1•.o4,4L (o 36 - 1

k;| l +ii @UpLi7~~W' RESTRRESTRICTED

Report No. PTR-19a

This report was prepared for use within the 13ank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

BOLIVIA

APPRAISAL OF

TH:E COMPANIA YACIBOL BOC,OC TRANSPORTADORES

GAS PIPELINE PROJECT

May 22, 1969

Transportation Projects Department

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Currency Equivalents

US$.1 00n = bll AA$b 1.00 US$0.0842$b' 1,AArA = TTcRI. -17i

mile (mi)1.09 kilometers (kn)A. . fzL'L% - ^ % ^LO f \_-L VW to k.LIi to jV*-L4U 1iitet,rwi ikiij

inch (in) = 2.504 centimeters (cm)

Pressurepound per square 0.07 kilograms perinch (psi) square centimeter

ThermalBritish Thermal 0.252 kilogram-caloriesUnit (Btu) (Kg-cal)

VolumeU.S. barrel (bbl) = 0.159 cubic meters (m3)U.S. gallon = .003785 cubic meters (m3)cubic foot (cu ft) = .0283 cubic meters (m3 )t,housand cubic feet = 28.316 cubic meters (n 3 )

(Mcf)milLion cubic feet - 2,831.635 cubic meters (m3 )

(MMcf)

ElectricalOne megawatt (MW) - 1,000 kilowattOne gigawatt hour = 1 million kilowatt

(GWh) hours

ABBREVIATIONS

YABOG - Compania Yacibol Bogoc TransportadoresBOGOC - Bolivian Gulf Oil CompanyYPFB - Yacimientos Petroliferos Bolivianos

BOLIVIAAP}'RAISAL OF TIhE COMPANIA YACIBOL BOGOG iH.lA0F01'TJADOIAES

GAS PTPELITNE PROJECT

TABLE OF CONTENTSPage

SUIIVRY i-ii

1. INTRODUCTION 1

2. BACKGROUND 2

General 2The Petroleum Sector 3

3. THE SPONSORS h

The Borrower 5TLhe Stockholders Aereement 5The Pipeline Operating Service Agreement 6The Gas Transnort AerAement 7

I. CONiSTDERATTOWS TN \ PT,AwNTr.T THE PR(1TjfT 8

('ras Sales AgreAment 8Gas Reserves 9Proioie-+i rin Fitie 10

Gas Composition 11Pipeline Syste, 11Transmission of Gas to Buenos Aires 12

5. THE PROJECT 13

Design 14('or-.struc,-tio n Cos4t Es t=41-4 es 14C%11 bI. UIL U.L.'JL LP JU A UJXLCL~Ut~a-

Construction Contract 15JI VLOU-.LnLI+ U i5

Disbursement of Loan Funds 15tOperation oI t-ne ysytem 10

6.* ECOiOIVUC EVALUATION 16

General 16Economic Rate of Return 17Foreign Exchange Income 18

This report is based on the findings of an appraisal mission inJanuary :L969, in which Messrs. S.M.L van der Meer (Engineer),D. C. El:Liott (Financial Analyst), and Mr. K. J. Sonnp*,-. Consul1t,ntparticipated.

7. FINIANCES 19

Introduc:tion 19

Financing the Project 19Revenues and Expenses 19

Cash Flow 20

Balance Sheet 20

38 RECOIflCDATION 21

ANNEXS

1. Potential Domestic Markets for Natural Gas2. Investment Program for Gas Production Facilities3. Assumptions Used for Financial Forecastsh. Rate of Return Calculations5. Profit and Loss Account for years ended 31 December 1967

and 1968, Gulf Oil Corporation6. Balance Sheet as of 31 December 1967 and 1968,

Gulf Oil Corporation

TABLES

1 Production, Domestic Consumption and Exports of Petroleum,

1950-672. Project Construction Cost Estimates3. Projected Annual Revenues and Expenses4. Projected Balnnce Sheets5. Proceeds of the Gas Sales Agreement6. Cash F'low State,ment

.ZIAP

BOLIVIAAPPRAISAL OF THE CFPANIA YACIB(i. ,oG , 'iMO-TADORES

GAS PIPELINE PROJECT

SUTI4MARY

i. jThepjrooUe pJUjecU, Lor whiLc Ji..iancia-l assistance from theBank has been requested, is the construction of a pipeline system fromseveral Bolivian gas fields to the Argentine border, to make the export ofnatural gas possible.

ii. Bolivia, one of the poorest countries of Latin America with aper capita :Lncome somewhere between US$lbO and US$180 per year, is heavi:Lydependent on mining for its foreign exchange earnings. Mining, althoughcontributing a modest 9% to Gross Domestic Product, accounted until recentyears for as much as 95% of all export earnings. In 1966 petroleum beganto make a significant contribution wihen the Bolivian Gulf Oil Company (BOMGC'.started to eaxport crude oil by pipeline through the port of Arica, Chile.,and currently petroleum accounts for about 16% of Bolivia's gross exportearnings.

iii. Prospects for increases in mineral exports are not encouraging.,Petroleum exports are expected to increase and may double over the nextseveral years, but longer term prospects are clouded by the lack ofexploration activity. Brighter prospects exist for the export of natura:Lgas, of which significant quantities have recently been discovered. Thereis, at present, no significant domestic market for gas and the possibilitie-sfor developing such a market are limited. Given the pressing need forBolivia to increase its foreign exchange earnings, early consideration wasgiven to the possibilities of exporting oas to neighboring countries.

iv. The pronosed loan of USt23-25 million rtniivalPnt wEfould be toCompania Yacibol Bogoc Transportadores (YABOG), a company owned in equalparts hv its Snnsors, Rnliuvnnn rlilf 0Til (InmTnv- (ROGMG), an sbiidqia-xr nfGulf Oil Corporation, and Yacimientos Petroliferos Fiscales Bolivianos(YP_ )- t-he G(overnment Petrolem. Corporation. The Bank lonn ivnulr rirnvprhalf of the estimated total cost and 63% of the estimated foreign^'xchange cost of the project.V. Th-e pro-e4ctis d-r-ed Ar tQvlr teo VOf - +^ ^v>+

~~~~,, .. .V-j- -- - U - 5-w uvssp vs vftv '

natural gas from fields in Bolivia, oined by the Sponsors, to Argentina*der~ the tes 'of a J-Ja.4 a-re.ert -Vth GJ.-o as 1 Lf4J A---+-; L ina. Thfle

agreement calls for the delivery to Yacuiba, at the Argentine border, of

for the following 13 years on a take-or-pay basis.

vi. YABOG was specifically created to own, operate and maintain theproposed pipeline syswtem. YABOG -will tranSpOrt gas for the Sponsors atcost and will not make a profit. YABOG's financial viability is protectedby adequate guarantees from its Sponsors.

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vii. The project involves an estinated capital expenditure of US$46.5million equivalent, including interest during construction and initialworking capital , of which 79% or US$36.7 million equivalent is in foreignexchange. The entire cost of the project is intended to be financed byloans to YABOG, half from the New York State Common Retirement Fund andhalf from the Bank.

viii. The servicing of the loans will be protected by the creationof an account with Morgan Guaranty Trust Company, New York, into which theproceeds of the Gas Sales Agreement will be paid by Gas del Estado. Paymentof YABOG's expenses, including debt service, will take precedence overdistributiont of profit to the Sponsors. The Sponsors have agreed to sign.aguarantee agreement with the Bank guaranteeing, Jointly and severally, 1)YABOG's financial obligations, including debt service and 2) the provision cffunds to meet cost overruns. In addition. Gulf Oil Corporation has agreed t+be responsible for BOGOC's obligations under this guarantee and has agreed tesign a separate guarantee aereement with the Bank to this effect.

ix. Procuremen.t will be on the basis of international competitivebidding in a,ccordance with the Bank's "Guidelines on Procurement", exceptfor certain special items accounting for less than 71 of the total cost ofthe project. These items will not be financed from the Bank loan. It isproposed thaLt navmen-ts under apipe supplv cont.ra.t; awrded in Mnrch 1969under competitive international bidding procedures in accordance with theBank's "truidelinLes".q incluaing those ocurring prior to the signino of theloan, be eligible for disbursement. It is estimated that the resulting re-tracnt.ive firinancing will be le sQ +than 2TT,q009 nn0 eqivalent. The earl~~~~~~~~~~~~~- s Ua - -- W--W __v _ .1 -- _ _v __ e,

award of the pipe supply contract was necessary to enable the Sponsors tcmeet thir obligation der the S-'es Agree.,.ent of starting del veriof gas by August 5, 1970.

x. The project is technically and financially sound. It is financial-it, r4+-P V; +^r 4.- ;4-o VDP -- A DAIV rr r e n ra4 e .o4-,re- J -- V- .1. U V v svWS J6 J..VAJ VD % - P.J'.Jt XA& * LAULL . . J v A. lson the gas transmission project plus the total new investments required forgas ~ prdct.o 4a4ite is 4.app1..-o=ae^ oId nnhe p c is. be.eficial~~ UJ.J LCA .5 .LG ..LLP.5W Lo. 0.JJ JL.L1. -LJ C4j. .ILizu J9.LIVJJtU LJo LJF1Z±A ...Ld.A., -L

to Bolivia as it will cause an estimated net inflow of foreign exchange to4-1, vir"d~~~J. .1 .Yc' I I%^ Z-1. 2-I 1 .L ~ - L -~JLhe econtrU.y of dapproJldatiely- UCk?.L)V mL.L-Vor over IUith Inext, Iw=eIILy yUdu-O.

xi.L Jii , JhJeJeUo iL 9-UitUaLe for a DanUK .Loan 01 US$2.25 InL.LOH

equivalent to be made to YABOG. Disbursement of loan funds will be over a..J - x -.i ~ -.n ..- ± 'sO nt vet-- ---- -- I - - - -- *,, -perio-dU of. ULLUQ18 .LU Months afiter tohe signing oI the ioan. The loan wiLlA Lie

repaid over 19 years resulting, writh a twlo-year grace period, in a termof 21 years. The 21-year term corresponds to a one-year constructionperiod and a 20-year gas sales contract period.

PDLI VIAADDV1Tqct.T. ALI rT'T2 rMTAUI A VAPPnT "7('(: r-P'.T;!'-,`P1 ATY)PR.R

GAS PIPELINE PROJECT

1. INTRODUCTION

1.01 Substantial reserves of natural gas have been discovered inBolivia in recent years. No significant domestic market for natural gasexists and the possibilities for developing such a market are limited.Proved gas reserves in Bolivia are alrpadv far greater than could beabsorbed by any foreseeable domestic market, and there are indicationsthat considerable additinonnl quantities of gna- rmnar be discovered in thefuture.

1.02 Early consideration was therefore given to the possibilities ofevporting gas to nci hrwvg coutrjes where a mr.ket .4ght YHst or co,11 be developed.

1.03 Gas del Estado, the Argentine state gas monopoly operates a gaspiplire fo3C&.o u&nv&V VLen"n fi 'dt" c,luose; UV th Blit;U__VLLLvi. bre

near Yacuiba, to Buenos Aires and intermediate points, where large and

declining and the pipeline is operating well below its capacity. Thesecircumstances led to the concept of a gas pipeline system that would tran,initgas from Bolivian fields to Yacuiba for sale to Argentina. BOGOC and YPF]3joiuntly entered inzo a sales agreement witn Gas del Estado ana undertook toconstruct a pipeline system from the gas fields in Bolivia to the Argentinasborder. The sales agreement with Gas del Estado is a twenty-year take-or-pay contract nayable in US dollars. It has been approved by the Governmentsof Bolivia and Argentina. Further details are given in para. 4.02.

1.04 The agreement is beneficial to Bolivia since there will be a netinflow of foreign exchange of approximately US$130 million over the twenty-year period. The agreement is also financially profitable for the twosuppliers of gas, YPFB and BOGOC.

1.05 Bolivia's desire to be able to participate as equal partner inthe export of one of its basic natural resources led the Government todecide that the pipeline should be jointly owned by YPFB and BOGOC. However,since YPFB was not in a position to put in equity or raise the necessaryloans, the only acceptable solution was to set up a pipeline company witha small nominal equity and to finance the capital investment by loans tothis Company, guaranteed by a substantial guarantor.

1.06 It was therefore agreed that an existing Gulf Oil Corporationsubsidiary (BOLSUR) with a small issued capital (US$10,000) and a gastransport ccncession in Bolivia should divest itself of half its capital toYPFB at no cost and change its name to Compania Yacibol Bogoc Transporta-dores (YABOG). This was done in Februarv 1969. It was also decided thatYABOG shouldl raise the funds required for the pipeline by foreign loans.

This is feasible since the gas would be sold abroad and payment would be.4 .1 - TTL' -i¶ , - ML.e I -- 1 -- -- - - ~ 1-- -recivWd i.JLL u.. uUlvlu- Thme New iork State Coirwno RetirementL rLulu lid a4-e-

to provide half the funds required by YABOG by a loan guaranteed by U-S. GvJL'anLd repayable over twenty years in equal instaLlments at an interest- rate ofr75 . The Bank has been approached to lend the other half (US$23.25 million)-

1.07 Debt service of the loans is protected in two ways. YABOG'sSponsors, It±B ancd BULwC, have agreed that the proceeds of the Gas SalesAgreement with Argentina be paid by Gas del Estado into an accountwith PIorgan Guaranty Trust Company, New York, and that payment of YAUG';sexpenses, including debt service, take precedence over distribution ofprofit to the Sponsors. They have also agreed to guarantee YABOG's finan-cial obligations including its obligations of debt service, so that shouldthere not be sufficient funds in the Trust Account for any reason whatsoe'Ve1:.YPFB and BOC,OC would made good any sums needed. In addition, the Sponsorshave agreed to enter into an agreement with the Bank in which they guararttes..on a joint and several basis, to service the Bank's loan and to finance Enyrcost overrun.. Gulf Oil Corporation has agreed, in a separate guaranteeagreement uiith the Bank, to be responsible for BOGOC's obligations under theSponsors' guarantee to the Bank. The Gulf guarantee, like the Sponsors'guarantees, is absolute and subject to no exceptions.

1.08 This report is an appraisal of the pipeline project proposed byits Sponsors, YPFB and BOGOC. It was written by Messrs. D. C. Elliott(Financial Analyst) and S. M. L. van der Meer (Engineer) on the basis of anappraisal mission in January 1969. Mr. K. J. Sonney, of Stone and WebsterOverseas Consultants, Inc.. a consultant retained by the Bank, participatedin the mission and contributed to the appraisal of the project.

2. BACKGROUND

GfnerP.r

2.01 Bolivia is a country of about 1.1 million km2 bordered by Chile.Peru, Brazil, Paraguay and Argentina. The dominant geographical features ofthe country nre t-wo ranges Of the ArndeAn mTountain svstem which embrace ahigh plateau, the "Altiplano", comprising about 40% of the total area of thecoulntry. Porpulat in is cnrentrated in La Paz, the capital, wi+h bhniut600,000 inhabitants, and the cities of Oruro, Cochabamba, Potosi, Sucre andSan.ta Gruz. The totl^ pop-lation is estiM+-aed to be about 4i.6 million,about four per km2 , and is increasing at an average rate of about 2.5% pewar7 Most pseople liv i n the motalin+o varlleyse and on thz ~ l+.; nl n, th>rzthe population density is about 9 times the population density of the plains.

2.02 Gross Domestic Product (GDP) at factor cost in 1968 is estimatedaL UVLh40 LILriL nLILJ.9 cdLU JJer citaJJ.Ud. UJGD dt US$JL%J160. ThLe aLverg W=nua LL& gJVro v.rate in real terms has been 4.9% over the 1960-1968 period. Agriculture i_i

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the principal contributor to GDP wi-th 23% mining, primarily the mining oftin, contributes 9A and petroleum 8%. The importance of tin and petrolelumto the economy is better illustrated by their contribution to Bolivia'sexport earnings. In 1968, the export of tin accounted for US$88.6 millionor 54%, and the export of petroleum for US$26.2 million or 16% of Bolivia'stotal exports of US$:l64.3 million.

The Petroleun Sector

2.03 Oi:l in conmiercial auantities was first discovered in Bolivia in1924 by the Standard Oil Company of Bolivia, a subsidiary of the StandardOil Companv of New Jersey. This company had 28 producing wells and twosmall refineries by 1936, when the Bolivian Government nationalized thenptroleum industrv. A Government nptroleum cornoration called YacimientosPetroliferos Fiscales Bolivianos (YPFB) took over the Standard Oil holdingsAnd a settlenient wi;.th Standnrd Oil was stT hs1equntlyv mTade. Ba 19h9 YPFBtsoil production had risen to about 500,000 barrels per year and Bolivia'sfirst pipeline (a 525 Irm- six inch diam.eter line) was constructed from themain producing area at Camiri to the refinery at Cochabamba. By 1956production h-ad -increan-sed to + I al trf' 3 mII llio barrevyls p nnyfTnnr -jhiceinh has

to date beer maintained at about the same level. In 1955 foreign concessioii-a-ires vere a..n. itted ur.der a newv petvrol - code. Boltidn. nii+.. V nOi l -Jmpnmr

(BOGOC) discovered the Caranda field in 1960 and completed, in 1966, a 696Inn pipeline from Carnda to Sicasica, con.ecting with the line constructedby YPFB in 1960 from Sicasica to the port of Arica, Chile. This marked the

~~~-. Tn ) -.-- --- *r * 5' n t 7 4e, - 4 r-i - - -F r -e" eLJt::6.LlJ. U± .Llr, J.LV U1L taxAJorts. "I J7U g , Ut: ±L L" u . U-LJ e .J. ; . we A a

tion, BOGOC exported about 9 million barrels of crude oil, equal to thepresent capacity- of the line, and sold 2.5 million barrels to YFB. YPF.3sells oil in the domestic market and exports oil to Argentina. In 1967these exports amounted to about 1.5 milion barrels. Details e giv inTable 1.

2.04 In. Bolivia, transport of crude oil and products takces placelargely by pipeline. Map 1 shows the pipelines existing in Bolivia.

2.05 Natural gas has recently been discovered by BOGOC and LPFB inthe Santa Cruz area and by YPFB in Monteagudo. There is at present inBolivia no market of any significance for natural gas and the potentialfor developing such internal markets is limited (see Annex 1). A largeand growing market for natural gas exists, however, in Argentina. Thishas led to EL joint venture between BOGOC and YPFB for the transportationand sale of natural gas to Argentina. It is for this project that a Bankloan has been requested.

3. THE SPONSORS

3.01 The Snoonsors of the prolect are Bolivian Gulf Oil Company (BOGOC)and Yacimientos Petroliferos Fiscales Bolivianos (YPFB). Both companiesare engaged in aexplorationJ rpf'ining nnd manrketing of netroleum Droductsincluding natural gas. Both operate pipelines in Bolivia. Both companie;intend g the prop-ose n-irnline +to exprtr+. -nv .rnl gas to Argentina

and have entered into a joint agreement with Gas del Estado of Argentina todeliver to Yacuiba, on the Argentine border, 4 millinn m3 (ltjl ncfi nerday for 7 years and 4.5 million m3 (159 IvMcf) per day for the following 1:3

years.

3.02~~D BOuC is a w.,ly- e subsidiary of 0J'fOi Cor-ra+-JOn- ll

Oil Corporation is one of the major international oil companies and is1incorporatted1 Jn e fllreut sai. ID has -Jo r'lWd e dULnri g

transportation and marketing facilities and considerable experience in th:natural gas industry. In 1968 Gulf and its subsidiaries produced over 2,90 -NEcf of natural gas a day. Gulf Oil Corporation has assets of over US$7billion and an annual net income of over US$625 million. Its 1967 arnd 196'8balance sheets and profit and loss accounts are shown as Annexes 5 and 6.In 1956 Gulf 01l Corporation set up BOGOC to operate in Bolivia. BOGOCwas incorporated in Delaware with a nominal capital of US$125,000 andfinanced by current account advances from the parent company. To datethese advances amount to some US$100 million, much of which has been spenton exploration. In both 1967 and 1968, BOGOC made profits before tax ofapproximately US$8 million and paid royalties and taxes of 48% of thisamount to Bolivia. BOGOC has 170 employees, including 29 foreign staff,and is managed by a Manager in Bolivia who is responsible to the Board ofthe parent company in the United States.

3.03 YPFB is a Bolivian state enterprise formed in 1936 which isdirected through an Administrative Council whose President serves as Presi-dent of YPFB. The President of the Council and of YPFB is nominated by thePresident of' Bolivia. The Council has six members including a delegatefrom the Petroleum Wvlorkers Association. The day-to-day management of theenterprise is in the hands of a General Manager. YPFB has a paid-in capitalof $b 18.5 nillion (US$1.6 million) and reserves and retained earnings of$b 410 million (US$34.5 million) of which $b 273 million represent re-valuation of assets. Its total assets are valued at $b 973 million (US$51,million)

3.0oL YF'FB's financial position is poor but has improved in the lasttwo years. Its quick ratio (current assets not including stores lessrurrpnt 1 lail-ities) is negative and until recently YPFB made losses. How-ever, in 1966 and 1967 it made profits of $b 30 million (US$2.5 million)mnd $b )i0 million (U-$3., million) respectively after charging adequatedepreciation. YPFB does not pay profits tax but pays royalties of 11% onthe welihead price of pet+roleut m products. YPFB's financial weakness is

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largely attributable to the fact that it has been regarded as a national.social instM mitmtn -nd has h-ad to mn1 nv Acess - hnr and onangas in nnnrevenue-earning activities, such as maintenance of roads for public use.

3.05 Yl'FB's technical competence in petroleum transport operations .-s-satisfac+orq It opera-es its o.r pipeines and j-inty owns and operatesthe Santa Craz-Sicasica-Arica pipeline (see Map 1) with BOGOC. Because o:fthe lack of adeqcuate st-o'-e lfacil1tie at th por of Ar operationof

this line requires a considerable degree of skill. The pipeline iseffie.L..LtJ VyU.LC1UVL C.LI Uoperate -LO tevu LUkJF±s.LVU ugoouda .LIT±D WulY LY?'U\J.

The Borrower-

3.06 The pipeline will be owned, operated and maintained by CompaniaYacibol Bogoc Transportadores (YABOG), a company specifically set up forthis purpose (see para. 1.05). YABOG, a former subsidiary of Gulf OilCorporation, is incorporated in Delaware, U.S.A., and legally domiciledin Bolivia. Its authorized and issued stock of US$10,000 is held half byYPFB and half by BOGOC and is represented by cash. YABOG has presentlyno other assets or liabilities. The whole of the cost of the project wi]lbe met by loans to YABOG, half from the New York State Common RetirementFund and the other half from the proposed Bank loan. Debt service willbe guaranteead by the arrangements mentioned in para. 1.07.

3.07 Three contracts defining the relationshins between the Snonsorsand YABOG were signed on January 24, 1969. They have been reviewed andare satisfactorv. They are 1) the S.ntokholdersI Agrfzmennt. 2) tfhe Pipel LrOperating S,ervice Agreement, 3) the Gas Transport Agreement. Their mainprorsirons are se. out below

3.08 Th - Le ' II.en 4 4- -J.beteen YPFB ar.d BOGOC pr des:-

a) BdTTTR s1-al change .Lj naUme 4to VABrG- -ar tr-se hC6I J.LW L.PU.63I. ..LI .J- t.4LACU1rU J IJ,j UV) 4.JLJJ%JI CWI%A I.LCdA.LU4 .L il JL

its shares to YPFB free of charge within 30 days. Thishas aready -tak er. place as r,oted , pacra. .61a aL 4 cm VLdA 1LU nJ _. L __.1_ _

U) LaBvu shianLl be guverneu by a Bsoard of Directors haulf tobe named by YPFB and half by BOGOC. The President ofthe Company shall be nominated each year alternately DyBOGOC and YPFB.

c) YABOG shall be responsible for construction, operationand maintenance of the pipeline, but shall subcontractsupervision of construction to BOGOC and operation andmaintenance to Y-IFB.

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r) Finanning of the pipeline shall be arranged by YABOGby means of loans, YPFB and BOGOC being jointly andcscvrcn. 1~responsinbh1e ftir "nnyv costnt ovprrun.

e) iv Rnv-'-G sh' ab for" +ra-nini ng -f prsonnel

and keeping YABOG's books of account and shall receiveno fee PLor so %d" mng.

f) VABOG sha1l, on beha f of VDumF .-A rn r amonthly invoice to Gas del Estado for quantitiesdelivered, with instructions to Gas del Estado to p-y

the total amount due into an account with MorganGuaranty T-r-usti CompaIy, New York.

g) Funds from said account shall be disbursed onLyon instructions from YABOG. The contractwith Morgan Guaranty shall contanl irrevocable in-

structions for the payment of YABOG's expenses, in-cluding debt service, before distribution of profits to

the S.ponsors. YPFB and BOGOC will share the surplus inproportion to the value of product each provides.

h) At the expiry of YABJG's gas transport concession, thepipeline system will be transferred to the Government,but BOGOC will have the right to continue using thesystem up to 50% of its capacity at tariffs to benegotiated.

The Pipeline Operating Service Agreement

3.09 This agreement between YPFB, BOGOC and YABOG

a) provides that YPFB shall, as subcontractor to YABOG,operate and maintain the Dipeline system;

b) firs, VPFBR-s fee on the hasis of present costs, with

a provision for periodic review;

c) lays down the number and classification of employees,n-cluding a full-tynoe manager, nnd eqnuipme-rnt to be

provided by YPFB;

d) obliges BOGOC to train personnel and provide freetech.nicC-l asSiStWce t_o YABOG

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The Gas Tramsport Agreement

3.10 This agreement between YPFB, BOGOC and YABOG provides that:-

a) YABOG shall accept and transport the specification,gas J-niartedo Jn+nt thea srtom. 'hy YPFR -nnrl Mr,)rl.

bJ) Each Sponsor naa the right tuo supply up u. 'vlo

of the contract quantities of gas and must makeup any deficiency in quantity by the other partywithin the limits of its capabilities.

c) YABOG shall invoice YPFB and BOGOC for the cost ofpipeline operation (including interest and amortizationof debt) splitting the costs in proportion to thevolume of gas injected by each Sponsor.

d) Should payments into the account with Morgan GuarantyTrust Company be insufficient to cover YABOG's costs,including interest and amortization of debt, YPFBand BOGOC jiointly and severally guarantee to make upthe difference. The obligation is absolute andsubject to no exceptions.

3.' MT_e effect 4o1,f4. VAhesel ±0 is4J 4 is

legal vehicle for raising finance, constructing and operating the pipe-lile wLiUL JL e work beinlg done by UAthe Sponsors, YLrFBD and BOuOC',w -

carry out the project to its completion, share and guarantee YABOG'scosts, includlng any construction cost o0verrun, and take all theprofit of the scheme. The guarantee is joint and several and Gulf OilCorporation has agreed to be responsible for BOGOC's obligations -underthe guarantee.

3.12 It is a condition of the loan that neither the three agreementsmentioned above nor the instructions to Morgan Guaranty Trust Companyfor the operation of the account, foreseen in the Stockholders Agreement,will be modified without the Bank's approval.

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4. CONSIDERATION IN PLAbI NING TiE PROJECT

4.01 To meet their obligations under the sales contract wlth Gas de".Estado, Argentina, the Sponsors have had to make sure that sufficientnatural gas reserves are available, that sufficient quantities of gas of 4 )iequality sDecified in the contract will be produced, and that the pipelir. will have the capacity to transport these quantities from the variousfields to Yacuilba.

Gas Sales Agreement

4.02 The Gas Sales Agreement of July 23, 1968 between Gas del Estactoof Argentina and the Sponsors, YPFB and BOGOC, obligates the SponsorsJointly and severally to deliver to Gas del Estado L million m3 (lLl Mlicsfof residu.al gas- per day for the first seven years and 4.5 miillion m3

(159 I14cf) of residual gas per day for the following 13 years at Yacuiba, *±

the Argentine border, on a take-or-pay basis. The daily averages taken tvGas del Estado may diminish in the first three months of each calendar yearby up to 20% of the contracted daily quantities. Gas del Estado will con;-nensate f'or this rliminution over the remainder of the year without talcing.in any one day, more than 20% over the contracted daily quantities. TheSponsors nre oblignted t Or,mence drliirriep On August 5.. 1970. The spec-"-fied delivery pressure at Yacuiba is 700 psi. Gas del Estado will pay thcSponsors TTU$O.225 per thousand ,lMicr feiet (Mvcf) of residuanl gas with acalorific value of 1,045 Btu per cubic feet. In addition to the specifiedquan.tities of resi"dual gas, the Sponsors are to deliwrv bhutanes and propaoin the gas stream . The required molecular content of propane and butaneo- th ga.s ls spciie as -+ 1-s tha,.- 4.15%1i or1, teaeae,oe h

life of the contract. This requirement slightly increases the total volwi,r,r_' gas d A' v_red 4. I .L7 IAIT-X -- _ A - -r;-- 4-h A P4 a + -,t A -xrn -p nn r

uUJ. L$.' LJg us L u vU. I) . vv LX4 1 JVL Lc,y vJ..J ULAS ,..4v . -V W

166 MMcf per day for the following 13 years. Payment for propanes, butar-;;sdhige ±.Uda' Lvcvtlons W'' be at thi foLU.L.LUIN4Log ji.L sp in +he

contract:

For liquid gas (Propanes and butanes) US$0.0)4 per U.S. gallonror gasoline (Pentnes$ anu hLgIghr fracion-UL US$O.OhL1 per UV..4S.gasll

Ail payments will be made in U.S. dollars.

4.03 On the basis of this price schedule, the average pay-went toV Wit,:

Sponsors for gas meeting the specifications is estimated to be aboutUS$0.27 per Mcf. This corresponds to well-head prices of approx-imatelyUS$0.18 per Mcf for specification gas or US$0.14 for residual gas. AlthciuZbcomparisons with well-head prices in other parts of tne worid are di-ficC-L t.to malce, becaLise of varying circumstances, the well-head price obtained

1/ Residual gas is defined as natural gas after excluding 80% of thepropane and all higher fractions.

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by Bolivia for residual gas is reasonable and in line with the price oftUS$o.i5 obtained in Canada and UES$0.10 in Pak.{istan and Chile, under bro 61rsimilar conditions.

Gas Resernes

4.o4 Geological surveys indicate that there are probably very larnr.quantities of gas in Bolivia. The Sponsors have so far only explored an(dinvestigated a small number of fields. The gas reserves which the Sponsv-plan to dedicate to the project are located in tlhe Santa Cruz area at thoColpa, Naranjillos and Rio Grande fields and in a field at Monteagudo,approximately 16^ miles south of Santa Cruz. The Colpa and Rio Grandefields are! owned by BOGOC, the Naranjillos and Monteagudo fields by YPFB.The location of the fields is shown on Map 1.

4.05 The proved and probable reserves of the fields are listed beloTr-:

Natural Gas Reserves(in MMcf)

Proved 2bField Owner Recoverablel/ Probable-/

Colpa BOC-OC 703,0009$ 62,000 -Rio Grande BOGOC 1LIl2)floot 31O Oo r,Naranjillos YPFB l8l,00O4/ 32,0007flMonteagudo YPFB 200(Y 0 - ?),-oQ-

' .o6 Ile reseinre esti.fiatueS 1-i-stued above have been l-,ade buy Due Go'l-yerand Mac Naughton Incorporated, a qualified independent firm of gas andpetrole,um consultants.

4.07 The four fields together contain proved recoverable reservesof about 2,500,000 iM4cf which is more than double the total sales con2miitmenTtto Argentina of l,ll5,000 MMIcf. It should be noted that on the basis ofthese reserve estimates, YPFB will not be able to exercise fully its right.to deliver up to 5V- of the total contracted quantity, since its proved rc;-coverable reserves amount to only 34 ' of that total. The agreement betwecnBOGOC and Y.PFB provides, however, that if one of the parties cannot deliverthe contracted quantity of gas, the other party is obligated to make up tbcdifference to the extent of its capabilities. BOGOC's reserves and productj-t,'mcapacity (see para. 4.11 below) are sufficient to meet this contingency and.BOGOC would be able to deliver the full contracted quantities if necessary.

1/ Reserves verified to a high degree of certainty by actual well completiorn:32/ Reserves defined by less direct well control, but indicated by well loG

data, core analyses and drill-stem test information.3/ As of October 1, 1967.4/ As of February 1, 1969.

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1,.08 During negotiations, the Sponsors have agreed to dedicate suf-ficient gas reserves to the project to meet the obligations of the salescontract, including the obligation to supply gas in excess of 50% of thecontract quantities by one of the Sponsors, if the other fails to deliverits share. Specifically, YPFB has agreed to dedicate from its Monteagudoand Naranlillos fields the total sales contract commitment of 1,11,000I>flEcf or, if the fields should contain less, the total recoverable reservesof the fieal ds. less A nuantit+yv of 27 0nnn iricrf from the- Mont.Fi-pgudo fipldwhich has been dedicated to supply the Sucre area. Similarly, BOGOC hasnarope ton den;ain+e fromAT its. Golpan annrd Pin rlran. f'ields,q +.he totnl snIPScontract commitment of 1,I15,000 MMcf. The effect of these dedications

U zi L o tlie basis of4 present esti,,mates o rUve.UU r Vlt iIJ.Lt

reserves, YPF-3 wJill supply 354,000 iA1cf or 32,) of the sales contractcomi'tment and BOGOC the remainder. The formal dedication of thereserves is a condition of effectiveness of the loan.

Production Facilities

4.09 In order to produce the quantities of gas required to be delivered,ader thu'Ae salles contlract , 4.he! Spnsr hav 4o A.k --iioa n- - es -a_ - n;-s4WILL4. L1~~d..eJ .AJ.tW vM.L tlJle LJkponsors. hJCavte 'UU- ma.LCr tUU± LU-LUICJ. L(1. 4VUQtA4IIeil1L..

in their respective fields. These investments are needed for additionalproduction wells, gathering systems, separaors and com-pressors.

4.10 Estimates of the amounts still to be invested in each of tuefields are summarized below:

New Investments in Production Facilitieskin millions of US$ equivalent)

Foreign LocalExchange Currency Total

BOGOC - Colpa field 2.18 0.55 2.73Rio Grande field - - -

YPFB - Warenjillos field 1.67 o.60 2.27Mont-eagudo field 4.04 2.29 6.33

7.89 3.44 11.33

Details are shown in Annex 2.

4.11 These investments are related to a specific production schedulefor each field. The schedules will allow YPFB to supply its share - 50%of the total contracted quantity - for 12 years, drawing approximately ecualamounts from each of its two fields. The productive capacity of BOGOC'sColpa field is such that it will. by itself. be able to meet the entirecontract requirements for the first ten years, if necessary. BOGOC's Ric,

- Jl -

Grande field is now being used for re-cycling, i.e. taking the condensat-sout of the gras stream and pumping the gas back into the reservoir. Thisprocess is scheduled to go on for the next seven years, after which thegas will be available for the project. In the meantime, the gas isavailable for the project in case of emergency.

4.12 SI-tatement<s on the specific financial and technical arrangementsbeing made by the Sponsors to assure that investments in gas productionfacilities (see para. 4.10 above) will be completed on time have beensubmitted to the Bank in draft form during negotiations and are consideredsatisfactory. YPFB intends to finance its productive facilities partly bymeans of supplier's credits and partly out of its own funds. Compressorswill be procured and financed through arrangements with BOGOC on the basisof a ten year loan at 7% interest. The design and construction of gather-ing systems and separators will be carried out and financed under a contractwith Rhodes Technoloyv Corporation; on the basis of a six 7pqr loan nt .5,interest. B30GC has made arrangements with Warren Petroleum Company forthe design and promurpment of all equipment, to be installed b a loclcontractor under Warren's supervision. Financing will be provided by BOCOC.Undertakings frnm +.the Spnsors to V1AP. alonrg the lines of the draft stat;ements are a condition of effectiveness of the loan.

Gas Composition

4.13 Analyses made of the gas available to the Sponsors in the dif-f ee.tVLi Vf4C&V U;1s Ij±N t h ICUIIJ±.oL 6 Ugas ) ilo n contain su I.ULIL..U U eLktJ

butanes and propanes to meet the sales contract requirements. The gas of'the Colpa, JRLio Gr<ande anUd Monteagudo fields is, however, suLficiently ric.hin butanes and propanes to make up the difference and the Sponsors arerequired uo uo so unAuer the Gas OaleS Agreerment. AtUcmaTic measuriL1gequipment wilI be provided at the points wihere gas enters the syrstemto record vo-ume and composition of gas injected. Payments to tileSponsors uiiLl be in proportion to tho volume and quality of gas delivered,as registered by thEs equipment.

X L fJtL±IJ S :*V .y tl

4.' Th14ie piJe-LiL sybWL WiLL.L connect. the Colpa field witn Yacuioa atthe Argentine border by means of a 24-inch diameter pipeline wh-ch formsthe trurn& line oI the system. Tne Naranjillos and Monteagudo fields areto be connected to the trunk line by lateral lines of smaller diameter,10-3/4 and 12-3/h incn respectively. The Rio Grande field is located onthe route of the trunk line.

4.15 With input pressures at the fields of 1,000 psi, the system hasthe required free flow capacity to deliver the contracted quantities of gasto Yacuiba at 700 psi. By 1977, when the average daily quantities ofresidual gas to be delivered go up from 141 to 159 MMcf per day, compress1orswith a total capacity of 1,500 hp will have to be installed. The capacitY

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of the trunk l- ne can be increased to a maximum of 350 INcf per day byadding more ccmpressors.

Transmission of Gas to Buenos Aires

4.16 Gas del Estado. the Argentine state gas monopoly, owns andoperates a 1,080 mile 24-inch diameter gas pipeline from Campo Duran, nearYacuiba. to Buenos Aires. The line is operated at a pressure of 1.000 ps'.With four compressor stations of 8,000 hp each between Campo Duran andTbionos Airesj the line has a present cnnacitv of 248 MMcf Der dav.

I .17 -C-a del Estado is .Jrr.ni+ sri n t.. ger I.tJ . a +ot a -l of ),IjI4Icf per average day and expects to increase its sales to 1,000 M4cf per

~4.y UJ .L.7 I J. .L Lu jJ - on ~ -j~f1 sho-JV - J1. t JL '0LiHJ U L-4I'-~ "ay by17.Is pro ect.LIon showV thatL Vthe WC,.po Dan=L" Cs ireline will be required to transmit 248 ilMcf per day from July 1970. Thisquar,L.tiD,y sL ei4&UApUe t inV .L± I c Lrea UVse ' rtio3.0.L petrL tavy 1977 a.' d.LL7 I35 MMcf

per day by 1978.

4.18 The reserves and production capabilities of the Campo Duranfield are declining. The field is currently producing 198 llicf per day,but this rate of production cannot be sustained much longer and wouldgradually drop to 100 Nvlcf per day by 1973. The field would no longerbe able to produce gas economically by 1980.

4.19 With the purchase of 141 Iflcf per day from Bolivia beginningin July 1970, the decline of the Campo Duran field will be somewhat lessrapid. Nevertheless, it is expected that by 1978 Campo Duran would besupplying only 62 MMcf per day of a total requirement of 335 IMcf perday arnd by 1980 it would no longer supply gas in any significant volume.It is therefore reasonable to expect that Bolivia may be asked to increaseits contracted 1977 deliveries of 1•9 l'4cf Der day to 273 MMcf per day bv1978, with a further increase to 335 INMcf per day by 1980.

4.20 The gas received by Gas del Estado from Bolivia at Yacuiba_4-I-I 4 be t,ars-,4ted 4to 4the Ca,,po riar.- 4----4.---4t pla.t wher theprpn-W.".L LJe W ur ..nsiU..-L LueJ . UVJ ulJ1I VCd.LLjJL JJUJ .LCU uj.~.LtJUIIIUAIJ jJJ.OUAJJ , VY.%LUL.J t ~j-_ ~ butanes, and higher fractions will be taken out of the gas stream. TheUdampiLjUo IJUra-WI OUiIIprsLV statIn W.Li 'L't4i th .LI Lr, Ithe gas presure up Ut

1,000 psi before injecting the gas in the Campo Duran-Buenos Aires line.Gas del Estado is building a 15-mile, 24-1ich iiameter line fromil theBolivian-Argentine border to Campo Duran to receive the Bolivian gas andis installing two additional 2,000 hp compressor units in its Campo Duancompressor station to increase the installed compression capacity from8,000 to 12',000 hp.

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5.01 The project consists of the construction of a natural gastransmission system comprising a 24-inch diameter high pressure trunkline from Santa Cruz to Yacuiba, and the lateral lines necessary tocornnect sev-eral gas fields with the trunk line.

5.02 Tlhe system will have the capability of delivering thequantities of gas which YABOG's Sponsors have contracted to sell to Gasdel Estado from the gas fields to the Argentine border at Yacuiba. Thegas will be transmitted by Gas del Estado from Yacuiba to Buenos Airesvia an existing pipeline.

5.03 Thle project includes:

1. The procurement and installation of 329 miles of24-inch diameter high pressure steel pipe.

20 The procurement and installation of 11.7 miles of10-3/A inch diameter high pressure steel pipe toconnect the Naranjillos field to the trunk line.

3. The procurement and installation of 89.4 miles of12-3/4 inch diameter high pressure steel pipe toconnect the Monteagudo field to the trunk line.

40 The construction of a number of minor and foLur maiorriver crossings.

5, The construction of metering and regulating stations,operating and maintenance facilities and the installa-tion of cathodic protection and a communicationssystem.

5.0h The routine of the trunk line arid the lateral lines is shownon Map 1.

5.05 The major rivers to be crossed by the trunk line are the RioPirayv the Rio Grande, the Rio Parapeti and the Rio Pilcomayo. 14ultispansuspension bridges with a total of 32 standard spans, 500 ft in length,will be constructed.

5=Q6 By 1977 compressors will be installed to increase th'e averagedaily deliveries of residual gas to Argentina from 111 to 159 MMcf.Excernt at river cross2ngs, ihe line will be buried over its full lengthand will be protected by coating and wrapping and a cathodic protectionS yts t Wm.

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Design

5.07 The responsibility for preliminary design, field surveys,detailed engineerinig, preparation of contract documents, evaluation ofbids and supervision of construction has been delegated by YABuG toBOGOC. BOGOC has been assisted in bridge design by their consultants,van Houten Associates, of New York. Detailed design and contract docu-ments were completed in March 1969.

5.08 The trunk line, as designed, is capable of transmitting thecontracted maximum-day volume of 169 MMcf (141 MMcf plus 20%) of residualgas with an input pressure of 1,000 psi and a delivery pressure of 700psi, without the use of compressors. When fully powered by four compressorstations, with an aggregate capacity of )40,000 hp, the capacity of theline would be 350 I4Mcf per day.

5.09 The relative economy of using other line sizes with or without-compression has been investigated and it has been concluded that 24-incldiameter is the preferred size, considering initial investment andoperating costs as well as the cost of future expansion to acommodateprobable increases in gas sales to Argentina (see para. 4.19).

Construction Cost Estimates

5.10 Estimated construction costs are presented in Table 2. The4t otal cost- oU 4th±e projectL , .iclu..ling .iterest dAJing construc+io . o-d. n

initial working capital, is estimated at US$46.5 million equivalent, ofw;JLLL chJ Oy3*.7' I IILLon-UI (7 9, -is f orei gn L-xchnarge, ar. is sum,nar- zed Ueo.:

Cost Estimates

($b Millions) (US$ ,i- llions)

Foreign Local Foreign LocalExchange Currency Total Exchanige C-urrenc-y Total

Trunk line 324 88 412 27.35 7f.0 34.75

Naranjillos lateralline 3 1 4 .25 .07 .32

ionteagudo lateraalline 4L 11 52 3.46 .90 4.36

General itens 38 9 47 3.17 .80 3.97

Contingencies (2.50) 6 7 13 .50 .60 l.-LO

Total con-trc- L42 116 528 34.73 9.77 44.4r0tion cost

Initial workingcapital 8 - 8 .70 - .70

Interest duringconstruction 15 - 15 1,3C _ _ . 0

Total project cost 435 116 5n 36.73 9 77 * J

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5.1L Purchase of high pressure pipe for trunk and lateral lines con-stitutes about 42% of the foreign exchange cost and 33% of the total cost ofthe project. Cost of pipe is based on a signed contract (see para. 5.13below) covering 88% of the requirements. Pipe laying cost estimates aresimilarly based on a signed contract (see para. 5.12 below). The cost ofspecial items such as valves and fittings, scraper traps, bridge materialSand engineering and inspection costs have been estimated on the basis ofGulf's experience, supported by recent quotations by suppliers. Contingenlc .eSof 2.5% have been allowed for in the estimates. Such a low contingency pro--vision is acceptable since signed contracts exist for about 80% of the projezt.tThe cost estimates have been reviewed and are considered reasonable. YABC'G'sstockholders, BOGOC and YPFB, are jointly and severally responsible for anyproject cost overrun under their stockholders agreement (see para. 3.08) andunder their guarantee agreement with the Bank (see para. 1.07).

Construction Contract

5.12 The Gas Sales Agreement with Argentina calls for the start of gaLS

deliveries by August 5, 1970. In order to make this possible, contractdocuments for the construction of the line were sent to pre-qualified bidderson February 14, 1969. Award of the construction contract was made on May 2,1969 to the low bidder, Willbrosud Company of Tulsa, Oklahoma, after inter-national competitive bidding in accordance with the Bank's "Guidelines onProcturement"I. Construction of the line is scheduled to start bv June 1969and be completed by May 1, 1970, 52 days before contracted gas deliveries toArgentina are to commence.

5.13 A ;oract4 for supply of .11 ln-e p,-- *.gt-+h the e n+A. of npip

for the lateral line to Monteagudo, was awarded on March 9, 1969 to a Germanfi.L.L,1, FVeJ-os- ', aft er ir, ternaviG-ona ' co.,.petiv.ve bidn6' ccordance wi^ththe Bank's "Guidelines on Procurement". Ferrostaal has entered into a sub-contract wit1h Siam dLi Te.Lla, of ArgenLtia, for t. h e sa p pL. L,y o'Jf thLe 1J0= 3114+ in.ch

diameter pipe and some of the lighter 24-inch diameter pipe, amounting to-geuier DLUo aLumu 25LJ I u3L We conVLdrac-L,. It, is proposedL tLhatL foreign .CxcLnane5'-.

payments under this contract, including those occurring prior to the signingOf the BLak Loan, be eligible for Uisbursement. It is esti,ated that theresulting amount of retroactive financing will be less than US$2,000,000equivalent. The purchase of the remainder of the pipe will also be awardedon the basis of international competitive bidding. Certain special itemssuch as scraper traps, valves and fittings, and metering equipment, accouwn-ing together for less than 7% of total project costs, will be procured fromGulf's regular suppliers. These items will not be financed from the Bank lodn.

Disbursement of Loan Funds

5.14 Disbursement of Bank loan funds will be on the basis of actualforeign exchange payaents made by YABOG for the items included in the

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Allocation of L,oan Proceeds. Any unused balanced -will be cancelled. In th:construction contract, the foreign currency cost element is specified.During negotiations it was agreed to finance: 100O of the imported pipe CoS':.-

CIF Bolivian port of entry, and the foreign currency cost of the clvilworks' contract and engineering services, up to a total of US$23.2.' milliornequivalent. Disbursements are expected to take place over an 18-monthperiod from June 30, 1969 to December 31, 1970. The remainder of the costof the project will be financed from the New York State Common RetiremerntFund (see para. 7.02).

Operation of the System

5.15 As mentioned under para. 3.09 above, the operation and maintenanceof the system is subcontracted by YABOG to YPFB at cost under the terms ofthe Pipeline Operating Service Agreement. YPFB has no previous experiencein the operation of a natural gas line but is successfully operating anumber of crude oil and petroleum product lines, some of them jointly withBOGOC. In order to ensure a successful operation of the natural gas pipe-line system, the Pipeline Operating Service Agreement provides for a full-time YPFB manager directly responsible to YABOG and for technical assistance,including training of personnel, by BOGOC to YPFB, free of cost. Under the

a.greem-ent BOGOC will apDoint a qualified person to be responsible to YABOG

for technical assistance in the operation and maintenance of the system andthe training progrnm- Tn view of these stipulations and YPFB's satisfactolr:record of petroleum pipeline operation and maintenance, the PipelineQpferatig e n rvi 2 Ag-eement provides satisfactorv assurances for the efficien'

operation of the gas transmission system.

6. ECONOM4IC EVALUATION

General

6.01 One of' the Bolivia's most pressing needs is to find ways to in-crease its foreign exchange earnings. One of its exportable products isrecently-disccvered natural eas and the project is designed to make the ex-

port of natural gas possible.

6.02 There is at present only a very limited domestic market for

natual gas inl Bolivia, and the proved gas reserves are of such magnitudethat the sale of gas abroad in the quantities contracted in no way limitsthe possib.lity of serving any .oreseeahle domestic markete A discussion

of the size of the potential domestic market is given in Annex 1.

6.03 Since the pipeline project, in a narrow sense, simply consists ofthe trarnsport of' naturdl gas from the gas fields to the Argentine hbrderr at

cost, a meaningful evaluation of the economic merits of the project has tolook beyond the pipeline projecti to the benefits for Bolivia of producing

- 17 -

a euu '4ob ing orie of .LLZ n±at.E-t-i reIoJurcee. Iuleea Dene1iis cuulU be eAprU- U.

as a conventional economic rate of return on Bolivia's investments, but th:iswould fail to take into account the fact that the benelits essentially der>vfrom the sale of a natural resource for which there is at present no alter-native use and that most of the investments, necessary to produce andtransport the gas, are not made by Bolivia. To put the economic merits of theproject into a clearer perspective, they will be considered here from (a) t,;-point of view of the economic rate of return on the total investments,irrespective of their source, necessary for the sale of gas and (b) from tWepoint of view of the effect of the export of natural gas on Bolivia's balanceof payments.

Economic Rate of Return

6.o4 Given the gas reserves of, and the investments already made in,the four gas fields unider consideration, viz. BOGOC' s Colpa and Rio Grandefields and YPFB's Naranjillos and Monteagudo fields, the scheme for trans-mitting the contracted quantities of gas to Yacuiba on the Argentine border,which would generate the highest economic rate of return on new investments,would be the one that only used gas from BOGOC's Colpa and Rio Grande fields.This is because such a scheme would minimize the new investment requiredfor, and the recurrent operating cost of, producing the gas export earnings.However, the connection of the Naranjillos and Monteagudo fields to thesystem, which enables YPFB to contribute 32- of the contracted quantitiesof gas, as envisaged in the proposed project, increases the net inflow offoreign exchange to the Bolivian economy, as indicated in paras. 6.07 and 6CRbelow.

6.05 The economic rates of return of schemes using (a) the two BOGOCfiPlc.t onlyv and (b) all foulr fiplds (the proposed scheme)n not tnkinp intoaccount sunk investments, are as follows:

Fields connected Economic rate of return onto the 9ytm.t t^ additinaLn -irvne+YA-tA+_

Colpa, Rio Grande, Naranjillos

The eonv;i ;au-es ofL return oni- thIe operation 4f Vthe VNrCrLJiL_LoLS Can.d Mon=

~S,. * 4e* - L.04' 4/U A - A

teagudo fields, considered as separate undertakings, and similarly excludingsulik costus, w^e 27,' and 20vl respectively.L. TheseO raLte9 haCve Ueen kcaI lcLU'ate

by allocating to each of these operations their appropriate share of theCostj Ol t U 6i; tdi ddIWIv l.LOOJ.LU; L i vU O JyU t1119

6.06 sWhenal ail sunk costs as well ass Ll neW investments are taken iLtoaccount, the proposed scheme using all four fields shows a rate of returnof 16% on inveastments. Annex 4 snows the assumptions used in deriving thevarious rates of return shown above.

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Foreig Exchange income

6.07 Panent for gas sold to Argentina will be made in US do:ilars. Giltof this income, YABOG will service its debt and pay the operating expensesof the pipeline system. The remaining net income will flow to BOGOC andYPFB in proportion to the value of the gas each contributes. BOGOC paystaxes and royalties to Bolivia, which amount together to about 50% of itsprofit and, in addition, has operating expenditures in Bolivia. The averagenet inflow to the Bolivian economy from BOGOC's and YPFB's gas sales isestimated at approximately US$6.5 million per year over 20 years. Theexpenditure of foreign exchange for Bolivian goods and services during theconstruction of the pipeline causes an estimated additional net inflow ofapproximately US$10 million. The importance to Bolivia of this net foreignlexchange inflow is put in better perspective when one compares it to Boliv:ia'scurrent gross export earnings of US$160 million per year.

6.o8 If YPFB's Naranjillos and Mlonteagudo fields were excluded fromthe svstem. the net inflow of foreign exchange to the economv. atributableto the sale of gas, would be BOGOC's operating expenditures in Bolivia andthe pyvments of taxes and royalties hy BPrOC resuqlting from the nnPration ofits gas production and transmission activities. The average annual netinflw nr of foreign cm 4 R vian tInhat fnc2- %TniilT h an nn7nPe,Hms+..ml

.. ~b w_--<v _w_c_*V -0 -u>l V'- -r~~^~

US$5 million, or US$1.5 million per year less . than in the case of theproposed project. The pr&icipation of YPFB with its NaraAjillos andMonteagudo fields is therefore to be preferred from the point of view of the

6.gTh jJJ4Jel±LIe jJVUJcI, fUo lI-±Ui a 3dIJA Lo. hadbe U reLl u d

which uses the gas reserves of the two BOGOC as well as the twzo YPFB field;,is economi,cally souund. It provides an eConomLc rate of retu-n of approVALte1ly 24% on the total additional investments necessary to make the sale ofgas to Argentina possible and causes an average annual net inflow of forei,nexchange to the economy of approximately US$6.5 million over the 20-yeariife of the sales contract.

y/ The relatively small increase of US$1.5 million net per year inforeign exchange earnings to the Bolivian economy as a result ofYPFB1s participation in the scheme is due to the fixed totalquantities of the Gas Sales Agreement. The result is that, ifYPFB supplies 32% of the gas as envisaged, BOGOC's net incomediminishes almost proportionately and similarly its tax androyalty payments to Bolivia. YPFB's income, less its foreignexchange costs, exceeds the loss of BOGOC's payments to Boliviaby US$1.5 million per year, on the average.

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77 A T MC

7.0 As e p. 1, YG ha as a. non-profit company with expenses paid by YPFB and BOGOC. YABOG has anauthorized and issued capital of US$'10,000 onUed hal each by BuOOC andYPFB and which is represented by cash. The company is financially self-liquidating over a 20-year period - the term of the Gas Sales Contract Und

the amortization period of the proposed loans.

Financing the Project

7.02 The cost of the project is estimated at US$45.8 million includinginterest during construction. In addition, YABOG will need a furtherUS$700,000 for working capital. It is proposed to finance the total(US$46.5 million) by loans to YABOG, half (US$23.25 million) by a Bankloan repayable in equal semi-annual installments of principal over 20 yearsand half by a loan from the New York State Common Retirement Fund. Theloan from the Retirement Fund has already been signed. It was obtainedthrough Gulf Oil Corporation's bankers and is guaranteed by Gulf. The loanis repaya1ble in equal semi-annual installments of principal over twentyyears and carries an interest rate of 7% and a commitment fee of ½Q% perannrm. Disbursement is not linked to specific items but is in six install-ments, with thie option of borrowing an additional $1.75 million in caseof cost overruns. Neither the working capital nor interest duringconstruction are provided from the proposed Bank loan. Ho further sub-stantial eanitnjl Pxoenditurt is foresePn. with the exetnption of nomnre.ssorsin 1977, estimated to cost US$685,ooo. It is a conditioh of the proposedRank loAn flitht YAiROCG sha1l no-t innrmr r',Pht.- otho-r thnn iinndsr hp 1.T.rn lnons,

in excess of US$1 million without agreement of the Bank.

Revenue and e:penses

7.03 The three agreements controlling YABOG (see para. 3.11) providethat YAROC;'s actual Pxnenses shall be refundpd by its Sponsors, that YABOGshall be kept financially viable but that YABOG shall not make any profit.

7.04 Estimated revenues and expenses for the 20-year period 1971 to1990 -fe csho,. 4rn T'able 3 n,A cimm 1",7ild lrbeoin +4i-housan-.ds of T35$:

1971 1972 1973 197h 1990

Revenue Requirements 6116 6023 5889 5755 4253Operating Expenses including

depreciation 29h3 2970 2997 3024 4095

Net Operating Revenues 3173 3053 2892 2731 158Interest 3138 3018 2857 2696 123

Surplus 35 35 35 35 35

- 20 -

7.05 rCevenue, cover costs and in addition allow the buiiding up oIreserves equivalent to the working capital mentioned above (US$700,000).Depreciation is adequate and in line with international pipeline practice.The ratio of net operating revenue/net fixed assets is slightly over 6-,'jL1%in each year. Details of the assumptions used in the financial forecast.sare showm in Annex 3.

Cash Flow

7.06 As mentioned above, revenues are designed to cover actual costs.Apart from day-to-day operating costs, the main cash outlay is debt repay-ment, which is covered by depreciation and the annual surplus of US$35,C'0O.Should eithter costs or cash flow require it, the Sponsors wi1 be billedaccordingly under the terms of the Gas Transport Agreement (see para. 3.10 ceCash flow f'or the 20-year period is shown in Table 6 and summarized belcw:

US$ ODO's

Sources

Opening Cash Balance 7TOSurplus 700Depreciation 046 t,4

Dispositions

Loan repayments 47,185( hxagnes in working capital 590Closing cash balance 120

'-+1 <

BnTlanrn Sheet

7.07 T'he balhnnr shem.s fnr them years 1971 to 1990 are shoTw,n inTable 4. I'hey illustrate the structure of this non-profit project. TotalnmR+. of' .cnmp TTI.M$t;J5n million n+. +th- and rfb +.hp firqi-. vonr nrp rAnwm to Iss5

than US$1 million by the end of the twentieth year. Loans of a similaramoulnt are repaid at the sar..e rat_ as A-minutio,n of assets and the Co.mpanyends up at the expiry of the gas sales contract with a pipeLine valued for

accontn6 ~ ~~~~ p1poe TTQero 4US12,00 fO cash, Adebtors ofP TJC590,00 onrd,

equity and surplus of US$710,000. All profits from the sale of gas toA-ger,-t-a ,'' hae accrued Aso vPub- anA Dniln-.0 1'.LL he t.oAl -LJLO ,U III, te g A .AJs.IoJoJt

I. .'JW AIL1t, L$ L.CkL. .L1LUWA1~.±111U L , ILU rUO C)-L! LoUJAUJ.d.UL UV(:J7 Ul,±u

period is US$315 million. Pipeline costs absorb US$103 million and BOGC'C.IUE .rFB r , LeforJLe taxes, UA) 4 )±II iLJ.ILUI± d.Liu USpUl ,-llIon

respectively (see T'able 5).

- 21 -

7.09 OADUls accoun-ts w 1i be su-Ject to annua audit by .depe.dent

auditors acceptable to the Bank and the audited accounts will be submittedto the Bank witnin four months of the close of the fiscca year.

8. RECaOMENDATION

8.01 During negotiations the following principal points were discusseuand agreed with' the Borrower, the Sponsors A-d the GovefTrent:

(1) The Sponsors, YPFB and i`CGOC, joitly and severally agreedto guarantee directly to the Bank the servicing of theloan and the finaccng of any cost overrun. Gu-lf OilCorporation agreed, in a separate guarantee agreementwith the Bank, to be responsible for BOGOC's obligationsunder the Sponsors' guarantee. Both guarantees areabsolute and subject to no exceptions (para. 1.07).

(2) The terms on which tne Sponsors will open an account -with

Morgan Guaranty Trust Company prior to the signing of theloan (para. 1.07).

(3) No modification to the Stockholders Agreement, the PipeliireOperating Service Agreement, or the Gas Transport Agreemertwill be made without approval of the Bank (para. 3.12).

(4) Sufficient gas reserves will be dedicated by the Sponsorsto meet their obligations under the Gas Sales Contract.The Borrower is to obtain satisfactory undertakings inthis respect as a condition of effectiveness of the loan(para. 4.08).

(5) Technical and financial arrangements satisfactory to theBank for the installation of gas production facilities intheir fields. The Borrower is to obtain undertakings inthis respect as a condition of effectiveness of the lozm(para. 4.12).

(6) YABOG will not undertake any substantial expansion of -hepipeline system without prior consultation and agreementwith the Bank (para. 7.02).

(7) YABOG will appoint independent auditors to audit itsaccounts annuallv and will submit the audited accountsto the Bank (para. 7.09).

8.02 The project, a pipeline system to transmit natural gas fromfi o1 ds in Bo1livi a to the Argentine border, has been desigrLed by compet.ntv

- 22 -

engineers and provides the gas transmission capacity required in a technica'.-ly so,d .id econos,..IclC r,&U.e. It is fi '.c 'lg soundA d is b>ene a'

to the Bolivian economy as it causes an estimated average net inflow of£oreign excan:Lge tUo BuliLvia of. I±L[1-o. i'aUl'Y US$6*.) 5I.mL-L-LUII pter yeaLUr oVer

the 20-year life of the project. The finances of the Borrower, YABOG, willbe protected by adequate guarantees. In view of the above, it is recoin-mended that a Bank loan of US$23.25 million equivalent be made to YABOG.term of 21 years including a grace period of 2 years is appropriate.

May 22, 1969

ANNE 1pago I

BOLIVIAAP"RAISAI OF ThE COP.4ANIA YAC150L BOIOC103 TP.UY3ORTATORES

_ _ _ _ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ -- . ._ _ .GAS PIPEELINE PROJECT

POTE14TIAL DOMESTIC MRKETS FOR NATURAL GAS

Internal markets for natural gas have not vet been develoned toany significant extent in Bolivia. The only existing gas line for internaluse is the recpntly (1967! oonstructed 20 mile 6-inch diameter line fror,

the BOGOC-ownred Colpa field to Santa Cruz to supply gas to serve anelec+ric power station Consnn.ption is pernpeted to be about 700 Wfcf nperyear or less than 2 MMcf/day, but deliveries have not yet commenced.

The Gas Developments Corporation of Chicago, in a 1968 study for4the Bolvin Gvem.ent, -- by US PTD has -,-- - projectlons

of the potential market for natural gas in Bolivia. The study considersWle POtt.. IenU.Ld.L_LULt2LL_L J.o.L gLas :nU... Lec .ti pVowJ gerao rU.%, dores Use,

the petroleum industry and other industries up to the year 1990.

The realization of the projections would require large capitalvesiluielUii i gas tU1-aiLri ±UU wL11nes' adrLLLL LLJLU11 uUMIL, UlS y , as welas

concurrent investments by the users in industrial plants and domesticappliances. The forecasts are not based on feasibility StudieS of speci£icprojects and miust be considered speculative. A summary of the forecastsis shown below.

(MMc f/year)

1975 1980 1990Electric Power

Santa Cruz 485 784 2,040Sucre 438 558 1,240Tarija 58 95 120

Sub--totals 981 1,437 3,i00Domestic Use

La Paz 451 1,143 3,319Oruro 122 405 575Cochabamba 241 4a42 1,19)4Sucre 57 105 255Potosi 84 174 420Santa Cruz 128 271 744

Sub-totals 1,083 2,540 6,507Petroleum Industry

Sucre 169 237 465Cochabamba 800 1,120 2,200Santa Cruz 259 363 713

Sub--totals 1,226 1,720 73,373Other Industri-es

La Paz 1,140 2,050 3,520Santa Cruz 692 2, 260 4,330Cochabamba 167 Po 515S-cre ),Qc: 1I 1,57Potosi 14 2Oruro 104 188 322Tarija 6 10 18

Sub-totals 7iI 7,7 Y777ITotals 5,910 11,421 23,.5 Tn PMcf/day 16.1 :1.3 64.5

ANiEX 1page 2

The forecasts show total potential demand at a level of 64.5 W'cifper day by 1990. The total internal gas consumption, over the twenty-yearperiod cov,ered by the forecast, would amount to approximately 234,000 I0Thici.This is less than 20% of the proved reserves of the Rio Grande field alone,and it is considered unlikely that actual consumption will be anywhere ne:rthe levels indicated in the forecast.

Imminent Use of Natural Gas for Power Generation

From 1960 to 1967 total gross generation of electric power inBolivia increased from about 447 GWh, at a rate of about 4% per annum, to595 GWh. The installed generating capacity during the same period increasedby about 5J% to 219 MWJ of which about 85 14I is owned by the Bolivian PowerCompany (BPc), 35 14W by Empresa Nacional de Electricidad (ENDE), 78 MW bycaptive plants and 21 SW by isolated public supply systems.

The expansion programs of BPC and ENDE to meet forecast demandover the next five years consist primarily of an increase in installedhvdroelectric cananitv. Use of natural gas is, however,. proposed for SantaCruz by the installation of a 10 MW dual fuel (diesel oil/gas) plant in1969 and a fulrther 5 W uinit in 1971. Tn addition; a 10 MW gas turbineplant is planned for Sucre in 1971. The gas consumption of these two plantswill be very sm..11., each of the order of 2 MMcf per day. The Santa Cruzplant would use gas from the Colpa field; the Sucre plant from the Monteagu-do f-i eld A The Inter-Am.er--an Develo-em.nt Banvk is cuirrein v 51snving a lo

4~.LA * ~ ~ fltStA --- -- - - -- -/ - __-- ________i

request for the Sucre pipeline project.

May 22, l969

ANNEX 2Page 1

BOLIVIA

APPRAISAL OF THE COMPANIA YACIBOL BOGOC TRANSPORTADORES

GAS PIPELINE PROJECT

INVESTMENT PROGRAM FOR GAS PRODUCTION FACILITIES

Four fields are planned to be connected to the pipeline systemviz. the Colpa and Rio Grande fields, owned by BOGOC, and the Naranjillosand Monteagudo fields, owned by YPFB.

The investment programs for gas production facilities in thessefour fields are as follows:

BOGOC - Colpa FieldEstimated Expenditures(Equivalent US dollars)

Foreign LocalYear Item Currency Currency Total

1969/70 Compressor Plant 750,000 230.000 980,000Gathering System 650,000 1.25,000 775,000Separators & Manifolds 380,000 120,000 IZ0.0O0Stabilizers 380,000 70,000 45o,000Measuring Equipment 20.000 _ - 20-000

Totals 52,180 5 000 2,72 5000

BOGOC - Rio Grande Field

No investments necessary - re-cycling is in progress.

YPFB - Naranjillos FieldEstimated Exvpenedituwes(Equivalent US dollars)

Foreign LocalYear Item Currency Currency Total

1969/70 Wells 100,000 100,000 200,000Cnmpressors 9000 29A 0,0 1,190ro,%_____ -~~~~~~~'0 3_0-Lj-L7vJ,JUl

Separators 25,000 7,500 32,500Gat-heririag Srstem J.o) Chn 27 C'e%- O

Sub-Total 1,067-500 4259000

1970/71 Compressors 300,000 90,000 390,000

1974/75 Compressors 3)OOOOO 901000 _390,000

Tot-als 1,667,500 60, ,272,500

ANNEY ,Page 2

YPFB - M:onteagudo Field.~~~~~~~~~~~~~+wa~ . _

E-st4at ed E-.-, Ai 4,e -

(Equivalent US Dollars)

Year Item Currency Currency Total

1969/70 Wells 1,500,000 1,500,000 3,000,000~~~ 1 )AA ~~~~~~~~~~tf% iA 10. e%^r'I -0 - --'o_____essors 1,200,000 3U4, UVV L,58)04,UUUSeparators 20,000 6,000 26,000aathearino qvu'q+ 1m -I a f nnn 20,00 _ I -1 w

Sub-Total 2,835,000 1,910,000 4,745n000

1970/71 Compressors 600,000 192,000 792,000

1971/72 Compressors 600n000 192,000 792,000Tota l9 42 ,2h,00 w0JU 06 ,3:29,-000

MayF 292 16OAQ

&NNEX 3

BOLIVIAILIV-r _ AI 3 L l~TP%Am TCD'

lLrPnsRi-DL Ur XL _nEu- CuPial lal Z BOL 9wC PusPGAB PIPELINE PROJECT

ASSUIPTIONS USED FOR FINANCIAL FORECASTS

1. Interest and other charges on loans are capitalized duringconstructionl

2. The B3ank loan will carry a rate of interest of 6-1/2% and the NewYork State Common Retirement Fund loan a rate of 7%.

3. Both loans will be repaid over twenty years in equal semi-annualinstallments of principal.

4. Operating costs (excluding depreciation) have been taken at $500,000per year for the first seven years and an extra $100,000 per yearthereafter for compression costs, all escalated at an annual rateof 6I.

W. Depreciation is calculated at 5D> Der anmum for the pipeline andat 8% per am-wa for the compressors.

6. Transportation tax is calculated at 2.5% of earnings.

7. Earnings have been calculated in accordance with the Gas Transpor-tAgreement between the Sponsors andc YABOG.

N4ay 22, 169

ANNEX hPage 1

BOLIVIAAPiPAISAL OF TIh C-OMPAN1A XYACD1Ju BOG C TAuNUSPTAORRA5ES

GAS PIPELINE PROJECT

Rate of Return Calculations

Rates of return have been calculated for the following cases:

Case A - Return on total new investments for a scheme using only BOGOC'sColpa and Rio Grande fields.

Case B - Return on total new investments for the proposed scheme, usingEOGOC's Colpa and Rio Grande fields as well as YPFB's Naranjillosand Monteaeudo fields.

Case C - R.eturn on total ntw and sunk investments for the nroonosed scheme.

Case DT - Return on the new invrstments needed to operate the Narannillosfield, considered as a separate undertaking.

Case E - Return on the new investments needed to operate the MonteagudofV • A Anr, A _ A - tar ,AAA+ A nA

qql -4- -- v 4vv-s 4 w coww,er 4-4 av- 4ss-

I.e costs ar. bene a LJen UC acco. each of Ohe abovcases are given below.

Case A. Return on total new investments for a scheme using onlyBOGOC' s Colpa and R o Gralde fields.

Benefits - Sales proceeds as per Gas Sales Agreement, using saies price oIUS$0.27 per Ncf.

Costs - New investments in Colpa field (US$2.7 million - see Annex 2)plus investment in trunk line only (US$39 million) in year zero.

Investment in compressors (US$0.7 million) in year 7. Direct

operating costs _/ of gas field and pipeline, escalated i 6%o perannum, over the twenty-year period.

1/ i.e. operating costs excluding depreciation and interest.

ANNEX 4Page 2

direct operating Sales NetYeV- costs procAeds Stream

ri ~~~L-I -7 - Li 7L4JL..( - - .

1 .7 14.5 13.82 .8 14.5 ~ I 17

3 .9 14.5 13.64 .9 -14. r' 5 1L4 .y .LL4.-) _

5 .9 14.5 13.6

7 1.8 14.5 12.7O 1.2 1Lo4 I o 4

9 1.2 16.4 15.2 Discount10 1.3 16.4 15.1 rate

1 1.3 ~~~~ ~ ~~~16. 15.111 1.3 1.4 1.12 1.4 16.4 15.0 33,;13 1.5 16.4 11.4.914 1.6 16.4 14.815 1.7 16.4 14.716 1.8 16.4 14.617 1.9 16.4 14.518 2.0 16.4 14.419 2.1 16.4 14.320 2.1 16.4 14.2

Case B. Return on total new investments for the proposed scheme.using BOGOC's Colpa. and Rio Grande fields as well as YPFB's Naranjillosand 1VIonteagudo fields.

Benefits - Sales proceeds as per Gas Sales Agreement, using sales price ofUS$0.27 per Mcf, less direct operating costs of pipeline andgas fiel.ds escalated Q 6% per annum.

Costs - New investments in Colpa, Rio Grande, Naranjillos and Monteagudofields (US$11.3 million - see Annex 2) plus investments inpipeline including lateral lines.The distribution of field investments over time (see Annex 2) is:year zero, $8.9 million; year 1, $1.2 million; year 2, $0.8millionn! ypnr ) r and $) 0 illinn-minlinp invPsrTnPn.ss in t)e,a 7

million i-n year zero and $0.7 million for compressors in year- 7'.

ANNEX bPage 3

Sales proceedsless direct Net

Year Investments operating costs Stream

0 53.4 - - 53.41 1.2 13.4 12.22 .8 13.3 12.53 13.2 13.24 .4 13.1 12.75 13.0 13.06 12.9 12.97 .7 12.8 12.1 Discount-8 14.5 14.5 rate9 iLh 14.10 14.3 14.3 24%11 IL.2 Th.212 14.1 14.113 13.9 13 9

l14 15.0 1/ 15.015 14.9 14.916 14.8 14.817 14.5 14.518 14.4 14.4

20 14.2 14.2

1] Operating costs are lower after 13th year because Naranjillosaniu onueaguuo reserves w- . 1 be e2hau.'st eU.

_'ase C. Ret-ur on total new and sunk3-investments for the proF-serscheme.

This case is similar to B in all respects except that sunk invest-ments, including allocated exploration and drilling costs, are includedin the calculation.

Sales proceedsless direct Net

Year Investments oPerating costs Stream

-2 10.2 - 10.2-1 10.2 - 10.2

0 53.4 - - 53.41 1.2 13.4 12.22 .,8 13.3 12.53 13.2 13.2

ANNEX 4Page 41

Sales proceedsless direct Nlet

Year Investments operating costs Stream

4 .)4 13.1 12.75 13.0 13.06 12.9 12.97 .7 12.8 12.1( 14.5 14.5 Disco=n-9 1ITh 14Ai rate10 14.3 14.3

12 14.1 14.113 13Q 3

14 15.0 1J 15.0

16 14.8 14.817 41. r 4 1.18 14.4 14 410 1,Y. - 1)4.320 14.2 14.2

1/ Operatilg costs are lower after 13th year because NaranjilloBdA L7Jo nteagu-do reserves will e -1-aus"ed

Cas e Dj'. nvuaLnllUUI e Ion teew x1vetIiU1eLU uieeded tO operate theNaranjillos field, considered as a separate undertaking.

Benefits - Sales proceeds attibutable to Naranjillos gas @ US$0.22 perHicf on the basis of production of 257o of contracted quanti-typer year for 12 years.

Costs - Capital cost of lateral line $.4 million. Share of capitaLcost of trunk line 25% of $39 million $10 million for 12out of 20 years, or 604 of $10 million $6 million. Shareof line maintenance cost $0.1 million per year, fieldoperating costs $0.25 million per year, both e'scalated @ 6%per year. Field investments as per Annex 2.

Initial investment 0.4+6+1.5 = $7.9 million. Second year $.4million. Fifth year $.e million.

ANiE'LX 4Page5

Investments plusdirect operating Net

Year costs Revenue Stream

0 7.9 - - 7.91 .75 2.94 2.192 .5 2.94 2.443 .6 2.94 2.344 1.0 2.94 1.94 Discotnt5 .6 2.94 2.34 rate!6 .7 2.94 2.247 .7 2.94 2.24 27%8 .8 3.34 2.549 .8 3.34 2.5410 .9 3.34 2.4411 .9 3.34 2.4412 1.0 3.34 23),

Case E. Return on the new investments needed to operate theMonteagudo field. considered as a sepnrate undPr-taing.

Benefits Sales proceeds attrihigthme to Nonteagudo gas TUS$0.25 perMcf on the basis of production of 25% of contracted quantityner vear- for& 13 'A inn

Gosts *-Gapitnlcost of la+er-' l.e~ $5.;liP . %apiDal Ucos of 201Vkm of trunk line 201/537 = 37.4% x $39 million = $14.6 million 0

Sh^e of eJ1, out of 20-V yearYs f 2,5% of capaeity =- 0.5 x:.25 = 16.25%. Allocated capital cost 16.25% x $14.6 million =$2.4 'lion. Shnare of law iraninuenance cost $50. 1 m ilion/year, field operating costs $0.3 million per year, bothesc 'ated M6 pe,- year* Fi±uld "Lveswrients as per Annex 2.

T44iaiCn -.ves-'.I.> $ 5 ,.4 + 4'7' = i'2.i' million. Secondyear $0.8 million. Third year $0.8 million.

ANIEKX 4F-age 6

Investments plusdirect operating Net

Year costs Revenue Stream

0 12.15 -- 12.151 1.2 3.35 2.152 1.2 3.35 2.153 .4 3.35 2.954 .5 3.35 2.85 Discoiu1 s5 .5 3.35 2.85 rate6 .6 3.35 2.757 .6 3.35 2.75 20%8 .6 3.80 3.209 .7 3.80 3.1010 .7 3.80 3.1011 .7 3.80 3.1012 .8 3.80 3.0013 .8 3.00 2.80

Play 22, io96

ANNEX 5

BOLIVIA

APPRAISAL OF THE

COMPANIA YACIBOL BOGOC TRANSPORTADORES

GAS PIPELINE PROJECT

PROFIT AND WSS ACCOUNT FOR YEARS ENDED 31 DECEMBER 1967 AND 1968

GULF OIL CORPORATION

(TNj$k ono tq')

Years Ended December 311QA7 19AR

INCOMF.

REVENUES

Sales and other operating revenues 5,109,597 5,595,660

Dividends, interest and other revenues 64,867 61,423

5,174,464 5,657,083

DEDUCTIONS

Purchased crude oil, products and merchandise 1,286,611 1,356,083

Operating. selling and administrative expenses 1,475,522 1,647,160

Taxes on income and general taxes 1,431,627 1,555,561

Depreciation, depletion, amortization and retirements 367,746 420,258

Interest on long-term debt 29,823 49,367

Income applicable to minority interests in subsidiariesconsolidntated 1 h 788

h.6o6j17 q.040;.7N

INCOME BEFORE EXTRAORDINARY ITEMS 568.307 626.319

Extraordinary items net of federal income taxes 9,940 -

NE? INCOME 578,287 626,319

May 22, 1.969

ANNEx 6

BOLIVIAAMPRAISAL OF THE

CCMPANIA YACIBOL BOGOC TRANSPORTADCfESGAS PIEm rnOiCTr

BALAtNCE 5HE1r AS OF 31 DECWMER- 196t AnD 1968GULF OIL CORPORATION

('uSl aO s.

Years Ended Decenmber 31AL7%J I

ASSETS

Current AssetsCash 103,503 89,682Marketable securities, at cost, approximating market value 349,153 599,027Receivables, 'less allowance for doubtful accounts of$13,494,000 and $12,656,000, respectively 857,291 953,619Inventories of crude oil, products and merchandise 456,966 4815823Materials and supplies 70,86h 80,000Prepaid expenses 74.801 75.790Total Current Assets 1,912,576 2,279,941

Investments and Long-Term ReceivablesAssociated companies (50% or less owned) 157,543 165,833Other

1,8,557 _371,333Total Inves-bments and Long-Term Receivables 1,76,100 3372166

Properties, Plants and Equipment, at cost, less accumulateddepreciation, depletion and amortization 4,068,310 4,621.816Deferred Charges 25,036 59,324'TrfYAT A6CMYI1

_____ A_____ 6,482,024 7_L498,277

LIABTLITIES

Current LiabilitiesNotes payable and current portion of long-term debt 165,658 92,190Accounts payable and accrued liabilities 676,975 B'2,962Accrued Unitecl States and foreign income taxes 187,306 160 419Total Currernt Liabilities 1,029,939 D 59- ,n

Long-Term Debt 694,016 1,305,328Deferred Income Taxes 27,1641 35,685Deferred Revenues 61,625 5h,729Other Long-Term Liabilities 41.,869 3,233Minority Interests in Subsidiaries Consolidated 215,347_ 212,940

TOTAL LIABILIITIES 2,069,960 g747,486SHAREHOLDER'S 4QUJTY

Capital 1,49O,513 1,J493,5h7Earn'ngs Retained in the Business 2,921,551 357,244TOTAL SHAREHOLDER'S EQUITY 4,41206b4 1, i'750.791TOTAL LIABILII'IES AND SHAREHOLDER'S EQUITY 6,482,024 7,h98,277

iay 22, 1969

TB.ELE

BOLIVIAAPPRATSAT. OF THE CnMPANTA YACTROLT QrOGOC TRANSPORTADORES

GAS PIPELINE PROJECT

PRODUCTION, DOMESTIC CONSUMPTION ANDEYPOR.TS OF PETROLT.TTM, 1Q0-77 1/

Domes-ic c.rade oil o D4--s1 TLo,- -cse- &

production Avail- Consump- Change in I.tCvmDn' rs.ol_ 7 T k: 1 n @ v. a __ 1 / - 4 , !j 1 /.

I'r r D L .J U1iVL-) L,U1- U) dULL.L± L~y J 44 JL$ o U .0 vw. -. _

(in '000 of barrels J

LY5I U61U - - 6i6 14Yi ,9

1955 2,698 - - 2,698 1,528 623 547 2,65d

1958 3,434 - - 3,434 1,705 1,377 3521959 3,170 - - 3,170 1,667 956 547 3 ';-1960 3,107 465 - 3,572 1,912 1,1l2 528 31961 2,705 233 - 2,988 2,095 711 182 2,iFc

1962 2,598 189 421 3,208 2,16)4 o478 566 3,2J(1963 3,157 245 - 3,402 2,334 679 390 3,C,K1964 3,132 157 _ 3,289 2,478 283 528 3,-201965 3,321 - - 3,321 2,642 252 428 3,3221966 3,1710 2,912 - 6,082 2,837 2,78b6 459 b, f1967 2,466 12,057 - 14,523 3,051 10,454 1,019 114,2L:.

lJ Export and consumption figures are exDressed in volumeterms of final products sold; hence the sizeablevolume loss in terms of crude oil.

2/ Mostly Bolivian Gulf Oil Company.

3/ Barrels of )42 U.S. gallons each.

Totals may not add because of rounding.

Say 22, 1969YPFB a d Mnristy of Mines arl Petrole

TABLE 2

EOLIVIAAPPRAISAL OF THE CCNPANIA YACIBOL BOGOC TRANSPORTADORES

GAS PIPELINE PROJECT

PROJECT CONSTRUCTION COST ESTIMATES(in thousands of US dollars)

Foreign LocalExchange Curenc,v Total

Truznk line

Line pipe and freight 13,250 - 13,250Trunk line construction 8.600 5,800 14,400Bridge construction 2,500 1,600 4,100Bridge materials, scraper trans.

valves and fittings, etc. 3,000 -

Sub-total trunk line 27,350 7,4oo 34,750

Naranjillos lateral line

Line pipe and freight 150 - 150Line construction 100 70 170

Sub-total Naranjillos lateral 250 70 320

Monteaudo lateral line

Line pipe and freight 1,900 - 1,900Line construction i,400 900 2,300Valves and. fittings 160 - 160

Sub-total Monteagudo lateral 3,460 900 4,360

General items

Right of way 100 100ourvey an.d mapping 5°300

Inspection, services (companyand contract) 60o 150 750

Engineerin.g design 500 - co0

Freight and miscellaneous 750 - 750Meter and regulating stations 700 70 770Operating center and equipment 350 150 500Communications 220 30 250

Sub-total general items 3,170 800 3,970

Contingencies (2.5y)7 500 600 1,1.00

TOTAT. 34,730 9,770 L. 500

May 22, 15969

BOLI VIJI

AlPRAISAL oF THE

CC21PANA TAIBOL BD20C TRISSPORTADORES

GAS PIP33,LI PRJECT

PROJe TCD AIrUAL JEVUZU AND EXPENSES

197L 1972 1273 127 1975 1976 1977 19713 1979 1980 1981 1982. 1983 1984 1985 1986 915t7 1988 1989 1990

Revenue Requirements 6,116 6,023 5,889 5,755 5,632 5,5D6 5,402 5,.i6

2 5,344 5,227 5,111. 5,002 4,895 4,802 4,701 4,604 1 4,508 4,421 4,333 4,25!3

Operating Espenses 50o 530 5iO 590 630 670 7B) 850 900 950 1,000 1,060 1,120 1,190 1,260 1,330 1,400 1,480 1,56) 1,6!5C

Repreciatiun 2,290 2,290 2,2900 2,290 2.290 2,290 2,250 2,343 .2.313 2,343 3 243 2 2,4 2.343 2,3 2.343 2.A3O 23413 2j19

2,790 2,820 2,850 2,880 2,920 2,96o 3,ODD 3,193 3,243 3,293 3,341 3,403 3,463 3,533 3,603 3,673 3,743 3,823 3,903 3,989

Tran-portati-n Tax 153 150 L -144 lt* 137 13 _136 -133 130 12 125 _ 122 120 fL7 -_ 5 13 no 1083 106

Total Operating Expennes 2,943 2,970 2,997 3,024 3,061 3,097 3,135 3,329 .3,376 3,423 3,471 3,528 3,585 3,653 3,720 3,788 3,856 3,933 4,oli 4,095

Net Operating Reenue' 3,173 3,053 2,892 2,731 2,571 2.409 2,272 2,133 I,966 1,804 1,6410 1,07a 1,310 1,L49 981 816 652 488 322 158

Interest 3.138 3.018 2.85 L26 2,536 2,374 2,231 2DD98 _L933 1.769 1,60S 1.1.39 2.275 1,111. 9416 _71 617 453 281 1:

Surplas 35 35 i5 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35

My 2:2, 1969

BOLIVIA

AflAISAL 0F 3E

COtIJLIA XCnlDL B9DDC MANS20R0&l

GAS PiPsL.nK PSOJET

PBIE:TED BLIACE S5T

1971 1972 1973 17L 7 V76 V77 1V78 19vn9 1980 181 I8 A"2 19F 1985 1986 TVj A6E V8S l99

ASSE7S

CGah .d Storem 783 734 70!i 666 627 608 589 529 h69 459 419 389 359 319 289 24. 229 199 159 120

Ac.o.-t. Rece.iable 1,060 I,o50 1,020 1,'00 980 940 900 900 900 850 83t 800 770 750 720 70D 660 63D 610 590

Fi.ed RAsets 45,8 1.5,800 4 .5,8oo 45,800 45,8O0 h5,300 .6,485 46,435 46,h85 b6.h85 46.485 h6,.85 h6,485 46,485 46,485 46,4e85 6,1285 46,h85 46,485 h6,48i

Less Depreciation 2,290 4.5 6.870 _.14:60 ,450 6.030 18.373 20.716 73,059 25,hO2 27.71.5 8 2.h31 34.774 37.1i7 3S 160 h D .i6 4

Net Fi,!d Asset. 43,510 hl,220 38,93) 16,6h0 34.,350 32,060 30,.55 28,112 25,769 23,426 21,083 18,71t 16,397 1lb,051 11,711 9,368 7,025 4,682 2,339

TA1, ASSETS 45.353 Wj6k 4 AJ )D6 95A95 33.608 31,9h4 29,541 2.138 212735 22J332 19.9S 17,526 '5.123 12,720 10.31 7.2k _5.511 3,DD 71D?

LIABILITIES

Loana 45,328 h2,92b ho,Sho 38,156 35,772 33,388 31,685 29,251 26,813 24,375 21,937 19,h99 17,061 ]b,623 12,185 9,747 7,309 WlTi 2,433 -

C0onm- Stock 10 10 2D 10 D0 10 1O 10 10 10 10 Lo 10 10 10 10 10 10 10 1I

Sorplos 35 70 105 114. 175 210 245 280 315 350 385 L2D .55 490 525 560 595 630 665 700

TOTAL, LIABILITIES 45.1S3 43 OO4 bo.6 _ L306 ,59 33,608 226 271 -24,7 22.332 _29 5 5123 12,720 0.311 3 Sl

Nay 22, 1969

BOLIVIA

APPRAISAL OF THW C(UPAj1A 1ACIDL ECGOC TMANSP0RF,DORS

(ls PIPElJNE PllOJET

PROCEEDS OP THt QAS SAIJES A0REN41IT

197:L 1972? 15173 1974 975 7 1976 197 19980 1971 1982 1983 1984 1985 1'986 1987 1988 1989 1i90 bTtoa

Sale- Reveoue 14,!585 14,585 14,585 1J4,585 14,585 14,555 14,585 L6,D8 1 16,18 16,4108 16,108 16,408 16,408 16,108 16,14)8 16,408 16,4D8 16,4108 16,148 16, 408 315,3999

YAFDGOs Costs 6,:L16 6,023 5i,889 5,755 5,632 5,506 5,407 5,462 5,344 5,227 5,111 5,002 4,895 4,802 4,701 4,604 4,508 4,42L 4,.333 4,,253 102,991

Net Proceeds to Sponsors 8,1169 8,!i62 8,696 8,83D 8,9591 9,079 9,178 10,946 L,0614 11,181 11,297 .1,14)6 11,513 11,606 11,707 11,801 11,900 11,987 12,075 12,155 212,408

May 22, 1969

APPRAISAL ll THE JOl.AINIA rACIBWL ItlOOC TlNSPiRT0AlK8S

!IP PlPEi.lNE PMIAEFCT

c1i FLIIJ STAT'1s1WhT

(81*W 000 's)

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 ]982 1983 1984 1983 1986 1987 1988 1989 1290 IOTAL

SOURCE OF FUNDS

Initial WrAking Capital 710 - - - - - - - - - - - - 710

A-Inual-rpluo 35 35 35 35 35 35 35 35 35 35 35 35 35 25 35 35 35 35 35 35 700

Deprenlatiss 2,290 2,2?90 2,290 2,290 2,250 2,290 2,290 2,343 2,343 2,3143 2,343 2,343 2,313 2,343 2,343 2,343 2,343 2,343 2,343 7,339 46,485

Lo.ns __- -_ _ 685 - -

I7JTAL 3OTlJCES 3,035 2,325 2,325 2,325 2,325 2,325 3,010 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,378 2,374 47,895

APPLICATSDN OF FRLODS

Capital Expenditure 6 5 - - - - 685 - - - - - - - - - - -

Loan Repayments 1,L92 2,384 ;',384 2.384 2,384 2,384 2,384 2,438 2,438 2,43a 2,438 2,438 2,438 2,42i8 2,438 2.438 2.438 2,438 2,438 2,433 47,185

Changes In Working Capital 1.)60 (() Z22) (0) (20) (40) _40) _ _-- Q( 0 _) _ 0) (30) (30o (20) _ (30) _ 20) (J) ) (J ) _(20) _20) 590

2DTAL APPLICATION;S 2,252 2,374 2,354 2,364 2,364 2, 144 3,029 2,438 2,438 2,358 2,418 2,408 2,408 2,43.8 2,408 2,418 2,398 2,408 2,418 2,413 47,775

Belance (Annual) 783 (49) (29) (39) (319) (19) (19) (60) (60) (10) (40) (30) (30 (4Io) (30) (40) (20) (30) (40) (39)

Balance (Cunulative) 783 734 705 666 627 608 589 529 469 459 419 389 359 319 289 249 229 199 159 120 120

may 22, 1969

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