need for such transfers cannot be entirelyruled out and they are therefore referred to in the agreements described inparagraph 2.18.
2.18 COPEL agreed to maintain its earnings (ncluding transfers from theGlobal Guarantee Fund) at levels consistent with sound financial and publicutility practices and in accordance with existing legislation. COPEL also agreedthat, in the event it was necessary for it to receive transfers from the Fund, itwould maintain its eligibility for such transfers. The Federal Government agreedthat INAEE will take a timely action on COPEL 's applications for tariff and adjustmentsor transfers. Finally, the Federal Government has agreed to canfirm the Bank'sunderstanding that DNAEE will exercise its discretionary powers to allow COPEL astatutoryireturn of at least 10%. Any change in legislation which wouid materiallyand adversely affect COPEL's financial position, would be an event of default.
Tariff Structures
2.19 The tariffs applied to COPEL's consumers areshown in Table 1 of Annex 10. To appreciate the relative prices of energycharged to the consumers, the average unit price for some typical cansumerlevels of the main categories have been calculated and shown in Table 2 ofAnnex 10. Tariffs charged to large industrial ccnsamers oonsist of a sizeable(approximately 58% of the revenue from medium and high-voltage supply) capacitycharge and a relatively low energy charge, reflecting the cost structure ofBrazil's predominantly hydroelectric generating capacity. Tariffs charged tomedium and large-scale urban residential and commercial consumers are amongthe highest in the world (after considering the sole tax which these customersmust pay) and should discourage any non-essential consumption. Small urbanconsumers and rural consumers are given a discount. The levels of charges toall important consumer categories would appear to be well above long-run marginalcost. This should help prevent the adoption of labor-saving processes in casesin which they are not economically justified, a frequent occurrence in countrieswhich subsidize industrial electricity consumption.
2.20 The present tariff schedule seems basically rational and simple, andit should result in a high level of resource mobilization while discouragingnon-essential use of electricity. There are, though, some important aspectsthat should be investigated and a recent mission to Brazil in March 1976initiated discussions on this subject with INAEE and ELETROBRAS. Both organiza-tions appeared receptive to the idea of a study covering electricity tariffsthroughout Brazil to ensure that their general level as well as their structureachieved an appropriate balance in pursuing the various sector objectives,namely financial, social and economical. They acknowledged that while theGovernment had focused primarily on financial objectives and, more recently on socialobjectives as well, economic aspects had not been adequately considered. It wasagreed that nNAEE would develop terms of reference for the study for discussionwith ELETROBRAS and the Bank. This discussion will allow the Government tobenefit from the experience acquired by the Bank in its extensive researchinto power tariff structures in other member countries. The Federal Governmenthas agreed to present the terms of reference and the results of the study to theBank as soon as they are available.
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3. The Borrower
3.01 The borrower would be Companhia Paranaense de Energia Eletrica(COPEL), the major public-service electric utility in the state of Parana.COPEL was formed in 1954 as a joint-stock corporation for the purpose ofplanning, building and developing systems of production, transmission,transformation, distribution and sale of electric power. Its concessionsare in the state of Parana. Approximately 90% of voting stock is owned bythe Parana state government and its agencies and the balance by ELETROBRAS.COPEL's utility plant in 1975 was valued at US$346 million and constructionin progress about US$101 million. It has 4,850 employees and its facilitiesinclude installed generating capacity of 432 NW (hydro 398 NW, thermal 20 HWand diesel 14 NW). A detailed description of COPEL's installations appearsin Annex 4.
Organization, Management and Staff
3.02 COPEL is well organized (Annex 13 shows the organization chart) andits management is composed of competent professionals promoted within theutility (average age 42, average stay 12 years) who have acquired soundmanagerial experience and have the ability to successfully execute the project.COPEL is administered by a six-member Board of Directors which establishespolicy and through the President, who is a board member, directs and supervisesthe corporation's business. A three-member Fiscal Council advises on thecorporationts accounts and proposed increases in capital.
3.03 COPEL is organized into the following five departments, each headedby a directort Administration, Financial, Operations, Engineering andConstruction and Distribution. The latter is organized into the following fiveregional offices (see Map), each headed by a superintendent: Curitiba,Ponta-Grossa, Londrina, Maringa and Cascavel.
3.04 At year-end 1975, the number of customers per employee was U15.This figure has improved considerably over time (in 1970 it was 43), despitethe recent merger into COPEL of private utilities with siseable personnel.The customer-employee ratio should continue to increase during the projectperiod through CO0E's retiiining and selection program. This ratio wouldbe monitored during project execution (para. 3.10).
Management Information Systems and Audit
3.05 COPEL's internal management information system is very good: operatingand financial reports are prepared quite accurately and promptly; and customerrecords and accounting systems are computerized. Its financial statementshave been certified by Arthur Andersen and Company. Their work appears satisfactory.COPEL has agreed to continue appointing independent auditors satisfactory tothe Bank and to send to the Bank audited financial statements and auditor's reportwithin four months of the end of COPEL's fiscal year, each year for the durationof the loan.
8
State Power Market
3.06 Electric energy consumption in Parana (84% served by COPEL) increasedfrom 1,056 GWh in 1965 to about 3,000 l}Wh in 1975, a growth rate of 11.5% p.a.Over the same period, the number of consumers increased from 255,000 to about562,000. The main factor contributing to the high growth rates has been thesubstantial development of the industrial sectorwhich in 1975 accounted for54% 1/ of the total power consumption, while residential consumption amountedto 18% and commercial consumption to 14%. The remainder was absorbed in ruralelectrification, and public lighting. The relative market share of theindustrial sector is expected to continue to grow during the project period,as shown below:
Actual Forecast1974 1975 1979
GWh f GWh % GWh %
Industrial 945 36 1118 38 2345 49
Residential 493 13 533 18 734 14
Commercial 380 1', 418 14 600 13
Captive plants 407 16 464 16 544 11
Public lighting 257 10 282 9 408 8
Rural 52 .2 63 2 98 2
Other 73 3 104 3 132 3
2609 100 2982 100 461 100
3.07 By 1979 the total number of consumers is expected to increase to746,000. The quality of service in Curitiba, Maringa and Cascavel is goodbut in Ponta Grossa and Londrina, the ]evel is much lower. This is due tothe relatively low standards of service provided by the investor-ownedutilities recently absorbed by COPEL which used to serve these regions. Animportant project component covers rehabilitation and substantial improvementsof existing distribution circuits. The largest share of this component willbe applied to these two regions.
3.08 About 60% of the population of Parana is rural, dedicated toagriculture and utilizing about 80% of the usable land. The sector is themost important in the state and contributes about 15%.in value of the Brazilianagricultural sector. It also provides the base for the state's importantagricultural processing and wood products industries. The Brazilian Governmentis currently implementing (with IDB financing) a national rural electrificationprogr*m in which COPEL is acting as implementing agency for the State of Parana.The Bank has to date only financed rural electrification in Brazil throughintegrated rux-1 de-welopment projects.
. Includes captive plants.
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3.09 Of the 141,00O new residential consumers, expected to be served byCOPEL during the period 1976-1979, about 20,000 (14%) would be "low-income"consumers, who would be connected under a special program prepared by COPEL inconsultation with the Bank. For purposes of this program, "low-income" consumers aredefined as those households within COPELts concession area which, though located nearexisting feeders or distribution circuits, are not served because of theirinability to pay for connection fees (approximately US$100). In order to provideelectrical service to these households, COPEL will finance the connection chargeswithout interest, for a period of 36 months. This program will be coordinatedwith state government urban development agencies and COPEL and the state governmentagreed that it would be initiated no later than October 1, 1976.
Performance Indicators
3.10 Annex 9 shows representative indicators of COPEL's marketing and oper-ating performance through the year of project completion. Implementation of theproject should improve efficiency through a reduction in system losses and outagesand improved voltage regulation. COFEL has prepared a program to monitor the effectsof the project on losses and outages. Indicators showing expected progress underthis program are among those listed in Annex 9. COPEL will report on actual resultsin meeting those objectives during project execution.
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4. Trhe Project
The Program
4.01 COPEL's construction program during the period 1976-79 consists ofthe following works:
a) Generation: the bulk of the Foz do Areia hydroelectricproject (see paragraph 2.11) will be carriedout in this period;
b) Transmission (230kV-138 kV): 448 circuit-klm at 230 kV, and 585 km at 138 iV
including additional transformer capacity of950 MVA at 230 kV, and 410 MVA at 138 kV;
c) Subtransmissionand Distribution(69 kV or less): 38.3 circuit-km at 69 kV, 1070 km at 34.5 kV and
13.$ kV, 390 MVA at 69 kV, 80 MVA at 34.5 kV, andlow voltage distribution expansion;
d) Communications andControl extension of communications and telemetering
system facilities and equipment; and
e) Buildings: including a new headquarters and dispatchingcomplex to be initiated in late 1978.
4.02 For financial planning purposes, the above works, estimated to costCr$7120 billion (US$785 million) during the period, have been grouped intotwo packages. The most important is (a), which accounts for 53 of 1976-79expenditures, and which was the subject of a detailed appraisal by the Inter-American Development Ban" in September 1975. A summary description of the projectis given in Annex 4. The second group of works (including the proposed Bankproject) consists of the items under (b) through (e). While the works otherthan the proposed Bank project (see Annex 5) have not been appraised in detail,they constitute a rational and well-balanced program to meet the expected growthin demand in COPEL's service area as described in paragraphs 5.03-5.
The Project
4.03 The project proposed fo- Bank financing (consisting of urgent distribu-tion works to be initiated prior to 1978 for which alternative financing has notbeen arranged) would account for '25% of 1976-79 construction expenditures. Itwould consist of the followi.ng facilities, described in detail in Annex 6:
a) Subtransmission:
i) 50 circuit-k,m of 138 kV tie lines-;
ii) construction, expansion and/or improvements of nine 138 kVsubstations, including addition of 305 MVA transformer capacity;
iii) installation of about 300 MVA in transformer capacity at 69 kV; and
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iv) installation of about 80 MVA in transformer capacity at 34.5 kV.
b) Distribution:
i) 166 circuit-km of 69 kV line extensions;
ii) installation of about 4,560 transformers (13.8 kV/220 - 120 V)and 200 transformers (34.5 kV/220-120V) with an aggregate
capacity of about 260 MVA;
iii) installation of about 130 lm of 13.8 kV feeders;
iv) installation of about 1,900 km of line extensions (1 ,040 kmat 34.5 kV and 860 km at 13.8 kV);
v) installation of about 3,100 new 34.5 kV and 13.8 WV circuits(340 m average length);
vi) improvement of about 1,630 existing 34.5 kV and 13.8 kV circuits(340 m average length);
vii) installation of about 145,000 watt hour meters (124,700 singlephase, 20,300 polyphase);
viii) replacement of about 85,000 meters (75,000 single phase,10,000 polyphase);
ix) installation of about 135,000 street lights.
c) Auxiliary services:
i) expansion of meter laboratory facilities and equipment;
ii) supplementary transmission and subtransmission maintenanceand system protection and operation equipment, includingenergized-line maintenance equipment;
d) Consultant services and training:
equipment fabrication inspections outside of Brazil by COPEL'sconsultants (60 man-months) plus training of COPEL's staff whichwould take place during these inspections.
4.04 The project's estimated cost is US$188.4 million with a US$52.0million foreign component, which would be financed by the proposed loan. Theproject costs were estimated by COPEL's engineering and procurement personnelusing as a basis recent equipment quotations and current civil works contracts.These costs which are detailed in Annexes 6 and 7 and suwmarized below, appearreasonable.
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---- 1jS$ million ------ ------ Cr$ million ------
Local Foreign Total Local Foreign Total
A. Substations 69 kV 12.14 9.00 21.14 110.11 81.64 191.75
Substations 34.5/13.8 kV 3.85 2.41 6.26 34.92 21.87 56.79
Subtransmission lines 3.76 1.07 4.83 34.11 9.71 43.82
Distribution 50.35 18.08 68.43 456.68 163.98 620.66
Auxiliary services 0.91 10.98 11.89 8.25 99.69 107.94
Physical contingency 9.34 1.91 11.25 84.71 17.31 102.02
Total Direct Costs 80.35 43.45 123.80 728.78 394.20 1,322.98
Engineering & adainistration l9.94 - 19.94 180.85 - 180.85
Total - Part A 100.29 43.45 143.74 909.63 394.20 1,303.83
B. Training - 0.30 0.30 - 2.72 2.72
Fabrication Inspection - 0.37 0.37 3.36 3.36
Total - Part B - 0.67 0.67 - 6.08 6.08
Price Contingency 36.07 7.91 43.98 327.16 71.64 398.80
Total Project Cost 136.36 52.03 188.39 1,236.79 471.92 1,708.71
4.05 A physical contingency allowance of 5% was assumed for all electrical
equipment and materials. The allowance for civil works and equipment erectionvaried from 10% to 15% depending on the state of preparation of final designsof individual components, and it averaged 11 .5%. The values assumed are consideredreasonable for this type of project.
4.06 The costs shown above are based on price levels as of December 1975, towhich adequate price contingencies have been added to cover actual and expectedforeign and local price increases, as follows:
Foreign Local------ %------
1976 9 201977-78 8 151979 8 14
While the local price increases shown above (which are expressed in US$) appearhigh, COPEL has adopted them in view of recent experience with prices of civil works,structural fabrication and erection in Southern Brazil-which make up a substantialpart of the costs concerned. These local price contingencies do not affect the sizeof the proposed Bank loan, which is related to the project's foreign cost.
_ 3_
Engineering
4.07 COFEL's own staff will be responsible for engineering designs, specifi-cations and construction supervision for the whole project. This staff iscompetent and is expected to carry out these tasks satisfactorily. COPEL willuse the services of its consultant, Companhia Auxiliar de Eapresas EletricasBrasileiras (CAEEB) in the preparation of bidding documents for procurementthrough international competitive bidding and in equipment fabrication inspections.It has been estimated (para. 4.03(d)) that 60 man-months will be required forequipment fabrication inspections outside Brazil. The average cost, excludingtravel expenses and subsistence,has been estimated at US$4,700 per man-month,as shown in Annex 6.
Project Execution
4.08 The project will be executed as follows:
(a) COFEL will obtain bids for electrical equipment, materials andinstruments and, as it has been its practice in transmissionand distribution, will contract with local firms constructionof most of the project works. Equipment installations will bedone in most instances by the suppliers. Some construction andequipment installation will also be performed by COPEL's own forces.A sufficient number of qualified local firms are available to handlethe job satisfactorily and on schedule.
(b) COPEL will assign the inspection of the fabrication of all electricalequipment and instruments in Brazil and abroad to CAEEB, who willalso train COPEL's engineering personnel in these activities.
The project is expected to be completed by June 30, 1979. Annex 11 contains aproject implementation schedule which was reviewed with COPEL duringnegotiations and will serve as a basis for project progress reporting.
Procurement and Disbursement
4.09 Procurement of the bulk of the electrical equipment, materials andinstruments to be financed by the Bank will be through international competitivebidding (ICB) and in accordance with guidelines for procurement under Bankloans. Special imported metering and protection equipment that is not suitablefor ICB because of the need to maintain standardization will be purchaseddirectly at an estimated cost of US$1.8 million. A similar procedure wouldbe followed with miscellaneous items of imported equipment aggregating up toUS$0.8 million which are required in small quantities throughout the executionof the project, making ICB impractical. No retroactive financing or financingof interest during construction with Bank funds is contemplated. Supplierswhose bids contain components manufactured in Brazil equal to at least 50% ofthe value of the bid would be given a margin of preference of 15% or the applicablecustom duties, whichever is lower. Brazilian suppliers of the items included in the
project are reasonably competitive. Project cost estimates have been based on the
_ 14-
assumption that they would be awarded up to two-thirds of the value ofcontracts placed through ICB. Project items not financed by the Bank willbe procured through COFEL's normal procedures, which are satisfactory.COPEL maintains a roster of qualified local contractors and suppliers, andinvites an appropriate number to submit detailed quotations for each supplyor construction contract. Brazilian legislation effectively precludes ICBfor project items not financed by long-term foreign loans. However, as notedabove, locally produced items are reasonably competitive in price withinternational products and project costs should not increase significantlyas a result of such restrictions.
4.10 Disbursements from the Bank loan would be made for:
(a) 100% of the foreign exchange cost of imported equipment and materials,or the ex-factory cost of locally manufactured goods;
(b) 100% of the cost incurred outside of Brazil by consultants andCOEEL personnel during equipment fabrication inspections.
Estimated loan disbursements appear in Annex 8. Because of the on-going natureof investments in distribution, any funds remaining undisbursed at the completionof the project could be applied, after agreement with the Bank, to other worksof similar naturei
Environment
4.11 COPEL has carried out its previous projects with due regard toenvironmental factors. Under the proposed project, utility poles for feedersin Londrina and Ponta Grossa will be relocated to improve traffic safety incongested areas. In Curitiba, the second stage of the underground distributionnetwork will contribute substantially toward improvement in system losses andservice reliability. COPEL will give special attention to reducing the network'sadverse visual effect in the most congested zone of the state's capital.
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5. Justification of the Project
Project Objectives
5.01 The project is a part of a large construction progran being undertakenby COPEL to provide the power facilities needed to support a continuation ofthe rapid expansion of Parana's industrial sector in recent years. This indus-trial growth has been especially notable in the years 1972-75 and has beenlinked to the development of Parana's agricultural and forestry sectors. Theprocessing industries for these sectors account for 60% of industrial powerconsumption in the state. While the largest industrial enterprises couldcontinue to meet their needs for electric power through captive generation,medium- and small-scale industries would in many cases find this alternativeto be excessively costly. Failure to expand these industries would affect theprospects for further development of agriculture.
5.02 The main thrust of the project would be the provision of the essentialtransmission and distribution infrastructure needed to support the growth ofindustry and the accompanying needs for increased commercial and residentialservice in the state. Parana has received considerable immigration in recentyears and is developing into an alternative growth pole outside Brazil'straditional industrial areas. The project would also improve efficiency andreliability through reduced losses and outages and better voltage regulationand provide service to low-income households.
Load Forecast
5.03 In order to determine its market requirements, COPEL prepared projectionsfor the whole state of Parana broken down by consumer category. Normal indus-trial energy requirements were forecast based on trends in the Parana industrialsector taking into account the growth in number of employees and investmentsin the sector. In addition, known short-term industrial loads were included.Residential consumption was forecast on the basis of:
(a) volume and distribution of urban population at the municipalitylevel during 1960-1980;
(b) the number of households;
(c) past trends in the level of residential energy consumption, adjustedto growth in (MP.
5.04 Commercial cansumption was estimated by correlation with residentialfigures. Public lighting requirements were estimated through correlation withresidential consumption adjusted in accordance with existing municipal publicsector investment programs. Rural consumption was forecast on the basis ofexisting government programs.
5.05 Based on the above, COPEL is projecting an average growth in theParana state power market of 13.5% p.a. for the period 1975-80 (compared to15.-3 p.a. in 1972-74). This projection, which is detailed in Annex 2, is
.16 -
reasonable. Industrial consumption is expected to continue to be the fastest-growing category (16.9w p.a. in 1975-80 vs. 17.3% p.a. in 1972-74). This highexpected growth of industrial ccnsumiption reflrects the rapid development ofagricultural processing (about 60% of industrial consumption) and otherindustries in the state. COPEL has recently received service requests fromexisting and future industrial consumers totalling about 370 MW for the period1976-1980 which would account for the total growth of industrial sales projectedduring this period. The main thrust of COPEL's investment program is to providethe necessary generation, transmission and distribution facilities to meetthis load and the growth in commercial and residential consumption which willaccompany it. COPEL's energy balance is shown in Annex 3. After 1980, theFoz do Areia hydroelectric project, under execution, by COPEL, will provideincremental generation needed in the Parana state market. Since transmissionfacilities of this project (500 kV) are under the jurisdiction and would bebuilt by ELETROSUL, assurances were obtained from ELETROBRAS for the timelyccnstruction of the line from the plant to Curitiba, COPEL's main load center.
Least-Cost Solution
5.o6 As noted in paragraph 2.11, Foz do Areia is part of the least-costgeneration expansion program for the South-Southeast interconnected system.
5.07 In routing transmission lines and siting substations, COPEL hasselected the least-cost solution compatible with applicable zoning and otherregulations in all cases in which alternatives existed. The 1976-79 transmis-sion and distribution program should enable COPEL to meet the expected loadgrowth without reduction in the quality of service. The transformer/demandratio at 138/69 kV would be maintained at an adequate level of 1.15.
Return on Investment
5.08 In view of the complexity cf the systems effects, and ot the difficultyin interpretation, an internal rate of return on the project has not been calcu-lated. However, a rate of return on the overall investment program has beenestimated. This return has been evaluated as shown in Annex 14, by equalizingthe present worth of the revenues derived from incremental output and the presentworth of costs, defined to include not only those costs directly related to thedistribution project itself, but also incremental generation and transmissioncosts. Under these assumptions, the rate of return amounts to 19.5%, whichsuggests that on average the price that consumers will be requested to pay forpower will be considerably in excess of incremental system costs. This in turnsuggests that wasteful use of electricity will be avoided. A sensitivity analysiswas also carried out to determine the effect of reduction in sales of 10%. Theresulting rate of return would be 18:b. Furthermore, if the cost of the pro jectwere to increase by 10% and sales followed the low forecast, the return (J7Awould remain higher than the opportunity cost of capital in Brazil.
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6. Finances
Summary
6.01 COPEL's financial performance has been satisfactory and is expectedto continue to be strong. During the project construction years (1976-79)COPEL would finance a satisfactory28 % of its overall long-term investmentrequirements with funds contributed directly by its customers through tariffsand sales taxes. Annex 12 contains actual and forecast financial statementsfor the period 1972-80, together with details on COPEL's finances which sup-plement the analysis presented below.
Past and Present Financial Performance
6.02 During the period 1972-75 COPEL's financial performance has beensatisfactory and its present capital structure is strong. Since 1972 ithas achieved an average rate of return on its revalued "remunerable assets"(see Annex 10), of 10.5%. The rate of return on average net fixed assetsin operation averaged 1i.9% over the same period.
6.03 COPEL's cash management is good. Cash balances are kept at aminimum while temporary excess cash is invested in short-term securities.On December 31, 1975, COPEL had a comfortable debt-to equity ratio of 37/63which is indicative of an ample borrowing capacity.
6.04 At year-end 1974 accounts receivable from customers were excessive.This was due almostexclusively to temporarily overdue receivables from stategovernment agencies and from a construction firm experiencing financialdifficulties. During 1975, however, a clearing mechanism for officialcustomer accounts was instituted to ensure their timely settlement. As aresult, overdue receivables from official customers have declined significantly.Although it is reasonable to expect that in the future the level of accountsreceivable would not exceed significantly the amount of the normal collectionlag, COPEL's collection performance will be monitored in the course of loansupervision. The ratio of receivables to billings has therefore been includedin the project performance indicators listed in Annex 9.
Capital Investment and Financing Plan
6.o5 COPEL's capital investment program during the construction of theBank project (1976-79) and the respective financing plan are detailed in Annex12 and summarized below:
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1976-1979(December 1975 prices)
Cr$ million US$ million
Capital Investment
Construction expendituresIBRD project 1,310 1W4 22Foz do Areia hydroelectric station 2,728 301 16Other works 1,123 124 19
Total construction expenditures 5,161 569 87
Interest during construction 660 73 11
Total construction requirements 5,821 612 98
Increase in net working capital 184 16 2
5,965 658 100
Financing Plan
Internal cash generation 2,857 315 18Less: debt service (1,493) (164) (25)
Net dividends, participationand taxes (2h3) (27) (1)
Net Internal cash generation 1,121 124 19
Reinvestment of sole tax 517 57 9
Total direct contribution 1,638 i8i 28
Capital contributions 690 76 11
BorrowingsFoz do Areia financing 2,110 269 14Proposed IBRD loan 400 44 7Other 797 88 13
Total borrowings 3,637 401 61
Total financing 5,965 658 100
6.o6 A satisfactory proportion (28%) of COPEL's capital requirements duringthe project construction period, would. be covered by resources contributed directlyby its customers (net internal cash generation and reinvestment of the proceedsof the sole tax). Capital contributions (mainly in the form of equity subscrip-tions by the State of Parana in connection with the Foz do Areia project) wouldcover11% of requirements and borrowings the remaining 61%.
_ 19 _
6.07 The largestedement in COPEL's future borrowings is the financingrequired for the Foz do Areia project. As explained in paragraph 6 of Annex12, about 18% of the total financial requirements of this project arepresently planned to be covered by foreign borrowings (including a loanof US$74 million from IDB and suppliers' credits). Another 52% of therequirements will be met through borrowings from ELETROBRAS and other Federalfinancing agencies. Equity contributions from the State of Parana and COPEL's
own internal cash generation would meet 30% of the project's requirements.
6.08 The borrowing required for works other than Foz do Areia includesthe proposed Bank loan (see para 6.10) and other borrowings of Cr$797 million(US$88 million) detailed in paragraph 7 of Annex 12. As noted in that para-graph, COPEL presently expects to secure those funds from Brazilian sources.COPEL is also considering borrowing a part of this amount forforeign exchange expenditures (other than those financed by the proposed IBRDloan) from foreign financial institutions. The Bank would be prepared to assistCOPEL in securing better terms for these borrowings than would otherwise be
available, through suitable co-financing arrangements. The form of thesearrangements would be similar to those entered into in connection with therecent Brazilian steel project.
6.o9 The table in paragraph 6.05 is based on COPEL's financial projectionswhich, like those of other power utilities in Brazil financed by the Bank, arebased on constant (December 1975) cruzeiros. This means that capital investmentfigures as well as the Bank and other loans do not include price contingencies.The reconciliation between the distribution project expenditures and proposedBank loan figures shown in paragraph 6.05 with the cost estimate presentedin paragraph 4.04 (which includes price contingencies) is as follows:
Paragraph 4.o4 Paragraph 6.05M-4imilTon Uri MiltonCmlion ''Cri illion'
Distribution Project.
Total project cost estimate 188.39 1,708.71Less: price contingency 43.98 398.90Project cost (December 1975 prices) 144.41 1,309.81 1,310
IBRD Loan
Total, including price contingency 52.00 471.64Less: price contingency 7.91 71.74
. 044-09 399.90 ' 400
6.10 The proposed US$52 million Bank loan would be made to COPEL for a termof 20 years including 3-1/2 years of grace. The financial projections are basedon an interest rate for the Bank loan of 8.5% p.a.
Financial Outlook
6.11 COPEL's financial projections are reasonable and'indicate a satisfactory
- 20 -
financial outlook. The rate of return on average net fixed assets inoperation is expected to average 15.E% during the project construction period(1976-79) and debt service coverage to exceed 1.6 times. This favorable out-look depends on the continued application of the existing power sector tarifflegislation described in para.2.16, and on receipt of the resources fromFederal agencies and the State government included in the financing plan.To this end, the State of Parana has agreed: (i) to reinvest in the capitalstock of COPEL all dividends received from the utility up to December 31, 1979;and (ii) in the event that COPEL has insufficient funds, to provide all fundswhich may be required for the carrying out of the IBRD project and to ensure the timeycompletion of the Foz do Areia project. The Federal Government has undertaken that,in the event that the funds provided by the State are inadequate for the carryingout of the IBRD project, it will makE arrangements satisfactory to the Bankfor the provision of these funds. The Federal government has entered intoa similar undertaking with the IDB fcr the Foz do Areia project.
6.12 COPEL is expected to maintain a sound capital structure, with a long-term debt to equity ratio which would not exceed W5/56 during the projectconstruction period (1976-79). COPEL agreed not to incur debt without theBank's consent if by such incurrence its debt would exceed 66-2/3% of its totalfixed assets; and not to incur debt with an original term of less than 8 yearswithout the Bank's consent if by so doing the total outstanding principalof such debt would exceed 5% of its total fixed assets.
6.13 As in the case of similar Bank loans to the Brazilian electric powersector, COPEL agreed not to carry out any major program of expansion of itsfacilities other than the program described in paragraph 4.01, without givingthe Bank evidence that such expansion is economically justified, thatadequate financial resources are available and that it conforms to the powerexpansion program for the South/Southeast prepared by ELETROBRAS. For thispurpose, a major expansion is one whose cost exceeds 2% of the gross fixed assetsin operation plus work in progress in the case of generation and transmissionprojects, and 1% in the case of distribution projects.
_ :)1 -
7. Agreements Reached and Recommendations
7.01 In the proposed loan agreement COPEL would agree:
(a) to maintain its earnings (including transfers from the Global GuaranteeFund) at levels consistent with sound financial and public utilitypractices and in accordance with current legislation; tomaintain its eligibility for transfers from the Fund (should they berequired); anx changes in legislaticn which would mat.eriallyand adversely affect COPEL's financial position wiald be an event ofdefault (paragraph 2.18);
(b) to continue to have its financial statements audited by independentaccountants satisfactory to the Bank (paragraph 3.05);
(c) to carry out a program to provide electric power to low-income households(paragraph 3.09);
(d) not tr. incur debt wit.hout the Bani-Is concurrence if bysuch incurrence its debt would exceed 66-2/3% of its total net fixedassets; and not to incur debt with an original term of less than 8years if by so doing the total outstanding principal of such debtwould exceed 5% of its total net fixed assets (paragraph 6.12); and
(e) not to carry out any major expansions without giving the Ban" evidencethat such expansion is economically justified, that adequate financialresources are available, and that it is in accordance with plans forthe south-southeastern regions approved by ELETROBRAS (paragraph 6.13).
7.02 In the proposed project agreement the Government of the state of Paranawould agree:
(.a) to reinvest in the capital stock of COPEL all the dividends receivedfrom the utility up to December 31, 1979 (paragraph 6.11); and
(b) zn Wile event that COPEL has insufficient funds, to provide all thefunds which may be required for the carrying out of the IBRD projectand for the timely completion of the Foz do Areia hydroelectric project(paragraph 6.11).
7.03 Ir. the proposed guarantee agreement the Federal Government would agree:
(a) to cause UNAIE to take timely action on COPEL's applications for powertariff adjustments or transfers from the Global Guarantee Fund(paragraph 2.18);
(b) to present to the Ban' the terms of reference and the results of thetariff structure study (paragraph 2.20);
(c) in the event that the funds available to COPEL, including thoseprovided by the state government,are insufficient to complete theIBRD project, to make arrangements satisfactory to the Bank for theprovision of those funds (paragraph 6.11).
7.04 In the proposed supplementary letter, COPEI and the Federal Governmentwould confirm the Banlts understanding that COPEL's revenues (together withtransfers from the Global Guarantee Fund, if required) should be sufficientto earn a statutory return of 10i on its remuperable investment (paragraph 2.18).
7.05 The project would constitute a suitable basis for a Ban', loan ofUS$52 million for a term of 20 years including 3-1/2 years of grace.
April 22, 1976
ANNEX 1
APPRAISAL OF COPEL DISTRIBUTION-PROJECT
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
ESTIMATED ENERGY CONSUMPTION
Actual Forecast1970 1271 1980
3razil
All forms of energyGross consumption (kcal x 10 ) 68,960 107,880 157,860Average annual growth (1) 9.4 7.9Population (106 inhabitants) 93.2 108.5 125.2Per capita consumption (keal x 1(7) 0.74 0.99 1.26
Distribution of gross energy consumption by primary source MIOil products 38 49 51Natural gas 3 2 2Hydro 18 20 20Coal 2 2 2Shale - _Nuclear - _ 4Wood products and wastes 39 27 19
Electric powerGnoss consumption (GWh) 44,830 80,200 131,550Average annual rate of growth (%) 12.3 10.4(O of total energy consumption) 19.5 24.8 25.0(kWh per capita) 481 739 1,033
Southern Region
All forms of energyGross consumption (kcal x 1010) 10,370(0 of 3razil) 15Population (106 inhabitants) 16.7Per capita consumption (kcal x 107) 0.62
Distribution of gross energy consumption by primary source (f):Oil products 29Natural gas -Hydro 10Coal 13ShaleNuclearWood products and waste 48
Electric PowerGross consumption (GWh) 4,090 7,840 13,816Average annual growth (%) 14.5 12.0(% of 3razil's electric energy consumption) 9.1 9.8 10.5(% of South's total energy consumption) 14.1 16.8 2/ 18 4 2/(kWh per capita) 245 404 618
/ 3ased on gross energy consumption growth in the South of 10% p.a.
April 1976
APPRiISAL OF COAEL DISTREIUTION PROJECT
COMPANHIA P hANkENSE DE EiiGILTLHRICA (COPEL)
LOAD FORECAST FOR THE STATE OF PARAiA - 'uYh
- --- atual----------- -----------------Forecast - -------1971 1972 1973 1974 1219 197 li77 1973 1979 ia30
Residential 360 399 459 493 533 5a0 627 676 734 7J6
Commercial 256 284 344 380 413 459 502 549 600 656
Industrial 398 503 686 945 1I18 1455 1702 2064 2345 2642
Rural 34 36 43 52 63 71 82 90 98 101
Public lighting 217 256 234 257 282 311 340 372 408 444
Okher - - 59 - 104 114 120 126 132 14
Subtotal 1265 1478 1825 2202 2518 2990 3373 3877 4317 4776
Captive Plants 4& 439 406 -4- 464 544 553 544 544 544
Total 1704 1917 2231 2609 2982 3534 3926 4421 4861 5320
March 1976
APPRAISAL OF COPEL DISTRI3UTION PROJECT
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
ENERGY 3AIANCE (G-.Tn)
RequirementsState of'
Parana- GENERATIONCaptive Small COPELPlants Utilities Net Losses Gross Owned 3ought SOURCE OF ENERGY BOUGHT
Plants ANDE CESP ELETROSUL
1975 2982 464 19 2499 12% 2799 2031 768 29 479 260
1976 3534 544 19 2971 11% 3298 2031 1267 - - 1267
1977 3926 553 19 3354 10% 3689 2031 1658 - - 1658
1978 4421 544 19 3858 10% 4244 2031 2213 - - 2213
1979 4861 544 19 4298 10% 4728 2031 2697 - - 2697
1980 5320 544 19 4757 10% 5233 3824 1409 - - 1409
1/ See Annex 2.
March 1976
ANNEx 4APPRAISAL OF COPEL DISTRIBUTION PROJECT Page 1 of 2
COMPANHIA PARANAENSE DE ENERGIA EIETRICA (COPEL)
GENERATING STATIONS
INSTALLED AVERAGE ANNUALCAPACITY GENERATION
EXISTING HW GWh
Hydro
Governador Parigot de Souza 247.0 1,129.2Julio de Mesquita Filho 44.0 299.0Guaricana 39.0 122.8Chamine 16.0 99.1Salto Grande do Iguacu 15.2 135.4Apucaraninha 9.2 71.9Nurao 8.2 53.9Sao Jorge 1.2 9.5Chopim I 2.1 7.6Cavernoso 1.2 3.3Salto Palmital 1.1 7.5Guaira 0.9 5.7Melissa 0.9 3.2Salto do Vau 0.9 5.6Ocoi 2.2 12.4Tritangui 0.8 5.5Tres Bocas 0.4 2.4Others 1.4 _-
Subtotal 391.7 1,974.0
Thermal
Figueira (steam) 20.0 58.7Santa Izabel do Ivai (Diesel) 1.0 20.4Guaraguecaba 0.1 96.8Others 12.4 __ -
Subtotal 33.5 175.9
Total (Existing) 425.2 2,J149.9
Future (1981)
Fos do Areia (hydro) / 1,125.0 4.873.0
Total 1,550.2 7,022.9
1/ For description see page 2 of this Annex.
ANNEX 4Page 2 of 2
FOZ DO AREIf HYDROELECTRIC PROJECT
1. Project description
The project consists of the construction of a dam, powerhouse and
step-up substation on the Iguassu River, a shat distance dowTnstream from its
confluence with the Areia River. The dam will, be concrete-face roclrfill,800 m long and 15~ m high, and will create a reservoir 110 1m long with asurface of 197 'km and a volume of 7.3 billion m3. The powerhouse will bebuilt to contain six 375 MW turbine and generator units (final capacity 2,250
wd t.h three units being installed initially (1,125 M4). Two of theseumi t.s are scheduled to begin operation in 1980 annl the thiri in 1981
2. Cash estimate
million US$
Infrastructure 53.2Civil works
River diversion 12.6Main rockfill dam (13.7 million m3 34.5Spillway 26.2Intake 19.6Tunnels 7.0Power station for 6-375 194 units 26.1Substation 1.6
Sub-total (civil works) 127.6
EquipmentTurbines and generators (3-375 MW) 34.2Ancillary mechanical equipment 21.7Transformers (9-160 MVA) 5.0Substation apparatus and control equipment 5.5Installation, freight and insurance 9.7
Sub-total (equipment) 79.1
Engineering and administration 58.6Physical contingencies 37.5Price contingencies 182.5Interest during construction 128.0
TOTAL 666.5
March 1976
ANNEX 5APPRAISAL OF COPEL DISTRIBUTION PROJECT Page I of 3
COMPANHIA PARAN&ENSi, DE ENERGIA ELETRICA (COPEL)
TRANSI7IC`ION AND SIUBTRANSMISSTON EXPANSION PROGRAM (1976-1950)
PEXC'LUDING PEC,JECI ANL ',jNE1tATjIN
TransformerCapacity (XVA)
and Line --- Date of Installation-- Total CostRECUu'aN Length (km) Commencement Completion 1000 us$-
1. C(ITRTBA
(:2 Sub;taticns - 230 kV
- "xI -6 KV ba,Iy 1/76 12/79 3,2(.'4- Uberaba - 2nd i5° 1/76 12/79 1,5384.1
(b ) Substati4ns - 69 kV
- Barigui - Expansion of 13.8 kV bay,auxiliaries - 1/76 12/77 12;- Cidade Industrial - Induotrial circuit (69 kV) - 1/76 12/10 773- Camnpo Largo - 13.8 kV circuit 20 6/77 12/77 17.-
0ilarzinho - Switching, bay _ 1/76 12/78 257
- Rio Branco do sul - 3b.9 kV temporary circuit - 1/76 12/77 0.- 3usratubn - Expansion, auxiliaries - 1/76 12/0.- Paranagus - Expansion of 69 kV bay 4o 1/78 12/80 7- Praia de Leste - Expansion of 69 kV bay, auxiliaries - 1/78 12/0?
(c) Siubstations - 34 .5 kV
- MNscellaneous expansions,auxiliaries - 1/76 12/iO 12Sulb-total (Substations) .5W
(i) fines - 23o kV
- Uberaba - SuOstation "IX" h 1/76 12/76 1 ,28y.- Substation "K" - Campo Coyeprido 8 1/76 12/76 721.s- Canpo Comrprido - Substation "XI' (purchsse) 15 - 12/78 9.
(a) Lines 69 kV
- Atuba - Rids Branco do .ul 30 1/76 12/76 565.n- Uueraba - Capanema 2 9/76 12/76 32.2
Sub-total (Lines) 3,502.?
TOTAL (CURITIBA) 12,036.
2. PONTTA GROSSA
(a) Eubstations - 230 kV
- bonta Groisa Sul - 230 KV bay, auxiliaries - 1/76 12/77 1,856.3- FoP do Arela - 230/69 1eV bay, auxiliari3s - 6/76 12/7P 1,6214.L
(b) Substations; - 6 k-V
- Guarapuava - Foz do Areia circuit - 9/78 12/78 .8- Rio Azul - Replacenent of transformer 3.3 6/76 8/76 12.8
(c) uhbstations - 34.5 kV
- fiscellaneous expansions and auxiliaries 10 1/76 124Fo 125.5Sub-total (Substations) 3 7r7
(d) Lines - 230 kV
- Ponta Grossa Norte - Campo Comprido 10 1/76 12/78
(e) Lines - 6Y kV
- SLETROSUL - Foz do AreLa 5 9/76 12/77 257.9- Salto Grande - Fbz do Areia 60 1/76 12/77 1,882.1- Foz do Areia - Guarapuava Bo 1/77 12/79 2,259.0- Salto Grande - Uniao da Vitoria 30 1/79 12/80 86
Sub-total (Lines) 5,7139
TOTAL (PONTA GROSSA) 9,671.5
j/ At prices of December 1975.
ANME 5Page 2 of 3
TransformerCapacity (MVA)
and Line --- Date of Installation-- Total CostREGIONS (Continued) Length (kin) Comnmencement Completion 1000 US$21
3. LONDRINA
(a) Substations - 230 kV
- Apucarana, auxiliaries - 1/76 5/76 38.6- Londrina II - Expansion 75 1/76 12/79 1,907.9
(b) Substations - 135 kV
- Londrina I - 1st stage, auxiliaries - 1/76 12/76 283.7- Londrina I - 2nd stage, auxiliaries - 1/79 12/79 128.9- Roland Davids - Rehabilitation - 1/76 12/76 257.9- Rolandia - new bay, auxiliaries - 1/78 12/80 1,418.1- Cornelio Procopio - new bay, auxiliaries - 1/78 12/80 2,256.0- Andira - new bay, auxiliaries - 1/78 12/80 2,784.6- Florestopolis - Expansion 20 6/78 12/78 12.8
(c) Substations - 34.5 kV
- Miscellaneous expansions and auxiliaries 1 1/76 12/80 393.2Sub-total (Substations) 9,481.7
(d) Lines - 138 kV
- Londrina I - Andira, reinsulate from 88 to138 kV 190 1/76 12/76 412.5
- Florestopolis - Capivara 25 1/78 12/79 863.7- Londrina - R. Davids, reinsulate from 88 to
1 35 kV 10 6/76 12/76 26.3- Apucarana - Londrina I 1/ 0 12/80 315.9
Sub-total (Lines) 1.618.4
TOTAL (LONDRINA) 11,100-1
h. MARINGA
(a) Substations - 230 kV
- Maringa II - Expansion of switching bay - 1/76 12/76 232.1- Campo Marao - new bay, auxiliaries - 1/76 12/78 1,598.6- Umruarama I and II - 138/230 kV expansion,auxiliaries - 1/76 12/80 3.480.7
(b) Substations - 138 kV
- Paranavai - switching bay expansion - 6/76 12/80 399.6- Planaltina do Parana, auxiliaries - 6/79 12/80 1,031.4- Cianorte 25 6/76 12/76 128.9
(c) Substations - 34.5 kV
- Miscellaneous expansions and auxiliaries - 1/76 12/80 496.4Sub-total (Substations) 7,367.7
(d) Lines - 138 kV
- Paranavai - Planaltina do Parana 60 1/77 12/78 2,127.1- Umuarana - Guira 150 1/77 12/78 5,285.5
Sub-total (Lines)
TOTAL (MARINGA) 14,780.3
21 At prices of December 1975.
ANNEX 5Page 3 of 3
TransformerCapacity(NWA)
and line --- Date of Installation-- Total CostREGION (Continued) Length(km) Commencement Completion 1000 US$ v
5. CASCAVEL
(a) Substations - 230 kV
- Cascavel II - new bay 300 1/76 12/80 4,254.2
(b) Substations - 138 kV
- Cascavel I - switching bay expansion - 1/178 12/78 193.J- Fos do Iguacu - Expansion 40 1/76 12/78 966.9- Guaira - new switching bay 1 1/79 12/79 193.3- Mal. Candido Rondon - new bay, auxiliaries - 1/76 12/78 902.4- Fedianeira - Temporary stagq, auxiliaries - 6/76 12/76 64.4
(c) Substations - 34.5 kV
- Miscellaneous expansions and auxiliariesSub-total (Substations) 515.6
7,090.1(d) Lines - 230 kV
- Cascavel II - Foz do Iguacu 150 1/76 12/77 7,502.8- Cascavel II - Salto Osorio (2nd circuit) 80 1/79 12/80 4,808.6- Cascavel II - Umuarama 140 1/79 12/80 7,670.5
(e) Lines - 69 kV
- Foz do Iguacu - Canteiro de Itaipu 10 1/16 12/77 578.4- Guaira - Mal. Candido Rondon 65 1/77 12/79 2,320.5
Sub-total (Lines) 22,880.8
TOTAL (CASCAVEL) 292a297Q2
GRAND TOTAL 77,559.4
1/ At prices of December 1975.
February 1976
AMn 6APPRAISAL OF COkL DISTRIBUTIlON PROJECT PiroTf 6
COMPAIEIA PARANAENME DE ENERSIA ELllRICA (ODPEL)
PROJECT COSTSY AND ON8TRBUCTION SCHEDULE
TransformerCapacity(MVA) Cost
and Line -------- 1000 US ---------- ---- Date of Installation----REGION Lenth(kn) Local Foreign Total Commencement Completion
1. CURITIBA
1.1 Substations - 69 kV
Barigui - new circuit 41 502.3 51.1 553.4 7/76 11/77Cidade Industrial 82 994.5 460.8 1455.3 7/76 5/79Pilarzinho - new station 41 667.1 479.0 1146.1 7/76 12/78Rio Branco do Sul 20 288.0 373.3 661.3 1/77 12/77Guaratuba - new station - 450.0 - 450.0 1/77 12/77Atuba 82 259.9 749.5 1009.4 6/77 6/78Araucaria - two new circuits - 114.i 74.8 188.9 1/77 12/77Pinheirinho - new station 41 1581.8 861.8 2443.6 1/77 3/78Senta quiteria o2 270.0 805.9 1075.9 1/77 12/78Iso Jose dos Pinhais - two circuits 25 75.4 30.9 106.3 7/77 6/78"X" - new station, switching bay - 1012.5 - 1012.5 7/76 6/77
1.2 Substations - 34.5/13.8 kV
Matinhas - new 13.8 kV regulator 4 2.3 15.0 17.3 7/78 12/78Praia de Lete - auxiliaries 3.5 29.0 1.1 30.1 2/78 5/78Lapa - auxiliaries 2 10.1 27.3 37.4 1/79 4/79Canpo Tenente - new station, auxiliaries - 152.3 67.4 219.7 1/79 6/79Porto Amazonas - new station, auxiliaries - 152.3 67.4 219.7 1/79 6/79Contenda - new station, auxiliaries 134.6 20.9 155.5 7/77 12/77Balsa Nova - 1 10.1 24.6 34.7 2/77 5/77Tunas - 1 5.6 26.2 31.8 1/77 4/77Cerro Azul auxiliaries - 331 53.5 184.9 1/77 6/77
Sub-total 6843.3 4190.7 11034.0
1.3 Lines - 69 kV
Uberaba - San Jose dos Pinhais 10 288.3 - 288.3 7/76 3/77Itarare - Guaratuba 50 1200.5 - 1200.5 7/76 12/76Tie with Cidade Industrial substation 1.5 54.9 - 54.9 7/76 12/76Tie with Substation "x" 15 401.9 127.1 529.0 4/77 12/77Pinheirinho - Substation "X" 15 401.9 127.1 529.0 3/77 12/77Tie with Pilarzinho substation 1.5 54.9 - 54.9 7/76 12/76Industrial ring 15 342.3 96.4 438.7 4/77 12/77Tie with Pinheirinho substation 3 80.3 27.9 108.2 7/77 12/77Posto Fiscal - Praia de teste 20 500.1 95.8 595.9 7/77 12/77Parigui - Santa Quiteria, 2nd circuit 5 80.6 39.4 120.0 3/77 6/77Industrial feeders (lst stage) 10 236.3 64.3 300.6 7/77 12/77Industrial feeders (2nd stage) 10 236.3 64.3 300.6 1/78 6/78Industrial feeders (3rd stage) 10 236.3 64.6 9/78 3/79
Sub-total (Lines) 4114,6 70 4821.2
1.4 Distribution quantity Unit
Feeders, new 82 km 1427.2 361.3 1788.5 7/76 6/79Circuits, new 1089 units 10030.2 1134.1 11164.3 7/76 6/79Circuits, improved 875 units 8054.7 906.6 8961.3 7/76 6/79Transformers 110 NVA 163.6 2956.9 3120.5 7/76 6/79Line extensions 110 kz 662.4 133.6 796.0 7/76 6/79Line improvements 178 km 1071.8 216.1 1287.9 7/76 6/79Street lights 63300 units 3752.1 396.5 4148.6 7/76 6/79Underground system Job - 2833.1 2117.5 40 6 7/76 6/79
Sub-total (Distribution) 27995.1 89222.6 3617.7
1.5 TOTAIS (CURITIBA) 789953 0 13119.9 -7-29
1J Includes engineering, administration and physical contingencies.
ANNEX 6Pa~ge of 6
Trra sfor erCapacity(MVA) Cost
and Line ---------- 10O0 u $--- ---------- ------ Date of Installation-------
REGIONS (Cuntinoed) ngtb(km) Local Foreign Total Commencement Co-pletion
2. PONTA GROSSA
2.1 Substations - 69 kV
Ponta Grossa Sul - new station,switching bays - 669.4 136.9 806.3 1/77 12/77
Guarapuava - one new circuit, auxiliaries 4 46.1 59.7 105.8 8/77 6/78
. Substations - 34.5/13.8 kV
Pirai do Sul - new station, auxiliaries - 139.8 76.7 216.5 1/78 4/78
Pitanga - two new circuits plus auxiliaries 1.5 299 51 8/76 6/76
Sot-total (Substations)
2.3 ldstribution Quantity UiBt
Circuits, ne- 254 units 2617.8 430.1 3047.9 7/76 6/79Circuits, improved 295 Units 3038.5 499.5 3538.0 7/76 6/79Transformers 33 MVA 39.8 718.9 758.7 7/76 6/79Line extenoions 242 km 1311.5 31.9 1343.4 7/76 6/79Line inprove-ento 80 ka 433.6 287.9 721.5 7/76 6/79Street light. 15645 ulits 1048.7 110.9 1159.6 7/76 6/79
Sub-total (Distribution) 8489.9 2079.2 10569.1
2.4 TOTALS (PONTA GROSSA) 970.98 I5171
3. LONDRINA
3.1 Substations - 69 kV
Apucarana 20 233.4 349.6 583.0 1/78 12/78Ap-caraninha hydro - step-up station improvements b 1268.o 125.0 82923.0 7/76 162/78
Toodrina I 81 642.5 41s.6 1688.i 7/76 67Rblland Danids - complete reformation
S.' SBustationn - 34.5/13.8 kV
Aropo-gas - new station, auxiliaries - 178.1 241.8 419.9 1/78 9/78Nossa Sm. d-a GracAs - new statics, auxiliaries _ 167.5 29.4 196.9 7/78 12/78
oum Suce-on - auxiliaries 4 1.3 12.3 52.6 1/78 6/78Canbirn - auxiliaries o.6 32.4 - 32.4 1/78 5/78Prineiro de Main - auxiliaries 1 32.4 15.0 47.4 1/78 5/78Jaguapita - auxiliaries 1 32.4 15.0 47.4 1/78 6/78Sabaudia - auxiliaries 0.3 27.9 - 27.9 1/78 6/78Seo Pedro do Ivai - one sew circuit, auxiliaries 1 6o.6 7.0 67.6 7/78 5/79Congonihinia - one new circuit 0.5 64.o 32.6 96.6 1/79 5/79Borrazopolin - new station, auxiliaries - 154.6 13.9 168.5 1/79 5/79Ma-unbi 1.5 41.4 70.1 111.5 5/78Facinal - auxiliaries 2.5 10.1 11.8 21.9 7/77 11/77So1audia - new station, auxiliaries - 203.5 271.1 474.6 6/76 12/77
Alvorada do Sul - auxiliaries 1 23.6 - 23.6 1/77 4/77Bela Vista do Parsiso, auxiliries 2 30.2 70.3 100.5 1/77 12,'77Assal - auxiliaries for five circuits 35 43.3 35.0 78.3 7/77 12/77
California, auxiliaries 1.5 33.2 80.8 114.o 1/77 12/77
Muonho de Mello - auxiliaries 1.5 26.4 - 26.4 1/77 7/77
Ivaipcrn, auxiliarien 3.5 150.0 112.0 262.0 1/77 12/77
Miraselva, auxiliaries 1 32.6 io0.6 133.2 1/77 3/78Lupionopolis - new statson, auxiliaries - 75.9 - 75.9 2/76 5/76Ncva Fatina - two new circuits, auxiliarie 2 26.6 13.9 4o.5 6/76 12/76Riberao do Pinhal - new station, auxiliaries - 68.3 - 68.3 6/76 12/76Kalore - new station, auxiliaries _ 68.3 - 68.3 6/76 12/76
5elva - new station, auxiliaries - 126.0 53.5 179.5 1/77 6/77Warta - new station, auiliaries 8 V.jt-52 53-.5 ~~~~~~6/77 12/77
Sub-total (Substations) 456.1
3.3 Distribution Quantity Unit
Feeders, new 19 km 76.3 265.2 341.5 7/76 6/79
Circuits, new 434 units 4480.4 736.4 5216.8 7/76 6/79
Circuits, improved 460 units 4737.9 779.0 5516.9 7/76 6/79Transforners 46 MVA - 1233.7 1233.7 7/76 6/79
Line entensions 196 km 888.0 230.3 1118.3 7/76 6/79
Line improvements 143 km 1090.4 i68.o 1258.4 7/76 6/79
Street ligtts 25478 units 1707,9 18o.5 1888.4 7/76 6171Sub-total (Distribution) 129d0.9 3593.1 165374.
3.4 TOTAIl (LONDRINA) 17377.2 5852.9 23030.1
AM= 6vajrrof 6
TransformserCapacity(MVA) Cost
and Line ________ -----_1000 us$---------- ------ Date of Installation----RFY:TONS (Continued) Length(km) Local Foreign Total Commencement Completion
4. MARINCA
4.1 Substations - 69 kV
Mandaguari - new station 82 1021.5 412.6 1434.1 1/77 5/78Mtringa II 20 308.3 844.1 1152.4 1/77 6/78Paranavai 154.7 321.5 476.2 1/77 6/78Cmspo Murao - new station-three new 34.5 kV circuits 559.1 96.3 655.4 7/77 9/78Umuarama - auxiliaries 39.4 7.0 46.4 7/78 12/78
4.2 Substations - 34.5/13.8 kV
Maria Helena - new station, auxiliaries - 158.6 13.9 172.5 3/78 9/78Sao Jorge - new station 0.3 163.0 66.3 229.3 6/78 12/78Araruna - two new 13.8 kV circuits, auxiliaries 0.5 79.1 - 79.1 6/78 9/78Peabir - two new 13.8 kV circuits auxiliaries 1.5 66.4 30.0 96.4 7/78 11/78Perobali- two new 13,8 kV circuits auxiliaries 1 76.8 40.1 116.9 6/78 10/78Querencia do Norte - auxiliaries - 27.9 - 27.9 1/78 5/78Fenix - one ncw 13.8 kV circuit plus auxiliaries - 61.5 7.0 68.5 1/78 6/78Sta. Isabel do Ivai - two new 13.8 kV circuits, auxiliaries - 90.7 17.7 108.4 9/77 3/78Sta. Cruc do Monte Castelo - auxiliaries - 33.5 12.3 45.8 7/78 12/78Toneiras do Oeste - auxiliaries - 27.9 - 27.9 7/78 11/78Xambre - one new 13.8 kV circuit 0.5 60.6 7.0 67.6 2/79 6/79sao or.e - auxiliaries 1 25.7 10.7 36.4 1/79 5/79Asapora - one new 13.8 kV 0.3 64.o 7.0 71.0 1/79 6/79See aose do Cabus - new station - 156.7 12.8 169.5 1/79 6/79Cheavs Codemar - new switching station - 99.6 - 99.6 6/78 12/78Francisco Alwos - new switching station - 99.6 - 99.6 6/77 12/77Mcrire. Sales - 121.6 70.0 191.6 9/77 12/77Paraiso do Norte i 154.1 74.9 229.0 6/77 12/77Rondon - auxiliaeie 1 37.1 4.8 41.9 8/77 12/77Perola 3 24.8 65.8 90.6 3/77 12/77Alto Piquiri - 2.5 MVA addition plus 2-13.8 kV circuits - 63.7 70.6 134.3 6/77 12/77Ipora, auciliaries 1.5 121.3 81.3 202.6 6/77 12/77Douradina - auxiliaries 1 31.8 - 31.8 2/77 6/77Boa Espersnca - two new 13.8 kV circuits, auxiliaries 1 83.4 26.2 109.6 6/77 12/77TaAboarn - 1.5 MVA addition plus auxiliaries - 33.5 65.3 98.8 6/76 5/77Colorado - two new 13.8 kV circuits - 26.8 37.5 64.3 6/76 12/77Ourizons - new station - 91.1 _ 91.1 1/77 9/77
Sub-total (Substations) 41632402.7 66.5
14.3 Linen (138 hi)
Tie with Mandaguari substation 10 288.2 50.9 339.1
4.4 Diotnibotio.n Quantity Unit
Feeders, sew 19 ks 278.6 72.7 351.3 7/76 6/79Circuits, new 761 units 7838.3 1288.0 9126.3 7/76 6/79Trsnsformer- 51 MVA 55.1 996.6 1051.7 7/76 6/79Line extensions 257 knl 1087.3 317.3 1404.6 7/76 6/79Line extensions 200 km 1532.4 246.9 1779.3 7/76 6/79Street lights 21688 units i454.i 153.7 1607.8 7/76 6/79
Sub-total (Distribution) 12245.8 3075.2 15321.0
4.5 TOTALS (MARIN.A) 6697.8 52 22226.6
TransformerCapacity(14VA) Cost
and Line 1000 US$ -----Date of Installation-----,REGIONS (continued) Length(kmn) IoDcal Foreign Total Commencement Completion
5. CASCAVEL
5.1 Substations (69 kV)
Cascavel I 40 164.3 588.5 752.8 6/78 6/79Guaira 20 1258.9 786.7 2045.6 6/77 6/78Mal. Candido Rondon - one new circuit plus auxiliaries - 180.0 120.8 300.0 7/77 10/78Medianeira - new station, six new circuits plus auxiliaries - 1554.8 668.4 2223.2 6/77 7/78Cascavel II - new station 20 1119.4 108.4 1227.8 1/77 12/77Assis Chateaubriand - new station 20 1280.3 710.5 1990.8 1/77 3/78
5.2 Substations (34.5/13.8 kV)
Guaraniacu - auxiliaries 1 12.4 13.9 26.3 6/78 5/78Chopinzinho - auxiliaries 1 6.2 7.0 13.2 7/78 11/78Barracao - auxiliaries 1.5 10.7 21.9 32.6 7/78 11/78Pato Bragado - auxiliaries 1 27.9 - 27.9 1/78 5/78Cap. Leonidas Marques - auxiliaries 0.5 31.4 - 31.4 2/78 5/78Sao Jorge do Oeste - auxiliaries - 64.o 19.3 83.3 6/78 1/78Sao Joao - one new 13.8 kV circuit - 60.6 7.0 67.6 6/78 12/78Matelandia - one nlew 13.8 kV circuit 1.5 68.3 9.6 77.9 1/79 6/79Salgado Filho - auxiliaries 0.3 27.9 - 27.9 2/79 5/79Sao Miguel do Iguacu - auxiliaries 2 23.4 13.9 37.3 1/77 6/77Bragantina - auxiliaries 1 31.8 - 31.8 6/77 12/77Campina da Lagoa - auxiliaries 1.5 30.2 - 30.2 6/77 12/77Vita Nova - auxiliaries 1.5 31.8 - 31.8 6/77 12/77Palotina 2.5 105.9 105.6 211.5 6/77 12/77Formosa do Oeste - new station, auxiliaries - 72.6 - 72.6 6/76 11/76Sub-total (Substations) 6159.0 31.5 9340.5
5.3 Lines (138 kV)
Tie with Medianeira substation 10 288.2 97.2 385.4 1/77 6/77Tie with Assis Chateaubriand substation 30 864.8 291.5 1156.3 6/77 12/77Sub-total (Lines) 1153.0 154l.7
5.4 Distribution Quantity Unit
Feeders, new 10 km 146.7 38.2 184.9 7/76 6/79Circuits, new 564 units 5809.4 954.8 6764.2 7/76 6/79Transformers 53 MVA 40.8 738.7 779.5 7/76 6179Line extensions 390 km 1855.1 303.8 2158.9 7/76 6/79Line improvements 96 km 743.3 74.8 818.1 7/76 6/79Street lights 8870 units 1077.3 113.9 1191.2Sub-total (Distribution) 9672.6 2224.2 llo9°-°
5.5 TOTALS (CASCAVEL) 57947 22779.0
o0
CistDaef'nsai
Quantiy--- ------ 1000 US$ ------------ f ------ Date Jf Tnstallatifn-----
Quantity T)cal Fnreign Total Cimmencement Cosmpletion
6. GENERAL
6.1 Metering Equipment (new connections) 278.6 3491.5 3770.1 7/76 6/79
Watt-hour meter, single phase 124,700)Watt-hour meter, polyphase 20,133)Current transformers, 5 amps 3,284)Potential transformers, 2-4 kVA 436)Autotransformers 110/120 V, 220/127 V 1,171)Meters with tape recorder 150)Loss compensators 60)Meter calibrators 1,161)Metering sets, three phases 46)
6.2 Metering Equipment (improvements) 183.9 2039.6 2223.5 7/76 6/79
Watt-hour meter, single phase 74,642)Watt-hour meter, polyphase 10,048)Current transformers, 5 amps 2,131)Autotransformers 110/120 V, 220/127 V 694)Meter calibrators 697)
6.3 Meter Laboratory Equipment Lot 27.5 522.0 549.5 7/76 6/79
Circuit analysers, calibrators;P.F., phase sequence, resistanceMeters: and other miscellaneousInstruments
6.4 "Hot-line" Maintenance and System Operation Equipment Lot 168.9 2785.0 2953.9 7/76 6/79
Insulated miscellaneous devices for mounting onmotor vehicles, voltage regulators, vacuum reclosers,auto-boosters, etc.
6.5 Transmission and Subtransmission Maintenance andOperation Equipment Tot 250.9 2140.o 2390.9 7/76 6/79
Miscellaneous metering instruments, equipment andapparatus
6.6 TOTALS (GENERAL) 10978.1 118 7.9
7. TPAIMINi! 300_0 300.0 6/77 12/78
8. FABRICATION INSPECTIONS!! 370.0 370.0 6/77 12/78
9. GRAND TOTAL 100293.3 1441522.3 I6W5
2 See page 6. :)
0A
April 1976
AN'LEX 6Page 6 of 6 pages
CONSULTANT SERVICES AND TRAINING PROGRAM
1. Consultant Services
1.01 On the basis of a fabrication period of 2 years (January 1, 1977to December 31, 1978), consulting services for fabrication inspections out-side Brazil were estimated as follows:
-Consultants based outside Brazil:
Salary and overhead US$4,715Living allowance at US$70/day US$2,129
US$6,8)4/man-month48 man-months (2 consultants) US$328,512
-Consultants based in Brazil (foreign costs only)
Living expenses at US$70/day US$2,129/man-month12 man-months US$ 25,548
Travel: 4 round trips at US$1,000 US$ 4,000
Sub-total US$358,o60Contingencies US$ 11 940
Total US$370O000
1.02 The total cost for these consulting services represent 2.1% of thecosts in contracts for equipment and materials expected to go to foreignsuppliers. The amount allocated is reasonable since the cost of these ser-vices normally range between 1% and 3% of the contract price of the equipmentand materials.
2. Training Program
2.01 COFEL has prepared a training program for its personnel in con-junction with the activities of its consultant (CAEEB) to allow them toachieve experience in the preparation of bidding documents and in equipmentfabrication inspections. The costs of the training program outside Brazilappear below:
Living expenses at US$70/day US$2,129/man-month
- Fabrication inspections (96 man--months) US$204,384- Designs and manufacturing processes at manufacturer'splants (32 man-months) US$ 68,128
- Travel, 12 round-trips at US$1,000 US$ 12,000
Sub-total US$284,512Contingencies US$ 15,488
Total US$300,000
ANNEX 7APPRAISAL OF COPEL DISTRIBUTION PROJECT
US$1.0 Cr$ 9jtJ7COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
PROJECT COSTS - SUAMMARY
-------- million US$ -------- ------- million Cr$--------REGION Local Foreign Total Local Foreign Total
1. CURITIBA
1.1 Substations - 69 kV 4.11 3.66 7.77 37.28 33.20 70.1471.2 Substations - 34.5/13.8 kV 0.42 0.29 0.71 3.81 2.63 6.LJ41.3 Lines - 69 kV 2.71 o.66 3.37 24.58 5.99 30-571.4 Distribution 18.47 7.74 26.21 167.52 70.20 237.731.5 Engineering and Administration 9.59 - 9.59 86.98 - 86.981.6 Physical Contingency 3.65 0.77 4.42 33.11 6.98 40.09
Sub-total 3° .12 52.07 33.2 119.00 1472727
2. PONTA GROSSA
2.1 Substations - 69 kV 0.53 0.18 0.71 4.81 1 .63 6.442.2 Substations - 34.5/13.8 kV 0.12 0.10 0.22 1 .09 0.91 2.002.3 Distribution 6.23 1 .96 8.19 56.51 17.78 74.282.4 Engineering and Administration 1 .60 - 1.60 114.51 - 114.512.5 Physical Contingency 0.89 0.14 1.03 8.07 1.27 9.34
Sub-total 9.37 2.38 11.75 84.99 27.9 106.57
3. LONDRINA
3.1 Substations - 69 kV 1.89 0.77 2.66 17.1 4 6.99 24.133.2 Substations - 34.5/13.8 kV 1.34 1.17 2.51 12.15 10.62 22.773.3 Distribution 9.54 3.38 12.92 86.53 30.65 117.183.4 Engineering and Administration 2.98 - 2.98 27.03 - 27.033.5 Physical Contingency 1.63 0.33 1.96 14.78 2.99 17.77
Sub-total 177.39 23.03 157.63 517.25 T
4. MARINGA
4.1 Substations - 69 kV 1.53 1.58 3.11 13.88 14.33 28.214.2 Substations - 34.5/13.8 kV 1.53 0.67 2.20 13.88 6.08 19.964.3 Lines - 138 kV 0.21 0.05 0.26 1.91 0.45 2.364.4 Distribution 8.99 2.90 11.89 81 .54 26.30 107.844.5 Engineering and Administration 2.86 - 2.86 25.94 - 25.944.6 Physical Contingency 1 .58 0.33 1 .91 14.33 2.99 17.32
Sub-total 16.70 573 2 .3 15T7 0 201 .63
5. CASCAVEL
5.1 Substations - 69 kV 4.o8 2.81 6.89 37.00 25.49 62.495.2 Substations - 34.5/13.8 kV 0.44 0.18 0.62 3.99 1 .63 5.625.3 Lines - 138 kV 0.84 0.36 1.20 7.62 3.27 10.895.4 Distribution 7.12 2.10 9.22 64.58 19.05 83.635.5 Engineering and Administration 2.91 - 2.91 26.39 - 26.395.6 Physical Contingency 1.59 0.34 1.93 14.42 3.08 17.50
Sub-total 16.9 5.79 22.77 152.002 206.52
6. GENERAL 0.91 10.98 11.89 8.25 99.59 107.84
7. TRAINING - 0.30 0.30 - 2.72 2.72
&. FABRICATION INSPECTIONS - 0.37 0.37 - 3.36 3.36
TOTAL 100.29 44.12 144.4i 909.63 400.28 1309.91
Price Contingency 36.07 7.91 43.98 327.16 71.64 398.30
GRAND TOTAL 136.36 52.03 188.39 1236.79 471.92 1708.71April 23===97== == =6====== === ====
April 23, 1976
APPRAISAL OF COPEL DISTRIBUTION PROJECT
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
BRAZIL
Estimated Loan Disbursement Schedule
Assumptions:
Loan approval and signing: May 1976
Effective date: August 1976
Closing datet December 1979
IBRD FISCAL YEAR DISBURSEMENTS CUMULATIVE DISBURSEMENTSAND SEMESTER DURING SEMHETER AT END OF SEMESTER
--- in millions of US$ -------------------
1977(Ending June 30, 1977)
December 31, 1976 2,500 2,500June 30, 1977 6,500 9,000
197 '(Ending June 30, 1978)
December 31, 1977 6,500 15,500June 30, 1978 10,500 26,000
1979(M-TIng June 30, 1979)
December 31, 1978 10,500 36,500June 30, 1979 8,500 45,000
1980(MEIng June 30, 1980)
December 31, 1979 7,000 52,000
April 1976
ANNEX 9
APPRAISAL OF COPEL DISTRIBUTION PROJECT
COIMPANHIA PARANAENSE DE ENERGIA EIETRICA (COPEL)
Performance Indicators
1975 1976 1977 1978 1979(actual) -- ------Forecast---
Sales (GWh) 2500 2971 3354 3858 42t Total number of customers 562000 6060oo 650000 697000 746000Number of employees 4848 5077 5309 5513 5721Customer/employee 116 119 122 126 130
Low-income consumers connected in yearCuritiba - 100 1720 2580 4200Ponta Grossa - 20 300 450 730Londrina - 20 380 570 930Maringa - 40 800 800 2360Cascavel - O 800 800 2360Total system - 220 4000 5200 10508
Losses (%)Curitiba 13 13 12 '1 11Ponta Grossa 17 17 16 15 13Londrina 16 16 14 13 12Maringa 14 14 12 12 11Cascavel 15 15 14
FinancialOperating ratio (%) 57 59 59 60 61Debt service coverage*(times) 2 14 1.83 1.6o 1.73 1.82Total liabilities/net fixed assets(%355 56 56 57 56Net receivables from customers
at year end (days billings) 84 71 70 70 70
* Net income before interest and taxes plus depreciation divided by the sumof interest on debt not financed by long-term loans and repayments of longterm loans.
March 1976
ANNEX lOPage 1 of 7
APPRAISAL OF COPEL DISTRIBUTION PROJECT
COMPANHIA PARANAEISE DE ENERGIA ELETRICA (COPEL)
ELECTRICIT'Y TARIFFS
1 . Conswners of electricity in Brazil are subject to the followingcharges:
A - the basic tariffsB - The sole taxC - The compulsory loanD - A social security tax
A. The Basic Tariffs
Background
2. Electricity charges in Brazil have been governed for over :forty yearsby the Water Code as amended from time to time. Regulatory p ers have beenvested in the M4inistry of Mines and Energy, which since 1969 has been exercisingits authority through the National Department of Water and Electric Energy (fNAEE).
Since the adoption of the water Code in 1934, electricity tariffs havebeen based on a service-at-cost principle. Noteworthy amendments have been:the introduction in 9X11 (Decreto--Lei tic.. 31 28) of a rate of return on assetsolf up to 10(; the introduction in 1957 (Decre-to No. 41019) of the concept of a"guarantood. rate of return on the historic asset cost; the authorization in1964 (Decreto No. 54938) to revalue assets to reflect price level changes; thema'-ing in 1966 (Lei No. 5073) of such asset revaluation mandatory; the raisingin 1971 (Lei No. 5655) of the allowed rate of return on revalued "remunerableassets" (see paragraph 12) from 10% to 12o~ at UlAEE's discretion; the introduction in1973 (Lei 5899) of the concept of cross-subsidization; and the enactment into la.w in197L (Decreto-Lei 1383) of the objective of tariff equalization.
4. The guiding force in the evolution of Brazilian tariff legislationhas been recognition of the need to mobil.ize massive financial resources throughconswrvser charges to support sector growth. A noteworthy departure was in1959-1 963--the period of rampant inflation--when tariff levels were allowedto lag substmnti.al- behind soaring price levels, wlth the result that sectorexpansion caime to virtual halt, particularly the extension of the distributionnetwor'ks. With the implementation of asset revaluation in 196L;-1966, sectordevelopfrent gatherei theimomentum whicl-i produced the impressive 10.1:. averageinnual growth in installedI capacity over the last decade to l'eep abreast of
growth in gross electric-ity consuwption of 9.2Z over the period--12.3 annuallyover the last five years.
In 1 973 the tariff authorities began implenmenting a government poilcyintendeti to reduce regional inequalities and to promote, over the longer run,
ANNEX 10Page 2 of 7
a more geographically balanced economic growth. To achieve this objective,tariffs are being set collectively within regions rather than by utility as had beendone heretofore. This collective rate setting was also designed to inducegains in operating efficiency. When the rate unification effort was wellunderway, however, Brazil was canfronted with the energy crisis and theattending generalized price inflation and tightening of world financialmarkets. Rekindled domestic inflation together with the fact that electricitytariff levels in any given year reflect asset revaluation coefficients forthe proceding year, caused tariff increases in 1973 and 1974 to againlag substantially behind the general price increases. The reference price forl4h for the whole of Brazil excluding surcharges (tarifa fiscal - see para. 14)decreased from about US3.6 cents in 1972 to US2.9 cents in 1974. The lowerrevenues together with rapidly increasing operating costs brought about aliquidity squeeze, which became particularly acute in those utilities engagedin the construction of large generation projects characterized by longgestation periods and which faced substantial project cost overruns. Thisalso caused returns on remunerable assets for the comparativelyv higher cost/financially less efficient utilities well below the 10iS minimum. Althoughtariff legislation provides that the shortfalls may be carried forward tobe offset over time against future surplus eturns, the magnitude of the short-falls and their widespread occurrence rendered this practice incongruent withthe service-at-cost system.
6. Sector finances were also affected since, as will beseen later, overall sector revenues vary in direct proportion to changes inthe average price per kWh. Sector revenues decreased at the time when theywere most needed and when it became increasingly difficult to secure borrowingson suitable terms. Overall sector revenues decreased from Cr.8.2 billion in1973 to Cr.7.5 billion in 1974, both expressed in 1974 cruzeiros.
7. Faced with (a) an expected growth in electricity consumption at aneven higher rate (13% p.a.) than in the last decade and (b) little prospectsof favorable changes in the world panorama in the foreseeable future, andconvinced that the most appropriate means of achieving an orderly, increasingutilization of Brazil's vast hydroelectric potential is through the maintenanceof a realistic pricing policy assuring the sector an adequate supply of long-term resources commensurate with its massive investment requirements, theBrazilian authorities adopted the following principal measures:
(i) the granting of gradual tariff increases at higher rates than thoseaffecting the domestic general price level, and which in 1975 causedthe reference price per KWh to adevelop as follows:
Cr cents U.S. cents
1st Quarter 21 .0 2.712nd Quarter 23.5 2.913rd Quarter 28.0 3.294th Quarter 30.3 3.34
ANNEX 10Page 3 of 7
(ii) the granting, beginning July 1, 1975, of discounts equivalent to20% for residential consumers within the 30 kWh/month minimumconsumption, and to 10% for low tension rural consumers.
(iii) the freezing until 1983 at the 1974 level (32.5%) of the compulsoryloan (see paragraph 15) rate applicable to industrial consumers,which was on an annually declining scale until its elimination in1984.
(iv) the establishment of a cross-subsidization mechanism, the "GuaranteeFund", to harmonize the rate equalization effort with the service-at-cost principle. This is accomplished by the funding of the"Guarantee Fund" through a surcharge of up to 26 on assets in operationand using the proceeds to supplement tariff revenues to increasethe returns of qualifying utilities earning less than the 10% minimum.
(v) the adoption by nIAEE of a number of strict measures aimed atcontrolling the operating efficiency of those concessionaires benefit-ting from the cross-subsidization mechanism, including the rationaliza-tion of their investments and the maximization of the use of sectorrevenues to meet sector expansion requirements. Utilities fallingunder these measures, mostly distribution companies, are restrictedfrom increasing their operating costs, undertaking investments andexpanding their markets without INAEE s prior approval, and theirmajority governmental shareholders must maintain their service accountscurrent and reinvest their dividends.
(vi) the standardization of straight line depreciation at mandatory ratesof year-end gross fixed assets of 5% (up to 5% previously) for thermalinstallations and 3% (up to 3%) for hydro installations and otherequipment.
8. In addition, ELETROBRAS is seeking that it be permitted to continueto utilize a high proportion of the federal government's share of the sole tax,which according to present legislation is to be transferred in annually increasingproportions to other sectors through the recently created National DevelopmentFund (paragraph 14).
9. This is the first time that INAEE has set out to exercise itscontrolling powers in a comprehensive manner. In preparation for this tasLrDNAEE has been strengthening its staff with tariff specialists drawn mainlyfrom the concessionaires' ranks.
The Present Tariff Level System
10. The law provides that tariffs should be set at such levels as to cover:
(a) operating, maintenance and administrative expenses;
(b) taxes other than on income (mainly property taxes);
ANIN EX 10Page S of 7
(c) foreign exchange losses arising from the service of borrowings inforeign exchange;
(d) straight line depreciation of estimated year-end gross fixed assetsin operation (land excluded) at the mandatory rates already mentioned(point vi, paragraph 7);
(e) reversion (defined in paragraph 11) of between 3% and 5% of theestimated year-end utility plant in service, less the sum ofaccumulated advances, contributions and grants ("investimentoreversivel"); and
(f) a legal return ("remuneragao legal") of up to 12% of remunerableinvestment ("investimento remuneravel", defined in paragraph 12), atDNAEE's discretion.
11. Beginning January 1975, (Decreto-Lei 1383) reversion ("Reserva Globalde Reversao") consists of:
(a) a tax levied by the Federal Government tD secure funds to compensateprivate concessionaires for their assets when their concessions revertto, or are taken over by, the Government. This tax currently amountsto % of the corresponding asset base ("investimento reversivel",defined in the previous paragraph). Its proceeds are administered byELET¶ROBRAS, which channel the funds to support investments by thepublic concessionaires, mostly by the large, federally-owned genera-tion concessionaires; and
(b) thte contributions to the Guarantee Fund (mentioned in point (iv) ofparagraph 7), a redistributive mechanism made necessary by the rateequalization effort, whereby tariff revenues are channelled from themore financially efficient utilities to those which achieve a return(before this transfer) below the 10% minimum. All utilities aresubject to this contribution, which may be of up to 2% of the reversionbase at ENAkE's discretion. Monthly transfers from this fund areonly authorized to those qualifying utilities which, on a month-to-month basis, submit evidence satisfactory to ENAEE of their adherenceto the controlling measures mentioned in point (v) of paragraph 7.
12. Remunerable investment ("investimento remuneravel") is calcuAed asthe difference between:
(a) the sum of:
(i) the revalued gross book value of the utility plant in service!/;
/ Up to 1975 DNAEE had accepted year-end values, but it is now adjusting themto reflect the period of time plant added during the year has been in operation.
ANNEX 1 0Page 5 of 7
(ii) an allowance for inventory;
(iii) an allowance for other net working capital items; and
(b) (i) accumulated (revalued) depreciation and amortization l;
(ii) the year-end surplus/(deficit) arising from the difference ofprior year's actual returns and the allowed legal returns;
(iii) the year-end sum of advances, contributions and grants.
13. Sector legislation provides that concessionaires should apply toIIAEE every three years for a revision of their tariff level. Up through 1974,revisions were made annually on the basis of applications prepared by theconcessionaires using asset revaluation coefficients prepared by Governmentauthorities, reflecting price level changes during the preceding year. Con-cessionaires were authorized to add interim surcharges to the basic tariffapproved by INAEE to compensate for increases in wages,social benefits, fuelcosts, cost of purchased power and increases in foreign exchange debt servicearising from fluctuations in the foreign exchange rates. Beginning in 1975,tariff level adjustments are made entirely at DNAEE's initiative, based noton the concessionaires' actual tariff calculations as before, but on selectedcost and investment data which all concessionaires must now submit on amonthly basis to INAEE. In 1975 four general tariff increases were authorizedby IINAEE (January, June, September and December).
Other Charges
B. The Sole Tax (Imposto Unico, IUEE)
14. This is i;ax originally imposed to provide additional financial resourcesfor the sector. Since 1972 (Lei 5655) this tax applies to canmercial andresidential consumers only. The rates applicable are 60% (commercial consumers)and 50% (residential consumers) of the "tarifa fiscal", a country-wide referenceelectricity tariff calculated every three months by INAEE. Consumers notreaching the minimum 30 kWh/month level are exempt for this tax. The proceedsfrom this tax are distributed 40% to Federal agencies, 50% to the States and10% to the municipalities. The funds returned to the States are prorated amongthem on the basis of their area (20%), their population (60%), their electricpower generation (2%), their electricity consumption (15%) and their totalflooded areas (reservoirs) (3%). Through 1973, the funds allocated to Federalagencis were distributed as follows: ELETROBRAS (37%), DNAEE (2%) and Ministryof Mines and Energy - MME (1%). Beginning in 1974, the funds allocated to thesector are on the following declining scale ():
1/ Amortization was charged instead of reversion before 1971. Its accumulatedvalue as of that year, as revalued, is kept on utilities' books and treatedas a deduction from plant in source. Reversion is not treated in this way.
ANNEX 10Page 6 of 7
ELETROBRAS _E National Development Fund
197)4 36.0 4.0% -1975 32.4 3.6 4.01976 28.8 3.2 8.01977 25.2 2.8 12.01978 21.6 2.~ 1 6.o1979 on 18.0 2.0 20.0
Thus, the share of the sector in the portion allocated to the Federa.l. Goverrunertis to be reduced by 50% over a five-year period.
C. The Compulsory Loan (Emnprestimo Compulsorio)
15. This forced investment scheme was also established to supplement sectorresources and, like the sole tax, is based on the "tarifa fiscal" mentioned inthe previous paragraph. It applies to industrial consumers only, at the rateof 32.5% from 1975 to 1983 as currently established by Law (previously at 35%until 1974 and on an annually declining scale until its elimination in 1984,point (iii) of paragraph 7). The law requires that industrial consumers take20-year, 6% interest bearing bonds issued by ELETROBRAS, and which are subjectto monetary correcticai. Compulsory loan proceeds are to be allocated byELETTROBRAS as follows:
(a) 50, h for investment in hydroelectric plants in the Parana lRiver basin,mainly Itaipui.
(b) 15% for investment. in hydroelectric plants in the Sao Francisco Riverbasin.
(c) 10%' for additional, capital subscription in ELETRONORTE, and
(d) 25,' for the construction of regional transmission systems in extrahighi voltage and in the development of the nuclear power plant program.
(Previously, 50% of the funds collected from each State had to be invested inthe respective state-owned power distribution concessionaire).
D. Social Security Tax
1C. Al] consumers are required to pay this tax at the rate of 1% of theirpower bills (% before June 1973).
Financial Impact
17. The following table shows the average revenue per kWh in Brazil. in1974:
AEN EX 1 0Page 7 of 7
Cr$j/kWh USJ/kWh %
Concessionaires' revenues (excluding reversion) 19.92 2.94 71Reversion 2.46 0.36 9
Sub-total, 3.30 m
Sole tax (IUEE) 2.99 0.44 10Social security tax 0.22 0.03 1Price paid by consumer (excl. compuls. loan) 25.59 3.77 91
Cormpulsory loan 2.49 0.37 9Total consumer contribution 28.0 ioo
18. The concessionaires t average revenue(US2.94 cents/kWh) is comparableto that experienced in advanced industrialized countries. The consurrer contribu-tions (US1 .20 cents/kIWIl or 41%) over and above the cost of service results fromthe Government policy of having sector finances rely on stable, internallygenerated long-term funds, rather than depend to any sizeable extent on govern-ment budget allocations or capital market resources. The following tablesummarizes the sectors' sources and applications of funds in 1974 and thoseestimated for the period 1975-79 (the latter at June 1975 prices);
04 billions -197L4 1975-79
Amount % Amount %
SOURCES
Concessionaires' cash generation 2.3 38.2Re.versi on 1 .4 15.7Sole tax (IIJEE) 1.7 13.5Compulsory loan 1.4 14.5Consumer contributions in-air nil 0.2
Sub-total 6.8 821
Budget allocationsFederal o.6 2.3State 1.5 6.1
Sub-total 2.1 15 lT 6Borrowings (net) 5.3 37 36.3 29
1L.2 100 126.8 100
APPLICATION S
Construction expenditureGeneration 7.2 63.2Transmission 3.3 35.7Distribution 2.1 15.4Other 0.7 7.0
Sub-total 13.3 94 121.3 96
Pre-investment 0.3 2 2.9 2Cash and other 0.6 2.0 2
14.72 100 126.8 T0
ANNEX 10Attachment 1
Table 1
COPEL's Tariff Schedule (Third Quarter of 1975)
A. Residential Cr$
Up to 30 kWh p. month (flat charge) 12.48Over 30 kWh p. month (p. kWh) 0.520
B. Non Residential (low tension)
(p.kWh) O.550
C. Public Lighting
(p. kWh) 0.210
D. Supply at 2.3 - 13.8 KV
Demand charge (p. KW/month) 59.ooEnergy charge (p. kWh) 0.087
E. Supply at 20 - 69 KV
Demand charge (p. KW/month) 51.00Energy charge (p. kWh) O.069
V. Minimum billing (at. 2.3 KV or lower)
Single phase : 30 kWh/monthTwo phase 50 kWh/monthThree phase : 100 kWmonth
G. Discounts
Residential with minimum consumption: 20% (included in the figure shownabove)
Rural: 10% of above demand and energy charges
April 22, 1976
ANNEX 10Attachment 2
Table 2
COPEL's Average Revenues and Charges (Third Quarter of 1975)(in US cents)_
Total Amount RelativeMonthly Average Paid by to
Consumer Category Consumption PriceY ConsumerW/ Load (b)
Residential (a) 25 0.060 0.060 0.75(b) 100 0.063 0.080 1.00(c) 4O00 0.063 0.080 1.00
Commercial (d) '500 0.066 0.087 1.09(e) 2,000 0.066 0.087 1.09
Industrial (at 13.8 kV)(f) 20,00oC/ 0.030 0.0h1 0.52(g) 100,000d/ 0.028 0.040 °.5°
(at 69 kV)(h) 1,0003000p/ 0.0237 0.035 OJ4
a/ Converted into US dollars using the average exchange rate for the quarter(Cr$8.29 - US$1).
b/ After adding the sole tax, the social security tax and the compulsory loan, asfollows:
Sole tax - residential consumers (over 30 kWh/month) pay 50% of Tarifa Fiscal.Sole tax - commercial consumers pay 60% of Tarifa Fsical.Social security tax = 1% of electricity bill.Compulsory loan - industrial consumers pay 33.2% of Tarifa Fiscal.
The Tarifa Fiscal for the third quarter of 1975 was 0.28 Cr$/kWh.
c/ 55 kW peak demand.
cd 250 kW peak demand.
e./ 2,500 kW peak demand.
April 22, 1976
ANNEX 1 1Page 1 of 3 pages
APPRAISAL OF COPEL DISTRIBUTION PROJECT
CONvIPANHIA PARANAENSE DE EWERGIA ELETRICA (COPEL)
BRAZIL
Estimated Pro,ject Implementation Schedule
Completion Date1. Loan effectiveness
Government approval of documents Septemrber 30, 1976
2. Meters (watt-hour)
a) prepare bidding docuiments June 1, 1976
b) contract award October 28, 1976
c) delivery March 30, 1979
3. Conductor (transmission, subtransmissionand distribution l.ines)
a) prepare bidding documents June 1, 1976
b) contract award November ), 1976
L) installation 1/ June 30, 1979
L. Conductor (I"multiple.x" for service connections)
a) prepare bidding documents June 1, 1976
b) contract award November 17, 1976
c) installation 1/ June 30, 1979
5. Distribution transformers (34.5 kV and 13.8 kV)
a) prepare bidding documents June 1, 1976
b) contract award November 23, 1976
c) installation 1/ June 30, 1979
t;. Inmul ators (transmission, subtransmission anddi :-tribution lines)
prepare bidding documents July 1, 1976
b) contract award Decemiber 1, 1976
(e) install ation 1/ June 30, 1979
1/ For dates of specific installations see Annex 6.
ANNEX 11Page 2 of 3 pages
Completion Date
7. Li:-htnin_ -rresters (133 kV, 69 kV, 31l.5 kVand 13.o kV)
a) prepare bidding documents July 1, 1976
b) contract award December 7, 1976
c) install.a.tion 1/ June 30, 1979
8. Special equipment for energized .ineoperation and maintenance
a) prepare bidding documents July 1, 1976
b) contract award December 9, 1976
c) delivery May 31, 1979
9. Potential and current transformer s (138 kV,69 kV, 3L.5 kV, 13.3 kV, 220 V and 127 V)
a) prepare Midding documents July 1, 1976
b) contract. award December 14t, 1976
c) instalolatlon 1/ June 30, 1979
10. Transformers (133 kV, 69 kV and ;4.5 kV)
a) prepare hiddin _ documents August 3, 1976
b) contrnct award February 15, 1977
c) Installation 1/ June 30, 1979-L
11. V'rotection relays
a) prepare biddr_"j documents August 3, 1976
b) contract award Febrniiry 17, 1977
c) installation 1/ June 30, 1979
2. Conductor ancl accessories for undergroundinstall ati. on
a) prepare bidding documents August 3, 1976
b) contract awiard Febnrary 22, 1977
c) installation 1/ June 30, 1979
1/ For dates of specific installations see Annex 6.
ANNEX 1 1Page 3 of 3 pages
Completion Date
13. Meter laboratory equipment and apparatus
a) prepare bidding documents September 1, 1976
b) contract award March 1, 1977
c) installation -June 30, 1979
14. Voltage regulators and capacitors (138 kV,69 kV. 34.5 kV and 13.8 kV)
a) prepare bidding documents September 1, 1976
b) contract award March 3, 1977
c) installation j June 30, 1979
15. Circuit breakers, disconnecting switches,reclosers, and other protection devices(138 kV, 69 k, 34.5 kv and 13.8 )
a) prepare bidding documents October 5, 1976
b) contract award April 6, 1977
c) installation 1/ June 30, 1979
April 1976
1/ For dates of specific installations see Annex 6.
ANNEX 12Page 1 of 5 pages
APPRAISAL OF COPEL DISTRIBUTION PROJECT
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
BRAZIL
FINANCES
Introduction
1. This Annex contains details on COPEL's finances which supplement theanalysis in Section 6 of the text, together with the foIlowing financial tables:
Table 1 - Key Financial Indicators 1971-80
Table 2 - Cost of Service 1975-80
Table 3 - Income Statements 1971-80
Table 4 - Balance Sheets 1971-80
Table 5 - Long-term Debt, 12/31/74
Table 6 - Sources and Applications of Funds 1975-80
Table 7- Debt Service 1975-80
2. Attachment 8 contains notes on the financial statements and theassumptions underlying the forecasts.
Financial Performance
3. COPEL's financial performance is reflected in the financial indicatorsshown in Table 1. The rate of return on average net fixed assets in operationaveraged 14.90/o in the period 1972-75. COPEL did not charge adequate deprecia-tion on its fixed assets in operation prior to 1975 (Table 1). However, DNAEEhas now standardized depreciation rates for all Brazilian utilities at a satis-factory level (30/o p.a. of year-end assets, except for thermal plant, which isdepreciated at 5°/o p.a.) and future depreciation charges should be adequate.The rates of return shown in Table 1 have been calculated using a notionaldepreciatiori rate of 30/0 of average gross fixed assets in operation, in orderto make them comparable to those of other utilities in developing countries.
jrti.ation and Reversior, eserves and i.eversion Payments
4. Up to January 1972, Brazilian legislation required power utilities toprovide, in addition to depreciation, for an amortization reserve calculated asa percentage of gross operating assets. Such reserve was then replaced by monthly"reversion" contributions to an inter-utility fund administered by ELETROBRAS.Such "Global Reversion Fund" provides ELETROBRAS with resources to support andcoordinate sector investments of national interest. Since January 1975, ELETROBRASallocates a portion of the "reversion" receipts into an inter-utility compensatoryscheme called "Global Guarantee Fund" (Reserva Global de Garantia). Eligiblepower companies not reaching the legal 100/o return on remunerable assets arecompensated out of this Guarantee Reserve. D(ring 1975 COPEL received 36 millioncruzeiros out of the reserve. See Annex 10, para. ll.
ANNEX 1,2Page 2 of 5 pages
Accounts Receivable - Customers
5. As explained in para. 6.'04 of the text, there has been a significantimprovement in collections from official customers. The amount overdue hasfallen from 530/o of accounts receivable from these customers in August to210/o in December.
The balance of this account, as of August 31, 1975 was the following:
Receivables as of August 31, 1975 Cin 1,000 Cr$)
Overdue Due BalanceFrom Previous First -
Year SemesterOfficial customers
Federal 138 1,435 1,264 2,837State 1,170 9,137 5,936 16,243Municipalities 166 2,887 5,967 9,020
Subtotal 1,474 13,459 13,167 28,100
Other consumers 290 9,180 137,378 146,848
TOTAL 1,764 22,639 150.545 174.948
By December 31, 11;7(, the situation had improved as follows:
Receivables as of December 31, 1975 (in 1,000 Cr$)
Overdue Dae BalanceFrom
Previous First SecondYear Semester Semester
Official customers
Federal 102 26 513 1,695 2,336State 949 321 2,435 11,526 15,231Municipalities 123 121 3,346 16,879 20,469
Subtotal 1,174 468 6,294 30,100 38,036
Other consumers 208 217 11,492 167,395 179,312
TOTAL 1,382 682 17,786 197,495 217,348
The amount of overdue receivables from all customers, Cr$19,8 million, is equivalentto 2.1°/o of annual sales revenues, which is reasonable.
Financing Plan - Foz do Areia
6. The financing plan for the Foz do Areia project is based on IDB ReportPRlt-7114-A dated November 25, 1975, adjusted to reflect December 1975 prices. Thekey elements of the financing plan are reflected in the following table:
ANNEX 12Page 3 of 5 pages
--- Cr$ million --- __ US$ million --1976-79 1975-81 1976-79 1975-81
Foreign Borrowings
IDB 421 506 46 56Suppliers/bilateral credits 204 266 23 29
Sub-total 625 772 69 85
Domestic Sources
Net internal cash generation 265 350 29 39Equity contributions - State of Parana 552 979 61 108ELETROBRAS loans 1,557 1,924 172 212Other Federal loans 258 357 28 39
Sub-total 2 632 3,610 290 398Total soUrces m32 h,382 39 _7
RequireiTerits
Construction expenditures 2,728 3,216 301 355Interest during construction 529 1,166 58 128
Tot-al requiremeents 3257 4,3182 IL 483
An additional US$183 million (Cr$1,660 million), of which US$141 million (Cr$1,279)is required in 1976-79, will be needed to finance price contingencies. These -reexpected to be covered in 1976-79 by the ID3 loan: US$10 million (Cr$91 million);net internal cash generation: US$7 million (Cr$63 million); and equity contributions:iTjq.On ml11ion (Cr$ch44 minllijon) and loans .'rom ELETROMRAS and other federal agencies:US$64 million (Cr$581 million).
ANNEX 12Page 4 of 5 pages
The IDB loan would be used to finance turbines and regulators andmiscellaneous electrical equipment. The suppliers/bilateral credits would covergenerators and auxiliary equipment. Loans from specialized Brazilian federalfinancing agencies will finance local currency expenditures such as engineeringand supervision, miscellaneous equipment procured in Brazil and field housing.The ELETR03RAS loan will cover local purchases, civil works and financial changesduring construction (including interest on other domestic loans which do not coverinterest). As explained in Annex 10, ELETROBRAS' resources are derived largelyfrom power consumers. The assumed terms and conditions on all these borrowingsare in line with those currently applied by the respective lenders to powerutilities in Brazil.
COPEL's contribution from its own resources (8% of total projectcost) and the State of Parana's capital contribution would cover the balanceof the local currency requirements and foreign exchange expenditures not coveredby external sources. About half of COPEL's contribution would be to cover costsof engineering and administration, largely by its own staff. COPEL recentlycompleted (as ELETROSULts agent) the construction of another large hydroelectricproject on the Iguassu River - Salto Osorio, which was partly financed byloan 728-BR.
Most (92%) of the project's financing will be provided by sourcesexternal to COPEL. This is appropriate since under the Brazilian power sectorlegislation (see Annex 10) generation projects which, like Foz do Areia, areof interest to more than one state are financed with resources collected fromall power consumers by ELETROBRAS (i.e., the reversion charge, the compulsoryloan, and the sole tax).
IDB estimates that COPEL will have to charge a bulk rate of approximatelyUSJ2.4/kWh for power sold from Foz do Areia to earn a 12% rate of return onaverage net fixed assets in operation, and a slightly lower price to cover cashoperating expenses and debt service.
Financing Plan - Proposed Project and Other Works
7. In addition to the US$144 million (Cr$1,310 million) required for theproposed distribution project (Annex 6), COPEL's 1976-79 construction expendituresfor works other than Foz do Areia total US$124 million (Cr$1,123 million). Thefinancing plan for these works in constant December 1975 prices is as follows:
Cr$ million U18 million
ResourcesNet internal cash generation 712 79Sole tax, municipal and other contributions 655 72
BorrowingsIB-RD hoi 44ELETROBRAS/EXIMBAK 46 8Other 7-21 83
Total borrowings 1,197 132
Total resources 2.564 283
ANNEX 12Page 5 of 5 pages
RequirementsDistribution project (Annex 7) 1310 144Transmission and subtransmission project (Annex5) 707 78Other works 416 46Interest during construction 131 15
Total requirements 2.564 283
In addition to the proposed Bank loan and the draw down of anexisting loan from the US Eximbank (made through E RETROBRkS) COPEL needsto borrow US$83 million (Cr$751 million) for these works. The terms assumedfor these borrowings are those normally applicable to local financing for thepower sector: interest of 11% p.a. (including a 1% administration fee) andmaturity of 9 years, including 3 years of grace. COPEL may borrow a partof this amount from foreign sources to cover foreign exchange requirementsnot financed by the proposed Bank loan, if more favorable terms can be secured.
For the proposed project and other works planned by COPEL, anadditional US$87 million (Cr$790 million) will be required to cover pricecontingencies during the 1976-79 period. The provisions of the Braziliantariff legislation (Annex 10) should enable COPEL to increase its internalcash generation including contributions in line with inflation to coverapproximately USW47 million of these expenditures. The IBRD loan would coveran additional US$3 million of price escalation of the foreign exchangecomponent of the proposed project. The balance of US$32 million equivalent,moatly in local currency, would have to be borrowed from other sources.COPEL foresees no difficulty in arranging these borrowings.
APPRAISAL OF COPEL DISTRIBUTION PROJECT
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
FINANCIAL INDICATORS
1972 1973 1974 1975 1976 1977 1978 1979 1980
1. Financial rate of return]/ (O 9.5 18,0 16.1 15.9 16.5 15.8 15.6 15.5 16.8
2. Operating ratio (%) 54 54 61 57 59 59 60 61 50
3. Average revenue (USM/kWh) 3.98 3.97 4.25 4.52 5.28 5.40 5.41 5.47 5.17
4. InterestM/ coverage by income before interest (times) 2.7 3.1 2.8 2.4 2.2 2.4 2.7 2.8 4.0
5. Debt service 1 coverage (times) n.a. n.a. n.a. 2.14 1.83 1.60 1.73 1.82 2.23
6. Long-term debt/equity ratio 35/65 38/62 35/65 37/63 40/60 42/58 W4d56 44/56 40/60
7. Total liabilities/net fixed assets2/ (%) 42 47 49 55 56 56 57 56 52
8. Net receivables from customers at year-end expressed in days 80 72 88 84 71 70 70 70 70
9. DepreciationYW 1.1 1.9 1.8 3-4 3.-4 3.2 3.1 3.1 3.4
/ Operating income (see Table 3) as % of average net fixed assets in operation.
- Excludes interest-during construction financed by loans.
/ Including work in progress. FDi As % of average gross fixed assets in operation.
April 1976
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
Cost of Service and Required Average Tariff 197p-1980
Notes ------------- Actual -------------- --------Forecast in December 1975 Cr$-----1972 1973 19719794 1976 1977 1978 1979 1980
RDERAN.E ASSETS
Gross Fixed Assets 3 1,24.3 1,837 2,280 3,446 4,61i 5,373 6,056 6,773 9,006Working Capital 6 69 167 208 217 239 279 314 351 379Accumulated shortfalls 5 103 117 119 115 115 115 115 115 115
Deductions:Depreciation and amortization 4 93 185 235 398 599 746 913 1,101 1,354Contributions 7 2 9 25 42 42 42 42 42 42O0ttier 8 255 4
TOTAL 1,065 1,923 2,3L7 3,339 4,324 4,979 5,530 6,096 8,10o
COST OF SERVICE
Return on remunerable assets 107 216 254 338 432 498 553 610 810Depreciation 14 114 36 39 98 139 160 180 202 268Reversion 18 14 41 57 102 160 187 210 2314 312Operating Cost 23 72 138 217 296 413 421 448 476 519Purchased Power 20 24 32 79 132 272 374 499 608 319Other Costs 1 2 4 10 20 20 20 20 20Less: receipts from
G.G. Fund 21 - - - 36 - - - - _Other Revenue 1 8 7 13 14 16 17 18 18Sales Revenue 231 457 643 928 1,422 1,644 1,893 2,132 2,230Sales (GWH) 20 1,222 1,908 2,297 2,500 2,971 3,354 3,858 4,298 14,757
Average revenue per KWh (Cr'$) 0.189 0.240 0.280 0.371 0.479 0.490 0.491 o.496 0.469
Return on remunerable assets (%) 10.0 11.2 10.8 10.1 10.0 10.0 10.0 10.0 10.0
j/ For notes refer to Attachment 8 to this annex.
April 1976
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
Actual and Forecast Income Statements - 1972-1980(millions of Cr$)
---------- Actual ---------- ------- Forecast in December 1975 Cr$ -------
Notes.? 1972 1973 1974 1975 1976 1977 1978 1979 1980
Sales revenue 22 231 457 643 928 1,1422 1,644 1,893 2,132 2,230
Other revenue 1 8 7 13 14 16 17 18 18
Total operating revenue 232 9 1,03 m 1,910 2,150 ,2U14
Operating costsLabor 24 66 103 182 194 289 295 314 334 364
Materials 25 (6 (35 (35 56 67 68 73 77 84Other operating costs 26 ( L ( (46 57 $8 61 6 71
Subtotal operating costs 72 1 217 413 421 47
Depreciation 1IL 14 36 39 98 139 160 180 202 268
Purchased power 24 32 79 132 272 374 499 608 319
Other costs 1 2 4 10 20 20 20 20 20
Total operating expense 111 20 340 v 975 1,147 1,306 1,126
Operating income 121 257 310 405 592 685 763 844 1,122
Receipts from G.G. Fund 21 - - - 36 - - - -
Non-operating income 5 9 12 20 16 17 25 25 26Eeversion ~~ ~ ~~~~18 (14) (41 ) (57) (102) (60) (17) (10234) (32)
IncoThe before interest and taxes 112 225 265 359 448 515 578 635 836
Accrued interest 41 72 94 151 248 304 377 458 487Less: interest charged to construction 7 6 10 38 48 126 214 272 301
Net interest expense m7 m; T_ 1 13 5 163 1 T 186Provision for income tax 12 2 1 1 12 12 16 20 22 31
Net income 76 158 180 234 236 321 395 427 619
1/ For notes refer to Attachment 8 to this Annex.
April 19760'
I-
CONPANHIA PARANAENSE DE EHERGIA ELThICA (COPEL)
Actual and Estimated Balance Sheets 1972-1980(millions of Cr$)
Notesl/ -- __--------Actual_--__________-_----_Forecast in December 1975 Cr$ -- -FIT ASSETS 1972 1973 1974 1975 1976 1977 1978 1979 1980
Gross fixed assets in operation 3 1,253 1,840 2,30 3,536 4,633 5,396 6,078 6,796 9,028Depreciation and amortization 4 9398 59 74 91 1101 1j.35Net fixed asseta in operation 1,1 2,066 3,138 4,034 4,650 5,165 5,695 7,674Work in progress 9 273 645 915 1.986 2,658 3,653 4.397 3,269
Total fixed assets 1,433 2,067 2,711 4,053 6,020 7,308 8,818 10,092 10,943
INVMTPBITS 16 19 30 35 135 137 137 130 122 114
CURRENT ASSETS
Cash and banks 15 68 38 79 115 117 119 121 123Account receivable customers (net) 10 50 90 154 213 276 318 367 414 432Other accounts receivable 7 23 155 249 275 303 333 366 403Materials and supplies 11 16 27 69 97 142 17Q 19. 222 - 0..25
Total current assets 88 208 415 638 808 908 1,014 1,123 1,263
OT1M A=ETS 43 57 8 138 138 138 138 138Total assets 3218 7130F 117 1
IQUITY
Share capital 15 866 1,023 1,300 1,600 1,999 2,1435 2,077 3,365 3,914Reserves and surplus 113 216 620 1 929 2 188 2 442 2 824
Total equity 979 1,32 3,719 4 5 *o7 0
LONG-TERM DEBT 17 426 847 1,073 1,636 2,495 3,169 3,998 4,525 4,535
CUlRRiT LIABILITIB
Current portion of long-term debt 128 39 40 90 214 220 235 285 295Notes and accounts payable 16 21 107 160 306 353 406 446 461Other 14.4° 61 116 128 Ila 155 171 188
Total current liabilities 15100 -208T =3Z 717 796 -- 902
OTHER LIABILITIES 19 16 5o 91 9.8 24 2-4 2 2 S.
Total liabilities and capital 2.348 3.218 7.103 8,491 10.100 11,475 12.,458
a/ For notes refer to Attachment 8 to this annex.
April 6, 1976
0H3
Ft~tahent Tbe 5
COMPANIHIA PARANAENSE DE EIERGIA ELETEICA (CopEL)
Long-Term Debt Outstanding at December 31, 1975
Date of Repayment Annual Totalloan Period Interest Rate Currency $ miBalance
% -~~~~~~Cr$ Million
FOREIGN LOANS
Agency for InternationalDevelopment - AID 1965 1975-1991 5.5 US$ 91.5
Ititer-Aneriean Develse)tBank - IDB 1965 1975-1984 6.o US$ and Yen 33.5
IBRD Loan 476-BR 1966 1975-1987 6.o various 60.4EXINMANK 1965 1975-1976 4.5 US$ 2.0ELETROBRAS
Repassed from IDB 1970 1975-1989 5.0 various 92.0Repassed from IDB 1966 1975-1980 6.o various o.6Repassed from AMFORP and
others 1966 1975-1992 10.0 US$ 33.PRepassed from EXIMBANK 1973 1975-1987 6.o us$ 7Repassed from AID 1965 1975-1991 6.o usRepassed from EXIMBANK 1975 1976-1981 US$ 8,
Commercial Banks 1975 1976-1980 / uS$ 126.Suppliers 1971 1975-1979 7.5 DM4
Total Foreign Debt 460.4
FINANCIG IN LOCAL CURRENCY
ELETROBRASOwn resources Various 1975-1995 8.0 Cr$ 1,040.9Repassed from BNH 1975 1979-1990 7.5 Cr$ 64.3
Banco Nacional de DesenvolvimientoBNDE 1966 and 68 1975-1980 9.5 Cr$ 20.6
Caixa Economica Federal - CEF 1973 1975-1981 7,0 Cr; 39.9BADEP 1974 1975-1983 80 Cr 36.2USAID 1965 1975-1991 5.5 Cri 3.9INCRA Various 1975-1985 8.o Cr$ 1.5Banco Itau S.A. 1974 1975-1976 12.0 Cr$ 0.2Banestado S.A. Various 1975-1977 12.0 Cr$ 2.4Banco do Brasil S.A. 1974 1977-1987 6.o Cr$ 56.1
Total Local Debt 1.266.0
Total Long-Term Debt 1,726.4
Less: -Current Portion 9o.°4
Long-Term Debt (net) 1,636.0
1 1.5% to 2% over LIBOl. Provided by First National City Bank (US$3 m); Lloyds Bank International, BRADESCO,BANESTADO (US$2m each); and Banco Nacional (US$5m).
g/ Cr$ 1.3 m as in V/. Balance at 0.75% over prime rate.
Apri 1 1976
ANMEX 12Attachment Table
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
Estimated Sources and Applications of Funds 1976-1980(millions of December 1975 Cr$)
Total Total2Z76 1977 1978 1979 1980 1276-79 1976-80
SOURCES OF FUNDSInternal Cash Generation
Net income before interest and taxes 448 515 578 635 836 2,176 3,012Depreciation 1 160 180 202 268 681 949Gross internal oash generation 57- 7 7§ E37 1,10 2,7
Debt Service and Other DeductionsAmortization of debt 112 214 220 235 285 781 1,066Interest paid 248 34 37 4 487 1,387 1,874Gross debt service 513 597 693 772 2,16& 2,940Less: interest charged to construction 48 126 214 272 301 660 961
recovery of rural electrification 7 8 8 15 23loans
Net debt service 312 392 376 413 463 1,493 1,956
Dividends payable / 101 132 159 189 222 587 803Less: reinvested 97 127 153 181 212 558 7Net dividends 6 --T 10 77 ,,
Statutory participation 31 36 39 44 49 150 199Taxes 12 16 20 22 31 70 101
Total deductions 359 449 441 ,487 553 1,736 2.289
Net internal cash generation 228 226 317 350 551 1.121 1.672
ContributionsFrom reinvestment of sole tax 104 119 137 157 186 517 703For Itaipu-related works 52 46 - - - 98 98For Foz do Areia (state government) 138 158 138 138 138 552 690From municipalities 8 9 11 12 13 40
Total contributions 302 312 289 3Y 22L 1,2071
BorrowingFoz do Areia - IDB 73 123 127 98 65 421 486
Suppliers - 47 86 71 32 204 236ELETROBRAS 357 338 516 346 181 1,557 1,738Other Federal agencies 169 29 30 30 27 258 285
ELETROBRAS/EMIMBANI 46 - - - - 46 46Proposed IBRD loan 22 107 155 117 401 40iOther borrowings 200 250 15 1 - _?K. 7%3
Total borrowing a7 176 2 =3 2
TOTAL SOURCES 1,397 1,432 1,667 1 469 1,13 6
APPIICATIONS OF P1DConstruction MxpendituresFoz do Areia project 733 629 823 543 169 2,728 2 897Distribution project 215 520 1411 164 1,310 1,310Other works 389 117 i80 437 615 1,123 1,738Interest charged to construction _48 126 214 2 2 666 6
Total construction Lt,i 1 .392 1 162 M0 rb
Other ApplicationsIncrease in cash 36 2 2 2 2 42 44
customer receivables 63 42 149 47 18 201 219other receivables 26 28 30 33 37 117 154materials and supply 45 28 25 27 83 125 208
Less: increase in accounts payable 16 18 19 21 23 74 97other net liabilities 12 13 14 16 17 55 72notes payable 130 29 .2 19 (8) 21 A
Total other applications 12 Xj 32 X MX
TOTAL APPLICATIONS 1,397 1,6432 667 469 1,193 6
Year end Cash Blance 115 117 119 121 123
j/ See note 13 in Attaohnmt 8 to this Annex.
April 1976
ANNEX 12Attachment Table 7Page 1 of 2
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
Long-Term Debt - Estimated Interest Payments 1976-1980(in millions of December 1975 Cr$)
1976 1977 1978 197 1980
Existing Debt
(i) Foreign Currency Loans
Agency for International Development (AID) 5.8 5.5 5.2 4.8 4.5Interamerican Development Bank (IDB) 1.9 1.7 1.6 1.4 1.2IBRD LAan 476-BR 4.6 4.3 4.0 3.6 3.2City Bank 2.7 2.6 1.9 1.2 0.5Lloyds Bank 1.9 1.9 1.0 0.7 0.3US Eximbank 0.1Through ELETROBRAS:
IDB 4.5 1.2 3.8 3.5 3.2Eximbank 3.0 4.5 4.6 3.8 3.2AMFDRP and others 3.6 3.4 3.1 3.0 2.8
Through Banco Nacional SA 5.1 3.9 2.7 1.5 0.3Through Banco Brasileiro de Descontos SA 1.7 1.3 0.9 0.5 0.1Through Banco do Estado do Parana SA (BADEP) 2.2 1.7 1.2 0.8 0.4K.W.U. (SupDliers) 0.3 0.2 0.1 - -
Sub-total foreign currency loans 37.4 35.2 :30.1 24.8 19.7
(ii) Local Currency Loans
Through ELETROBRAS 143.8 126.3 119.2 104.0 89.9Banco do Brasil - GEER-IDB (Rural electrification) - 0.2 5.8 5.4 4.9Caixa Economica Federal (CEF) 13.1 9.2 7.6 5.6 3.2Parana Development Bank - BAD P-FINAME 2.9 2.1 1.8 1.4 1.0National Development Bank (BNDE) 2.0 1.5 1.1 0.7 0.3Agency for International Development (AID) 0.2 0.2 0.2 0.2 0.2Banco do Estado do Parana SA 0.8 - - - -National Institute for Rural Development and Agrarian Reform (INCRA) 0.1 0.1 0.1 _ _
Sub-total local currency loans 163.2 139.6 135.8 117.3 99.5
Proposed Debt
IBRD 0.9 10.0 12.5 33.6 39.8
Others to be negotiated 6.2 22.3 38.3 49.6 51.2
Sub-total 7.1 32.3 50.8 83.2 91.0
Foz do AreiaIDB 7.8 16.3 24.5 31.8 36.9FTNEP 3.0 7.3 12.2 17.3 22.6BNH 11.8 15.3 15.3 17.9 15.1FINAME 0.1 0.7 0.8 0.8 0.7ELETROBRAS 17.6 56.0 '100.6 150.? 181.4Suppliers' Credit - J 6.5 * 4: 201
Sub -total 0.3 96.7 159.9 232.3 276.8
TOTAL ZL8, )03.8 36.6 457.6 487.0
Jannary 1976Revised April 6, 1976
Attachment Table 7Page 2 of 2
COMPANHIA PARANAENSE DE ENERSIA ELETRICA (COPEL)
Long-Term Estimated Amortization 1976-1980(in millions of December 1975 Cr$)
1976 1977 1978 1979 1980
Existing Debt
(i) Foreign Currency Loans
Agency for International Development ',AID) 5.0 5.0 5.0 5.0 5.0Interamerican Development Bank (IDB) 3.1 3.3 3.6 3.8 3.9IBBD Loan l76-BR 3.8 4.0 4.3 L.5 4.8City Bank - 6.8 6.8 6.8 6.8Lloyds Bank 7.3 3.6 3.6 3.6US Eximbank 2.0 - - - _Through ELETROBRAS:
IDB 6.4 6.9 6.9 6.9 6.9Eximbank 2.9 7.h 7.8 5.3 5.3A.MFORP and others 1.9 1.9 1.9 1.9 1.9
Through Banco Nacional SA 10.1 10.1 10.1 10.1 5.0Through Banco Brasileiro de Descontos SA 4.0 4.0 4.o 4.0 2.2Through Banco do Estado do Parana SA (BADEP) 3.6 3.6 3.6 3.6 3.6K.W.U. (Suppliers) 1.1 Li. 1.1 o.6 -
Sub-total foreign currency loans 43.9 61.4 58.7 56.1 49.0
(ii) Local Currency Loans
Through ELETROBRAS 54.3 139.4 138.2 135.5 128.9Banco do Brasil - GEER-IDB (Rural electrification) - 0.2 7.3 7.7 8.2Caixa Economica Federal (CEF) 4.5 5.5 6.7 8.2 9.7Parana Dev'lopment Bank - BADEP-FINAME 2.2 2.6 4.1 4.i 4.iNational Development Bank (BNDE) 4.1 4.1 4.1 4.1 4.1Agency for International Development (AID) 0.3 0.3 0.3 0.3 0.3Banco do Estado do Parana SA 2.3 - - -
National Institute for Rural Development and 0.2 0.2 0.2 0.1 0.1Agrarian Reform (INCRA)
Sub-total local currency loans 67.9 152.3 160.9 160.0 155.4
Proposed Debt
IBRD - - - - 13.9Others to be negotiated - 1976 _ _ _ t6.7 16.7
- 1977 - _ _- 30.0
Sub-total 16.7 69.9
Foz do AreiaIDB - -FINEP - - - - 7.1BNH - - - 0.7 11.5FINAME - - - 1.5 1.5ELETROBRASSupplierst Credit _ _
Sub-total 2.2 20.1
TOTAL 111.8 2 219.6 QO 25.1
April 7, 1976
ANNEX 12Attachment 8Page 1 of 4
NOTES AND ASSUMPTIONS
1. General
Financial statements for the 1972-1975 period are based on COPEL'saudited reports.
2. As it is customary for Brazilian utilities, forecast statements forthe 1976-1980 period are in constant December 31, 1975, Cruzeiros. This isacceptable since current tariff legislation (see Annex 10) allows for tariffincreases to compensate for inflation.
3. Gross Fixed Assets include monetary correction, and, in 1975, Cr$67million on account of exchange adjustments. The amounts allowed by DNAEEfor calculation of remunerable assets are slightly lower than those shown onthe balance sheet, though the difference is not material. See note 9 below.
4. Depreciation and amortization includes monetary correction. Thisaccount includes accummulated amortization. See Annex 10, para. 12(b)(i)and note 9 below.
5. See Annex 10, para. 12 (b)(ii).
6. The allowance for working capital is set annually by DNAEE. In 1975it was calculated as the sum of the monthly average of inventories and of othernet working capital items (excluding the current portion of long-term debt),less the year-end cash balance.
7. See Annex 10, para 12(b)(iii). This item is included in "otherliabilities" in the balance sheet.
8. In 1972-73 DNAEE deducted from remunerable assets certain assetswhich were not being fully utilized.
9. Fixed asset accounts are forecast as follows:
ANNEX 12Attachment 8Page 2 of 4
± 1977 1978 1979 1980-Cr$ millions---
Gross Fixed Assets
Starting balance 3536 - _ _ _1975 revaluation 708 - - - -
Additions 401 776 695 732 2247Retirements (13) (13 (14) (15)Ending Balance 4 5396 6078 6796 02B
Depreciation and Amortization
Starting balance 398 - - - _1975 revaluatimzi 74 - - - -Charged in year 139 160 180 202 268Retirements ( 1 2) Q) X Q) 014) ( 15)Ending Balance 59 746 913 11 01
Work in Progress
Starting balance 915 - - - -1975 revaluation 44 _- - -Construction expenditure 1385 1392 1628 i14i6 1085Allowance for COPEL funds 43 56 62 60 34Additions to plant in operation (401) 7 695) (2 47)Ending Balance 1986 2658 3653 4397 3269
10. Accounts receivable were projected based on forecast increasesin sales revenues. They include one month of unbilled sales and approximately40 days of outstanding billings.
11. Inventories were projected to increase in line with the increase iAgross fixed assets in operation.
12. COPEL pays income tax at a rate of 17% of net income other than thatin which state and municipal shareholders have a proprietary interest (seenote 15).
13. Dividends
COPEL dividends are 6% on common shares and 8% on preferred stock.As shown in the table below most dividend payments are expected to be re-invested in COPEL.
ANNEX 12Attachment 8)Page 3 of 4
… ------ …000,000 December 1975 Cr$--------1976 1977 1978 1979 1980
Dividends Payablr 101 132 159 189 222
Reinvestments:State Government 73 104 127 1514 13State Development Bank 11 11 12 13 1hELETROBRAS 13 12 13 14 15
Total reinvcstments 97 127 153 181 212
Ne. dividend payments I 5 6 8 10
1),. Depreciation is computed on "depreciable assets" (which exclude
landl)at a rate set by DNAEE (see Annex 10, para. 7 (vi)).
15. COPEL's Shareholders asof December 31, 197h, were as fo:Liows:
----------------Million of Cr$----------------Common % Preferred I Total 7
State of Parana 661,.1 85 2lt8.8 55 9J4 8.9 732ETROBRAS 7)i.7 10 82.2 16 156.9 12Fondo de Desenvolvimento
Economico do I'arana 37.8 5 10l4.2 20 142.o 11Others 3.1 - 33.2 6 36.6 3Bearer shares - - 15.6 3 15.6 1
Total 780.0 100 520.0 100 1300.0 100
The oreferred stock, nominative and bearer, has no voting rights but isentitled to a minimum dividend of 8% before any dividend may be paid onthe common stock.
16. Includes investments in other utilities (Cr$41 million in 1975) and lonsfor invrstments carried out by COPEL under the GEER-IDB program (Cr$94 millionin 197.). These loans are to be paid back by the Rural Electric Cooperatives.Interest from these loans is considered as part of the nonoperating income.Amortization payments are scheduled to start in 1978.
17. Long-term debt in 1976 is computed as follows: (in eK I - '
1975 gross long-term debt 17261975 monetary correction 2281976 borrowings 8671976 amortization (112)1976 gross long-term debt 2709
less: current portion (214)1976 balance 2495
ANNEX 12Attachment 8Page 4 of 4
18. See Annex 10, nara.11(a).
19. Includes clistomer contributions (Cr$ 42 million in 1975 andreversion rrserve (Cr$ 56 million in 1975). The latter is a reservecreated undor provisions of the tariff legislation which are no longerin force but is subJlct to monetary correction (Cr$13 million in 1973,booked in 1976).
20. Sales and Purchased power are based on the projections shown inAnnex 3.
21. See Annex 10, para. 7 (iv).
22. See Taile 2 for calculation of sales revenue.
23. See Table 3 for detail of operating cost.
2)l. There were large increases in labor expense in 1971-74 largely as aresult of the absorption by COPEL of the other large public power companiesin the state. These utilities, (as noted in para. 3.05) were overstaffed andCOPEL is now conducting a training and redundancy program to eliminate un-qualified staff. As a result, increases in labor expenses levelled off in1975. The projection of labor expenses is based on expected increases instaff (including operating personnel for Foz do Areia from 1980) and assumesthat the labor cost per employee (including salaries and social benefits),expressed in December 1975 Cr$, will increase by 2.5; p.a. This forecast isreasonable.
1976 1977 1978 1979 1980
Number of employrFes (excludingconstruction) 5,077 5,309 5,513 5,721 6,082
Increase in Personnel (:) ).7 L.6 3.8 3.8 6.3Average labor cost Cr$ thousand 5L.21 55.57 56.96 58.38 59.84Increase for seniority etc. (A) - 2.5 2.5 2.5 2.5Total Personnel cost(in millions of Cr$) 289 295 31M 334 361
-5. Material - This item was estimated as a function of the followingparameters, with a progressive operational improvement in time:
(a) number of circuits;(b) number of consumers; and(c) kilometers of transmission line
26. Other operating costs - This item represents rents, travel costs andother operating expenses (with the exclusion of purchased power).
APPRAISAL OF COPEL DISTRIBUTION PROJECT
COMPANHIA PARANAENSE DE ENERGIA ELECTRICA-COPEL
ORGANIZATION CHART
T O RFiuZS rFISC'ALI.~~~~~OUNCIL
PRES OENT
I) F P A Fi T M P N I I
ADMINISTRATION
7~~~~~~~~~~~~~~DITIBTINOPERATIONS ENGINEERING
,9 0 af ot ,n,,4 D V - | 1 AN CON TIISTCTIjON
1.1 'Al CON 1C S L-ECLArS|
ADMINISTRATION PROCUREMENT PROCESGING ACCOUNTING rECUNII:AI ,CUIIINAI SYSTEMS MAINTENANCE CSTR ON Si
EGRITIBA GROSSA LNDIIINA MAIG ACVNRINA MARtINGAWETSUI
PCITk15935
I-W
ANNEX 14Page 1 of 3
APPRAISAL OF COPEI, DISTRIBUTION PROJECT
COMPANHIA PARANAENSE DE ENERGIA ELETRICA (COPEL)
Return on Investment
Introduction
1. The distribution projezt consists of a segment of COPEL's distributionexpansion. Due to the complexity' of the power generation transmission anddistribution system with which the project would be interconnected, aneconomic evaluation of an isolated segment cannot be readily effected. Con-sequently, the return on investnent was calculated on COPEL's total expansionprogram during the period of project execution (July 1, 1976 to June 30, 1979)by equalizing the present worth of the revenues derived from incrementaloutput and the present worth of costs, defined to include not only those costsdirectly related to the distribution project itself, but also incrementalgeneration and transmission costs.
2. Costs are based on values prevailing in December 1975, and benefitsat the electricity tariffs applicable during the third quarter of 1975. Forthe nurnose of determining the rate of return a shadow price of Cr$10.9O/US$i/has been used for the foreign exchange component.
Incremental Energy Expected to be Sold During the Project Period
3. The expansion of the distribution system to be achieved with the projectwould provide the canacity required to meet the load during the period betweenJuly 1, 1976 and June 30, 1979, while maintaining acceptable standards of service.In accordance with the load forecast appearing in Annex 3, the incrementalcunulatire sales are shown below:
Year GWh
1975 (actual) 2499mid-1976 : 1/2 (2971+2499)=27351976 2971-2735 = 2361977 3351h-2735 ) 6191973 3858-2735 = 1123mid-1979 1/2 (L298+3858)-273• - 1343
Benefits
14. It has been assumed that the benefits obtained from the expansionprogram would correspond to the value of the, electric energy used by the finalconsumer and distributed through COPELts system. The average total cost perkWh naid hbr th- consumer apnears below and is based on the average price plusthe "sole tax" (Annex 10)
20o higher than thr financial rate, as recommended in "Analise Gubernamentalde Projetos de Investimento no Brasil (Rio de Janeiro, 1972)".
Page 2 of 3
Average price of energy at market price (Cr$/kWh) 0.371Sole tax at market price (Cr$/kWh) 0.055Total unit benefit at market price (Cr$/kWh) 0.426Total economic unit benefit US$/kWh 0.043
Io determine the project's share of the incremental load during the periodJuly 1976 through June 1979, it was assumed that it would be 70% in 1976,80% during 1977 and 1978, and 100% thereafter.
The total benefits at the end of each year would then be:
Year GWh Million US$
1976 0.70 x 236 7.11977 0.80 x 619 21.31978 0.80 x 1123 38.61979-on 1.00 x 1343 57.7
Costs
5. The marginal costs of generating capacity (peak) is based onCOPEL's Fbz do Areia hydroelectric project, under construction, describedin Annex h (page 2), and transmission marginal costs are based on the estimateof the program appearing in Annex 5. Operation and maintenance costs werecomputed on the basis of COPEL's past experience for similar facilities.These calculations are summarized below:
1976 1977 1978 1979 198 0-on
Incremental generation (GWh)id 280 735 1333 1594 _Incremental peak (MW) 53.3 86.6 113.8 49.7 -Incremental costs: V ---- million of US$ ------------
Peak capacity at US$ 307/KW 16.4 26.6 34-9 15.3 -Transmission at US$ 94.3/KW 5 0 8.2 10.7 i.7 -Distribution project 209 5- oi T.Sub-total 72 73 85. 7.
Operation and--maintenance:Peak capacity at 1% p.a. 0.2 0.4 0.8 0.9 0.9Transmission at 2.5% p.a. 0.1 0.3 0.6 0.7 0.7Distribution project at 5.0% p.a. I= 6.3 6.3Sub-total (O&M) 1.3 8.7 92. 7.9 7.9Total oosts 89.7 43.9 7.9
3 Includes losses at 12% in distribution and 6% in transmission./ Economic cost (differs from financial costs appearing in Annexes because of
use of shadow prices for foreign exchange component)./ Includes reserve allowance of 12.31% based on long range least-cost expansion
program for the South-Southeastern interconnected system (paragraph 2.11).
ANNEX 1 4Page 3 of 3
Return and Sensitivity Analysis
6. The discount rate which equalizes the streams of benefits and costsshown in paragraphs 4 and 5 is 19.5%. On the assumption that COPELs futuresales were 10 lower than forecast the rate of return would be 18%. If inaddition, the project costs were to increase by 10%, the corresponding rateof return would be 17%. Since these discount rates exceed the probableopportunity cost of capital in Brazil, they suggest that wasteful use ofelectricity and premature expansion of the system should be avoided, as consumerswill on average be requested to pay a price higher than incremental systemcosts.
April 22, 1976
IBRD 12133
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