Austria - Loan 0149 - P037352 / Electric Power Project

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Folder Title: Power Project - Austria - Loan 0149 - P037352 / Electric Power Project - Austria -Loan 0148 - P037351 - Negotiations - Volume 1

Folder ID: 1516754

Project ID: P037352

Dates: 01/30/1956 - 07/30/1956

Fonds: Records of the Europe and Central Asia Regional Vice Presidency

ISAD Reference Code: WB IBRD/IDA ECA

Digitized: 12/11/2018

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DECL SS E DPower Project - Austria - Loan 0149 - P037352 / Electric Power Project -Austria - Loan 0148 - P037351 - Negotiations - Volume -

WITH RESTRICTIONSWB3G Archives

TO RE-ORDER SPECFWWNo. 86163 Fold..

PAT. USA No. 1484U1sMADE IN U. S. A.

RETURN TO RECOR9S CENTERCONTAINS ONLY

PfRE 1966 MATERIAL

.. ... ...-- ---.. ,...-.- --------- -" --.-.+.::. .": " -.-: -.

FoRM No. 58(5-48) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

1 OFFICE MEMORANDUMTO: vir. CoF er and Mr. Spottswood DATE: July 30, 1956

FROM: F. M. Oppenheimer

SUBJECT: Proposed Loan to Austria (Voitsberg-St. Andra Project)

In connection with preparing the execution documents for theclosing of the two forthcoming Austrian loan , I wonder whether theblanks in the document listed as No. 4 in Mr4 Umbricht's memorandumto the Austrian Loan Delegation dated May 9, namely a letter con-cerning disbursements for loan expenditures of the Draukraftwerke,can now be filled out. If these figures are now available I shouldappreciate it if you could let Miss Via have them as soon as possib

July 27, 1956

Ostrreichische Elektriittltswirtschafta-iktiongesellsohaft (Verbundgesollschaft)

Wien 1Am Hof 6Austria

Attentions Dr. Stahl, Dr. Kbllikeror Dr. Hermann

Gentlemens

I have just be~n reviewing the documents attached to thememorandum of May 9,\ 1956 to the Austrian Loan Delegation fromMr. Umbricht with a view to determinig whether anything could bedone to speed up the preparations for the signing of the Loan andGuarantee Agreements. It has occurred to me that some time mightbe gained if your company could send us the letters listed asitems Nos. 10 and 11 in the memorandum referred to, namely the oneconceraing periodic review of tariff schedules and the one trans-mitting the latest financial statements, right away; and if youcould in turn request the Draukraftwerke and the Donaukraftwerkelikewise to send us the letter item No. 11 transmitting theirlatest financial statements as soon as possible. It goes withoutsaying that the financial statements as of Lecember 31, 1955 ofeach of the respective Borrowers should be enclosed with orattached to such letters of transmittal.

Concerning the documents items Nos. 3 to 8, both inclusive,it is probably more expedient to have them prepared here and signedby your representative together with the signing of the Loan andGuarantee Agreements.

Very sincerely yours,

yrans M, 0

MI~ppenhoinm vv

oat Vr. Umbriaht'11r. CollierUr. Spottswood

Juy 27, 19%

Lr. ilheln TeufeusteinUinisterialratMinitry of FinaiaaUi,,alpfortgasse 8Vienna, Austria

Lear Dr. Teufensteis

I have been reviewing the,4ouonits listed in Mr.Umbricht's memorandum of May 9 /1956 to the Austrian Loan eDlega-tion to see whether some time might be gained by getting some ofthese documents ready ripgt aay. I think that one document con-earning which there is no partilar reason for delay is theletter listed as item No. 9 in that naorandum, i.e. the letterbringing up to date the reprosentations on the external publicdebt of Austria. If convenient, you might wish to prepare andsend us that letter as sown as possible.

Since the letter item No. 12 conerning the negative pl40olause refers to the Guarantee Agreemnt of "even date," it is morecouvenient to prepare that lettw here on Eubassy statioinry andhave it signed by the Am-ass-aor onourrent34 with the signing ofthe IOau aed Guarantee Agreemotn.

With best personal regavrd,

Very sinserely yew's,

Tranas . Oppsheiuer

cat Mr. UnbrichtMr. CollierMr. Spottse4

Nr. W. A. B.ILiff Juiy 26, 1956

V. Umbricht

Austrian Press Article an Increase in Power Rates andthe new Bank Loan

I attach a sumnary of the main point af an articleappearing in "Die Press.", a conservativa Austrian nmspaper,

regadingincrease of pomer rates, There has not, of course,been the slightest indication given to the Bank that eitherthe Governmnt or the Verbundgesellschaft thinks that, in thewords of the article, *the last word has no been said in no-3otiations with the lank." When I spoie to Dr. Eamitz onJuly 7 in Zurich he hoped that the increase would go throughshortly aftor the end of July.

Enclosure

cc. Messrs. KnappOppenheimerSpottswood

JHCollier:mo

5uwmrY o Atricl in "Die Preosg

A recent article in the Viena nopaper "Die Preswediscuses the proble of raieing electricity rates in Austria. Itfirst describes the organisation of the Austrian electricity in.dustryp pointing out that mch of the power produced by the Ver-bundgesellaehaft coubin is sold to provincial power cwpanies vhothen re-ooll it to the ultimate oonsuasrs. The proceds of thedifferenoe between the price paid by the prvincial companies tothe V,.. for power and the price at which they re-.sell it has beenused by these companies for financing their own expansion.

The artic3e then refers to the ,reat med of the powerindustry for capital and the two existing Bank loans. It thensV9 that during the negotiations for the new loan, the Bank tookthe view that the rame available far investmnt from retained earn..ingo of the V.0. were too small in relation to investment from"outside souroemp, and therefore th Ban prpoe a ra inrass(N.B. This is only half the storyl equally important is that the'V.G, was earning practically nothing on its equity capital and ifdequate depreciation had been eharged, it would probably hav beenin the red). The provincial companies, the article goes onj, havestated that, if the V.G, rate is increased, they will have to havean increase in their selling rate to final conwmers. This prospect,acording to Die Presse, has caused alarm in saw circles beoase itMught tend to cause a wage-price spiral.

The Socialst Pty would like to ensure that the price toprivate households is not inceased. On the other hand, many ex-perts think that the effect of an increase in the price to house-holds weld be economically more predictable than an increase in theprice to industry,

Die Presse remarks that, in general, t is believed that the

point out, in the right way, to the World Bank experts that a rise inthe pris of power was not necessary,' for the following two reasons:

( the security of the loan does not depend on therelation between fi nancing from aown means* and"outside sources" since the Varbndgen1shaftiS goerenment-amned and the loan is guaranteedby the government,

(ii) it would be contradictory to reduce the value ofthe loan by an action which night lend to a wage.price spiral.

Also it would be difficult to prevent an equally justifiedincrease in the price of iron, coal and crude oil,

Die Presse concludes by observing that In these circumstancesthe decision on the increase ast be taken, not by the inistry forTransport and Power ain, but by the Cabinetv

July 26, 1956

July 20, 1956

Dr. H. MosbauerUsterreichische Donaukraftmerke A.G.Hohenstaufongasse 6Vienna, Austria

Dear Dr. Iosbaners

Thank you very much for sending me the copy of

"Water Power" containing the article on Ybbs-Persenbeug.

I have passed it on to our Technical Departnent for their

inf ormation.

Yours sincerely,

V. UbrichtAssistant Director of OperationsEurope, Africa and Australasia

JHCollier: mo

FORM No. 57 NTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT(5-48)INENTOABAKFRRCNTUTO AN DEEOM T

OFFICE MEMORANDUMTO: Files DATE: July 19, 1956

FROM: V. Umbricht

SUBJECT: Conversation with Finance Minister Kamits

I met Dr. Kamits at the Grand-Hotel Dolder on Saturday,July 7, 1956.. The conversation covered the following points:

1. Request for Increase of Power Rates

Kamits explained that the Verbundgesellschaft submittedthe request to the Price-Control Commission in mid-June. Thereis general agreement on this request, but there will be some diffi-culties over the provincial companies and the ultimate consumerswho would have to foot the bill. The Austrian Government isanxious to avoid disturbing the Austrian wage and price structure;they would, therefore, wish the provincial companies and certainexport industries to absorb the whole of the rate increase whileprivate consumers would remain wholly unaffected.

A decision on this delicate aspect is not expected beforethe end of July.

2. Ratification of Loan Agreement

Kamits is confident that the Austrian Parliament will beable to ratify the draft loan agreement without the prior signingof the documents. Parliament has the right to approve a draft texton the condition that no alterations be made subsequently,

3. New Austrian Loan Request

The Austrian Government is anxious to obtain another loanfrom the Bank in due course -- this time for the rehabilitation ofAustrian industries. However, they will not submit a new applica-tion as long as the law on the taxation of share-capital is notmodified by Parliament, The present tax structure prevents anyflow of capital into industrial ventures and a change of the legalsituation is overdue,

4. IFC

The financial committee of Parliament has unanimously approvedAustria%'s accession to IFC. The committee's recommendation will nowbe submitted to the plenary committee of Parliament whose approval isexpected within one week. This would compla te the required formalities.

VUmbricht:mo

FORM No. 263(1-50)

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INCOMING WIRE

DATE OF WIRE: J1m 8m f15OJT ING

TO: INTRINATIONAL BANK OR XS=STMX ACTION COPY TO MR* COKEAND DEVMF14ENTCoyT MR'OK

INFORMATION COPY TOFROM: T MRBA

Decoded By

TEXT:

ONE STOP TWWKS YOUR ONE AND BLACKS CAMEA PRW1 TALKS WIT FINANCE

XMnTRY PWGMSING0 VElrY SATISPACIDAILY STOP SHALL HAVE C09VETONS

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MET XMTZu MT&RY In ZURWH STOP HE TWN MR (A) zJ*.Co UNWMoUSM

APP8DVIW BY PAnLIUTAST FIANE COMMITEE LAST FRIMT AuD FINA

MEMMATI 10N05 JUNE WIhI OE ida (BAPPROVAL OF IMCMUASS SFhB

RATES AND PARLsamiET HATIPWATION OF P10OSEaD loAM AOEoMMT EXPWsTiw

SS"D0 liAF JULY TIRTID SIALL kafMG9 MEETING 'WITH AMKANN IF TIKE FMI75

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AT B&I@Ss RGgARDING USE KURDPM CURFMCGIES AND ?JEONVERL'EI LIM

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DUPLICATE

6STERREICHISCHE DONAUKRAFTWERKE WIEN 6..... . 5AKTIENGESELLSCHAFT I.,HOHENSTAUFENGASSE 6

TEL.: A 46-5-90

DIREKTION

Direktor Hanns Mosbauer

Herrn

DirektorDr.Viktor U m b r i c h tChef der Delegation und Direktorder Weltbank der Vereinten Nationen

1818 H-Street,

W a a h i n g t o n NW D.C.

U.S.A.

Sehr geehrter Herr Direktor Umbricht

Ich erlaube mir, Ihnen in der Beilage ein Exemplar der Zeit-

schrift " Water Power " vom Juni 1956 zu ilbersenden, welche auf Seite

207 einen Artikel betreffend unser Projekt Ybbs-Persenbeug bringt.

Mit freundlich Empfehlung

Ihr sehr rgebener

Beilage.

*i e ..

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9

FORM No. 75 INTERNATIONAL BANK FOR(3.52) RECONSTRUCTION AND DEVELOPMENT

Date

ROUTING SLIP

NAME ROOM NO.

Action Note and FileApproval Note and Return

Comment Prepare ReplyFull Report Previous PapersInformation RecommendationInitial Signature

Remarks

From

Osferreichische Elekfrizifafswirfschaffs-Aktiengesellschaft(Verbundgeselischaft)

Osterr. Elekirizitfiswirtschafts-A. G. Wien I, Am Hof 6

An die

International Bank for Reconstructionand Development,

1818 H Street N.W.

Washington 25, D.C.

WIen 1,Ihre Zeichen lhre Nachricht vom Unsere Zeichen Am Hof 6

18.6.1956 Rev/He/Ob 26.Juni 1956

Betreff

Anleihe fUr Ybbs-Persenbeug bzw. Voitsberg und St.Andrd;

Primien fUr vorzeitige Tilgung.

Wir danken Ihnen fUr die Ubersendung Ihres obigen Schreibens,

in welchem Sie uns mitgeteilt haben, welche Pr.miensdtze fur vorzeitige

Tilgungen bei den beiden obgenannten Anleihevertrdgen zur Anwendung kom-

men werden und aus welchem Grunde die Bank sich zu einer Erh5hung dieser

Prdmiensdtze gegenUber den bisher in Geltung stehenden entschlossen hat.

Wir haben Ihre AusfUhrungen zur Kenntnis genommen und der bster-

reichischen Donaukraftwerke A.G. und der Osterreichischen fraukraftwerke

A.G. hievon Mitteilung gemacht.

Mit vorzUglicher Hochachtung

6sterreic 'scheEl ew techafts-

e s at

orsitzr des Acfsichtsrates: Sektlonschef Dr. Karl Straubinger

o'stand Rudolf Stahl (Vorsitzer), Dipi-Ing, Fran. Hintermayer, Dr. Karl K61liker, Dip[.-Ing. Dr. Oskar Vas

grammdresse: Talephon: fernsrBiberB ankkonto: Credlitanstalt-Blankereln, Wien I, Schottengasse 6--S

e Verbundnetz U 29-6-60 Seris Wien 1904 Osterrichische Landerbank Aktiengesellschaft. Wien I, Am Hof 2

Postsparkassenkonto: 18468

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June 25, 1956

Dr. W. TeufenstainBundesainIsterium fUr FinanzenVienna, Austria

Dear Dr. Teufenstoinh

Thank you for your letter of Jun

20 from which I infer with dismay that we must have

failed to send you copies of the two draft Guarantoo

Agreements, which have been ready for several weeks.

I am ther4fore send t e y u enclosed

five copies of each of the two drafts, dated June 1, 1956,

of the Ybbs-Pereenbeug and Voitsberg-St. AdrZ Gauraintee

Agreements. You will note that your suggestion concerning

Section 3.04 had already been adopted.

With best personal regards,

Sincerely yours,

Fran If. Oppenheimer

Enclosures.

FMO/J f

c.0.s Mr. Ubricht/Mr. Collier

June 22, 1956

Dr. W. ?eufensteinMinistry of FinanceVienna, Austria

Dear Dr. Teufensteint

I am sending you, on a confidential basis, a copy of the

economic report on Austria which me propose to submit to the

Xxecutive Directors in connection with the new loans. It has

already been circulated to the Bank's management and to the Staff

Economic Condttee. A few minor alterations will be made before

submission to the Executive Directors and I have indicated them

in ink. Paragraph 19 will be altered because it over-emphasises

the importance of open market operations, and in paragraph 37 it

will be pointed out that the present capital market structure in

Austria is the result of historical development and hence can

only be expected to change gradually.

I should be happy to receive any comments which you wouldlike to make on the report.

Yours sincerely,

J. H. CollierDepartment of Operations

Europe, Africa and Australasia

Enclosure

JHColliers moA

June 20, 1956

Dr. W. TeufensteinMinistry of FinanesViennas Austria

Dear Dr. Teufensteint

I enclose a latter which I have just sent to Dr. Stahl,which explains that the Bank has revised the scale of "Preminon Prepayment and Redsmpti=W in Schedule 1 of the Loan Agree-MentS. As you will see, the change is of minor importance andis not libay to affect the borrowers in practice.

With kindest regards,

Yours sincerely,

V. UbrichtAssistant Director of OperationsEurope, Africa and Australasia

Enclosure

JCollier:n

FORM N48) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OFFIC MEMORANDUMTO: Mr. R, Garn DATE: June 19, 1956

FROM: V. Umbricht

SUBJECT: New Loans to Austria

As you know, we are awaiting confirmation from Austriathat the Government has approved an increase in electric power ratesbefore signing the two new Loan Agreements. In reply to a cabledinquiry, ve have just received a cable from the Ministry of Financewhich states that the application for an increase has been submittedby the borrower to the price control committee. It also says thatthe Finance Minister's report to the Government on signing the LoanAgreements and related issues will take place today, June 19.

The two main Austrian political parties are now attemptingto arrive at a new agreement for the continuation of the coalitiongovernment after the recent election. In these circumstances I feelthat it is most unlikely that we shall be able to sign the loansbefore the end of this month. Would you tell me if you think Mr. Blackshould be informed of this position?

cc. Mr. W.A.B. Iliff

June 18, 1956

Dr. Rudolf StahlGeneral ManagerUsterreichische Elaktrisititsirtschafts-A.G.Am Hof 6Vienna I, Austria

Dear Dr. Stahlt

You will remmber that in the draft Lean Agreements for the twonow loans, which were agreed upon in Washington, the sections of Sc Ito the Agreements which deal with "Prnjuas on Prepaymet and Redemptionwere left blank& At the time of the negotiatims there had been no changein the scale of premium since the Ri ck-greussck loan. However, theBank has now decided that, in the light of current mret conditiams a re-vision of this scale is desirable. The now premium scales win go intoeffect immediately and hence they will apply to the new loans to Austria.

The revision has been made because the old scale of premiums wastoo low an regards the longer maturities, and was therefore a handicap inselling the longer maturities to private investors. It is, therefore, onlythe premiums payable on prepayments more than years before maturity thathave been increasedl those payable on the shorter maturities remain thesame or have even been reduced.

As you know, it is the Bank's usual practice to waive payment ofthe premium on maturities held by the Bank itself, and this practice willbe continued. Only if one of the longer maturities is sold to an outsideinvestor and you wish to repay it more than n years before maturity willthe revision have any effect. I attach a tabla of the new premium scales,one for 20 year loans which win apply to the Draukraftwerke loan, and oifor 25 year loans which will apply to the Donaukraftwerke loan.

Yours sincerely,

,,i L"'& -.? 1'V. Umbricht

Assistant Direetor of OperationsRurop*, Afrioa and Australasia

Enclosure

JHCollier:mo

Pre4yuns on PrepjMt and de ion

For loans of 20 years maturitys

Time of Preosiasnt or. Premiu

Not more than 3 years before maturityMore than 3 years but not more than

6 years before maturity i%More than 6 years but not more than

11 years before maturity 1%More than 11 years but not more than

16 years before maturity 2j%More than 16 years but not more than

18 years bef ore maturity 4%

For loans of 25 years maturity:

Tim. of Prepaymunt or ed iPetinium

Not more than 3 years before maturity i%More than 3 years but not more than

6 years before maturityMore than 6 years but not more than

11 years before maturity 1%More than 11 years but not moe than



23 years before maturity 4%More than 23 years before maturity 5%

FORM No. 26


lNCOMIN, WIRE

DATE OF WIRE: JUNE 15, 1956 1025 ROUTING

TO: INTERNATIONAL BANK FDR RECONSTIUCTION AND ACTION COPY TO MR. COPEDEVELOWENT

FROM: WIEN INFORMATION COPY TO

Decoded By

TEXT:

REFERENCE YOUR CABLE JUNE 9TH. APPLICATION TO PRICE CONTROL COMITTEE

FORWARDED BY VERBUNDGESELISCHAFT. FINANCE MINISTER'S REPORT TO

OVERNMENT ON SIGNING LOAN AGREEMENTS AND RELATED ISSUES WILL BE HELD

JUNE 19TH.

TEUFENSTEIN

O RIG INA L

F#Rm No. 61(3-54) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CONFIDENTIAL

STAFF LOAN COMMITTEEOECLAPSSIF E

APR 19 08

NEUAIDU TO THE STAFF LOAN COI4MITTEE W( ARC"

Austria

As no new policy questions are involved, the attached

memorand4m SL/O56 and President's Report on the proposed

two new loans to Austria are distributed for consideration

without meeting.

Comments, if arg, should be sent to reach Mr. Collier by

close of business on June 19.

Herbert G.A. WoolleySecretary

Staff Loan Committee

June 14, 1956

DECLASrAPR 1 9 2018

COXTITITIALJune 13, 196

Shc/o/856

STAfF LOAi 1"01ITTES

,e;morandum -ro., Department of OperationsEurope, Africa and Australasia

FPOF6iSD LOAIZ TO AUSTRIA

1. The draft President's Report and Recomiendations on the proposedtwo new loans for electric power development in Austria is attached.

2. The folloving letters, which it is not intended to subr4it to theExecutive Directors, are also attached:

(i) draft letter fron, the "erbundeesellschaft to the3ank concerning its rolicy with regard to pomerrates;

(ii) draft letter to the Vlerbundgesellschaft and draftreply to the Eank, concerning iriority of funds forBank financed projects;

(iii) letter from hr. Garner to the Austrian Aktassadorconczrning increase in electric power rates, datedhay 9, 1956.

3. The two proposed loans follow the rucoinendations previouslyapproved or nade by the Conim.wttee.

4. I shoul. like to draw the attention of members to the followingpoints:

(i) there are two loans, one for each of the two cov-paniesconstructing the projects. The report to the S.LC. ofApril 10, 1956 left it o.en -hether the operation shouldtake the form of one loan or two; it becawe clear,during negotiations, that to ;ake two loans wold bemore practical. :oreover, the Awstrian delegation alsoexpressed its preference for two separate loan a-:reements;

(ii) there will be no reirmorsement for expenditure priorto January 1, 1956;

(iii) Section 5.8 of both Loan Agreenents provides that,diuring the period 1956-60, the V.G. conbine shall under-take substantial capital expenditure, in addition to itspresent progran, only with the agreement of the .;ank andthe Guarantor;

- 2 -

(iv) priority for sank financed projects in the allocationof available investment funds will be obtained in theform of a letter from the V.G. agreeing to the 3ankl'sinterpretation of Section 5.01 of the Loan Agreements.

5. It is proposed to distribute the loan documents to the 7xecutiveDirectors as soon as the Austrian Government has approved the projected in-crease in powTer rates. This approval is erpected towards the end of June.

S. R. CopeDirector

Fogq No. 59(2 55)

CROSS REFERENCE SHEET

COMMUNICATION: letter Acknowledged July 3-, 1956

DA T ED: June 12, 196

TO: Mr. Black

FROM: C.F. Karsten, Rotterdausche Bank N.Y., Rotterdam.

FILED UNDER: Netherlands - General

SUMMARY: Regarding possibility of a Dutch loan for Austria.

FORm No. 27 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT(8-55)

OUTGOING WIRE

CLASS OF SERVICE: LE' TX.WA" DATE: JINE 8, 1954

TO: TEUPENSTEINMINISTRY OF FICEVIENNAAUlSTRIA

COUNTRY (

EXT:

Cable No.

PLEASE G!ABLE PRESENT POSTION R1%ARDT INC!REASE IN POWER RATES

Signed:

AUTHORIZED BY:

NAME: S. R. For Use by Archives Division

DEPT: Direetr of t ons Checked for Dispatch

SIGNATURAMOW, Afr'a ad ALUB

ORIGINAL (File Copy)

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FORMNo. 57 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

JyN 6 REC'TOFFICE MEMORANDUM

TO: Mr. Eugene R. Black DATE: June 5, 1956

FROM: S. R. Cope

SU8JFR Austrian Loan - Possibility of Dutoh Participation

I spoke to Dr. Lieftinek about the attached lter to you from

Mr. Karsten of the Rotterdamsche Bank, Rotterdam. He felt, I think

rightly, that we should not attempt to interpret Dr. Holtrop's views

to Mr. Karsten, who if he wished had every opportunity of hearing them

at firsthand.

In the circumstances I do not think a reply is necessary.

Attachment

June 4,, 1956

Dr. Rudolf StahlGeneraldirektorOesterreichische glektrisitaetswirtschafts-Aktiengesells chaftAm Hof 6Vienna 1, Austria

Dear Dr. Stahl:

Just as I was getting the enclosed memorandum and s titutepages ready for ailing I received your letter of Mar 16, 1956(sent by steamer post) requesting 5 additional sets of the loandocuments. These 5 sets will be sent to you as soon as we haveassembled them with the new substitutions.

Since some of the letters in the loan documents are lettersfrom you to the Bank, they should be typed on Verbundgeseflschaftstationery. I should therefore appreciate it if you would let mehave a supply of about 30 sheets of your stationery for thepreparation of the execution copies of these letters.

Sincerely yours,

Frans M. Oppenheimer

1MOPPENHEIMER/fs

)&w 28, 1956

R. Jees & Zoon1RotterdasHolland

Attentiont Statistical Departmnti

Gentmmat

I an replying to your letter of Way 35, 1956 in which yourequest copies of the Loes Agreements of our forthcoming loam toAustria. Unfortmaat@3, I cannot provide you sopies at the moment sincethe agreements have not yet been signed. We expect the signing to taksplace towards the end of June and I will send you copies as soon asthey are availabla.

You y be interested to know that the intention is to maketwo loans, one of $21 million and one of $10 million. The first wouldbe for the Tbo-Pernenboug project and the borrower would be the Ostor-reichisohe Donsukraftwerks A.G.; the second would be for the St. Andrand Voitsberg projects and the borrover would be the sterreichischeDraukraftmerke A.G. The Austrian Verbundgesellschaft, which holds thecontrolling interest in both the aforementioned companies, would beco-borrovar in both the loae. The Verbundgesellsehaft is responsiblefor the planning and development of the major part of Austriata publicelectric power production.

In the meantim, if you have my specific questions comorngthese tW loan. I should be happy to provide you with further information.

Tours sincerely,

J. H. CollierDepartment of Operations

lurope, Africa and Australasia

JHCollier:mo

FORM No. 75 INTERNATIONAL BANK FOR(3-52) RECONSTRUCTION AND DEVELOPMENT

ROUTING SLI P Dat3

NAME ROOM NO.

Action ____ Note and FileApproval Note and Return

Comment Prepare Reply'ull Report Previous Papersn fo rmat i on Recommendation

Initial SignatureRemarks ..


GENERAL FILES Date 11956ROUTING SLIP

ROUTING OF INCOMING MAIL

Mr. Black 1023 Mr. Poore 1220

Mr. Broches 1113 Public Relations 221

Mr. Cairncross E.D.I. Mr. Reamy 1218

Mr. Cope 403 Research Files I2M%

Mr. Demuth 1013 Mr. Riley 1201

Mr. Doucet 1009 Mr. Rist 1223

Mr. Garner 1002 Mr. Rucinski 620

. Hamilton 1232 Mr. Schmidt 521

Mr. Howell 1004 Mr. Sommers 1113

Mr. Iliff 1002 Technical Op. 308

Mr. Johnston 1220 Mr. Woolley 1007

Mr. Knapp 521 Mr. Worthington 500

Mr. Mendels 1009

Office Services 203

Personnel Div. 1213

Remarks:

From: General Files & Correspondence Section

DER BUNDESMINISTER FOR FINANZEN '7

jUN25REn'T

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DER BUNDESMINISTER FOR FINANZEN

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1tr. Il Barnett I-Wr 160 1956

V. 11mricht

Reports on ww Loas to Austria

I attaoh two copies of our report to the Lc oncermingthe now Austrian loans, as prormied in our telephone conversationthis afternoon. Thbse am internal k4nk documnts which have notbeen eirculatod to the Fsputive Directors and therefam we shouldnot like them to remain in the possession of Uhe MaufacturersTrust Company. Hamever, in order to provide sam informationabout the now loans in are prepared to allow them to read the re-ports on a confidential basis, Tau ndght also explain that theoperation does not fallow the recumudations given in this report*xacty as set out. For eaxple# there will be two 1=as insteadof one and certain minor detadl will be handled in a slight3ydifferent wW from that propomd in the recommendatimu m pass U.

Mom detaild reports for the E mutive Directors on theprojects and an Austria's peannmic pxmition are in ourse of pro-paration and I wIl let you have copies as soan as possible.

EnCloswrs

JHCollier :mo

FORM No. 75 INTERNATIONAL BANK FOR(3.52) RECONSTRUCTION AND DEVELOPMENT

Date

ROUTING SLIP

NAME ROOM NO.

Action Note and FileApproval Note and Return

Comment Prepare ReplyFull Report Previous PapersInformation Recommendation

Initial Signatureiemarks

From

R. MEES & ZOONEN ROTTERDAM, 15th of M.ay 1956ECONOMISCHE AFDELING

6tatistical Department

International Bank for reconstruction and development,1818 i. Jtreet,lashington 25 D.C.I.S.A.

Dear Sirs,

Wde should feel much obliged if you would let us have theloan agreement re the loan to the amount of ' 31.000.000for the hydroelectricity departments of Ybbs-iersenbeug,St. Andrae and Voitsberg in Austria.

Thanking you beforehand for the trouble you will kindlytake, we remain, dear Sirs,

ours faithfully,p. . ZOONE

TG/VW11

0s 06/eV

T(, -l qL

W. S. 8 Nodar Mawr 10, 1956

8. R. C"

Austria- Prop4 Laws for Pomwer Developmet

For ourinformation and p...ibU submission to

the N.A*.0, I attach tee copies of a general desription ot

two proposed loans or the furter devselopme of electric

power production in Austria.

JHCoJ.Jier:mo

pRopoaED LOA1O- TO AUSTRIA FCK ELEMTIC -PCWM -POTM

1 Neggtat4a have just been coplted for twO oa for

the devolopont of elctric power In Aust*a. ach loan will bo

"A* to two electric powr copnSa .5 1rMr- n 0no$21 million eqival5t will be made jointly to the Csterreichishe

%Uektrjsit~tswirtsoheft*-A.G. - genealy bmon as the Vorbmndg-

9618hIft -- and to the Usterroichisebe Dmnvnkraftvsrke A.0-

hAther lof 10 millOn equivalent will beo=do jointly' to thell ft and the Nt.)Wici5@b5 Dtwftvhi AG The

two e muds, the Dnukatrs -- the Drurfvrs are cgoena ~e companie is which are constxucting the projects uih

t los will help to finane. The rbwui9*9*11shaft which is

also goent oe has the overall rwsponsibility for te planni

pubio power genetg ooq* 5. It tas the gVwnt's

trust" for the shaes whicoh the gwrmton in sveral rdui

or uspeia companies, inc~ng" the Dnurfei n h r

kraftwrke

2, The ioasw will belp to finane throe electric power projects

oh are included in the genera 4 ogram of the Verbundgesellchaft

for the alopmat of Austrian electric power resources. The largest

of the pojects is a runof-theoriver plant on the a k

Tb Persenboug* It will be coqlatod at the end of 1959 and wil

a capity of l9tpO hr from six generating units installed in

two p r h aes, In a nos'ml water year it is 93ectd to produce

at least 1,153 illon kwh. The cost of power poduced by the prot

is eastiated at 6 U.S. xils pr I&. This project is being c

by nankraftwerks and the Bankis $21 miion loan will help to

finance the total cost of the project which will awwunt to $91 villion.

The remair of the funds will be obtained from Austrian sources.

3 he tws other pojects, knon as Voitsberg and St. Andra, ar

xpansions o thermal plants using dmestie brwn coal. Both re

be constructed by the Drax.raftwerk. One 65,000 k unit will be

aed to the 60,oo arew installed in Voitsberg and 100,000 k will

be adb to the St. Mnr plant which at present has only 67500. The

cost of the pw from them xanin is estimtd~ to be about 8 mils,

r k. The Bank's lesn of tPD nillion will help to tisanoe the total

ot the additinal 165,000 hi wich is estimated to cost S93.0

Millon.

Of t al f both lo amounting to $31 s4llEn, about $5zi-o wil be used to purchaso imported 6quipwnt and the remainder

will be to neet local tmpamdur' in Austria. Th. lans will yrobab3Z

be disbrsed largely is US. or CanaTmI dollars or Swiss frwanes.

The la tw the rbs-Perseaboug project would be for aparlod of 25 years. dAartisation peents would start an January 15,19W0 azd vould redex the Ioao by J47r 15, 1M*L The lown for the

w thermal plants would be for 20 years. Aawtizatio pesntswoul4 start an September . 2959 and would redeem the lean bySeptember 1. 1976, The interest rate has still to be determined*

May lo, 1956

AIR MIL UaY 10, 1956

Dear Dr. Wagnert

Further to keep you informed of the status of our

last and very smooth loan negotiations with the Austrian

Delegation, I am sending you enclosed a set of the final

drafts of loan documents.


Franz M. Oppenheimer

Enclosure:

Dr. Ernst WagnerKrntnerring 10Vienna 1, Austria

FMOppenheimer/jgb

IPOM2 IN FMIGX CU 1111T F ci IBPE M A00 V2!IW-0 AMl "A A M

RZ PROM'

(in MlUoan of Schillings)

rbbq-PerftgL*Ms V-56. 11

. Turbi. .5 13.02, Eetria Squipmunt 3.5 4.13, Varlous Nwahine 3-3 3,84. miscellaeous -242

Total 26.,6 '24.4

3., Turbie ..2. Turbine & 41eUr

Accoveories 0

Total 1044

L. Boiler andAccessories 5.2 6.2 8.5

2* Turbine 13.0 13.0 16.o3. Varios )-%haic

Equipment -- O 12 -

Toal 18.2 24.4 29.aKw 90 195

IBMiR NDUM

TOt Austrian Loan Delegation May 9, 1956

FROM: Victor Umbricht

SUBJECT: Final Drafts of Loan Documents

Enclosed are drafts, all dated May 8, 1956, of the following documents;

1. Loan Agreement (Ybbs,-Persenbeug Project).

2. Loan Agreement (Voitsberg-St. AndrR Project).

3. Letter from the Bank to the Verbundgesellschaft and theDonaukraftwerke concerning disbursement for local expendi-tures on 'bbs-Persenbeug.

4, Letter from the Bank to the Verbundgesellschaft and theDraukraftwerke concerning disbursement for local expendi.tures on St. AndrR and Voitsberg.

5. Letter from the Bank to the Verbundgesellschaft concerningpriority of investment funds.

6, Letter from the Verbundgesellschaft to the Bank confirmingBankt' view as to priority of investment funds.

7. kemorandum covering the program for the expansion ofelectric power production during the period 1956-1960.

8, Letter from the Verbundgesellschaft to the Bank transmittingthe memorandum on the program for electric power expansion.

9. Letter from the Guarantor to the Bank bringing up to daterepresentations on the external public debt of Austria.

10. Letter from the Verbundgesellschaft concerning periodicreview of tariff schedules,

11, Form of letter from each of the Borrowers to the Banktransmitting latest financial statements.

12. Letter from the Guarantor to the Bank concerning excep-tions under the negative pledge clause,

The Guarantee Agreements will be the same as in the Lunersee Projectloan except for changes in dates, amounts, etc.

Full authority to sign following the practice used for the two previousAustrian loans will have to be received by the Bank before signing*

None of the draft documents couid be thoroughly checked before yourdeparture, and are therefore subject to correction for typographical andother errors.

DECLASSIFIED

APR 19 2018CONFIDENTIAL DRAFT WBGARCHIVES(Subject to change)FMOppenheimer/jgbMay 8, 1956

LOAN NUI BER AUA

LOAN AGREEhENT

(Ybbs-Persenbeug Project)

between

INTTRNATIOiAL BANK FOR RECONSTRUCTIONAND DEVELOPENT

and

USTERREICHISCRE EERIZITTSWIRTSCHAFTS-AKTIENGESELLSCHAFT (VERBUNDGESELL.SCHAFT)

and

OSTIEPFUTEIGHISCHE DONAUKRlAFTWERKEAlTIENGESELLSCHAFT

Dated

LOAN kGREEEhT

AGREEENT, dated , betvreen INTERNATIONAL BANK

FOR RECONSTRUCTION AND DEVELOP4FN', party of the first part (hereinafter

calle d the Bank); and 6STERREICHISCHE EIEKTRIZITATSWIRTSCHaFTS-AKTIEIGESELL.-

SCHAFT (VERBUNDGESELLSCHAFT) and 035TERREICHISCHE DONAU0 AFT2RIM AKTIEN-

GESEIJLSCHAFT, parties of the second part (hereinafter collectively called

the Borrowers).

-2-

ARTICLE I

Loan Aegul'tions; Special Definitions

Section 1.01. The parties to this Loan Agreement accept all the

provisions of Loan Regulations No. 4 of the Bank dated February 15, 1955,

subject, however, to the modifications thereof set forth in Schedule 3 to

this Agreement (said Loan Regulations No. 4 as so modified being herein-

after called the Loan hegulations), with the same force and effect as if

they were fully set forth herein.

Section L02. Lxcept where the context otherwise requires, the

following terms have the follaiving meanings wherever used in this Agree-

ment or any Schedule to this Agreement:

(a) The term 'IVerbundgesellschaft" means O'sterreichische

El.ektrizitgtswirtschafts-Aktiengesellschaft (Verbundgesell-

schaft), a company organized and existing under Federal Law

of the Guarantor of March 26, 1947, No. 81 (2, Verstaatlichungs-

gesatz).

(b) The term "Donaukraftwerke" means 6sterreichische Donaukraft-

werke Aktiengesellschaft, a company organized and existing

under the corporation laws of the Guarantor and such

Federal Law No, 81,

(c) The term "affiliated company"means any of the "Sondergesell-

schaften" organized and existing or to be organized under

the corporation laws of the Guarantor and such Federal Law

No. 81 and any other company directly or indirectly con-

trolled by the Verbundesellschaft.

F/31/56

-3

(d) The term "Program" means the program of the Verbundgesell-

schaft for the expansion of electric power production during

the period 1956-1960 as set forth in the erbundgesellshaftts

memorandum, dated May 8, 1956.

.4-

ARTICLE II

The Loan

Section 2.01. The Bank agrees to lend to the borrowers, on the

terms and conditions in this Agreement set forth or referred to, an

amount in various currencies equivalent to twenty-one million dollars

($21,oooooo).

Section 202* The Bank shall open a Loan Account on its books

in the name of the borrorers and shall credit to such Account the amount

of the Loan. The amount of the Loan may be withdrawn from the Loan

Account as provided in, and subject to the rights of cancellation and

suspension set forth in, Section 2.05 of this Article and the Loan

Regulations.

Section 2.03. The Borrowers shall pay to the Bank a commitment

charge at the rate of three-fourths of one per cent (3/4 of 1%) per

annum on the principal amount of the Loan not so withdrawn from time

to time.

Section 2,04. The borrowers shall pay interest at the rate of

per cent ( ) per annum on the princi-

pal amount of the Loan so withdrawn and outstanding from time to time.

Section 2.05. Except as the Bank and the Borrowers shall other-

wise agree, the charge payable for special commitments entered into by

the Bank at the request of the borrowers Pursuant to Section 4.02 of the

Loan Regulations shall be at the rate of one-half of one per cent (1/2 of

1%) per annum on the principal amount of any such special commitments

outstanding from time to time.

5 -5/8/56

Section 2*06. Interest and other charges shall be payable semi..

annually on January 15 and July 15 in each year.

Section 2*07. The Borrowers shall repay the principal of the

Loan in accordance with the amortization schedule set forth in Schedule

1 to this Agreement.

Section 2.08. In the event the capital market of any country other

than Austria wishes to participate in the financing of the Project and

the Borrcwers or either of them obtain any such complementary financing

by means of a sale of bonds or other obligations in any such market before

December 31, 1956$ the Bank may, at its option, cancel an amount of the

Loan not in excess of an amount equivalent in dollars to the aggregate

amount so raised by the Verbundgesellschaft,

ARTICLE ITI

Use of Proceeds of the Loan

Section 3.01. The Borrowers shall apply the proceeds of the Loan

exclusively to financing the cost of goods required to carry out the

Project described in Schedule 2 to this Agreement. The specific goods

to be financed out of the proceeds of the Loan sha l be determined by

agreement between the Bank and the Donaukraftwerke, subject to modifica-

tion by further agreement between them.

Section 3.02. The Barrowers shall cause all goods financed out

of the proceeds of the Loan to be used exclusively in the carrying out

of the Project,

-7

ARTICLE IV

Bonds

Section 4 .01 The Borrowers shall execute and deliver Bonds

representing the principal amount of the Loan as pro7ided in the Loan

Regulations.

Section 4.02, Any two members of the managing board (Vorstand)

of the Verbundgesellschaft signing jointly on behalf of the Verbund-

gesellschaft and any two members of the managing board (Vorstand) of

the Donaukraftwerke signing jointly on behalf of the Donaulkraftwerke

are designated as authorized representatives of the Borrowers for the

purposes of Section 6.12 (a) of the Loan tegulations.

- 8 - 5/8/56

ARTICIE V

Particular Covenarts

Section 5.0i. (a) The Borrowers shall carry out the Project with

due diligence and efficiency and in conformity with sound engineering and

financial practiceso

(b) The borrowers shall furnish to the Bank, promptly upon their

preparation, the plans and specifications for ths Project and any material

modifications subsequently made therein, in such detail as the Bank shall

from time to time requesto

(c) The Borrowers shall maintain records adequate to identify the

goods financed in whole or in part out of the proceeds of the Loan, to

disclose the use thereof in the Project, to record the progress of the

Project and the Program (including the cost thereof) and to reflect in

accordance with consistently maintained sound accounting practices the

financial condition and operations of the Borrowers; shall enable the

Bank's representatives to inspect the Project, the Program (with the

exception of the plant of the Donaukraftwerk-Jochenstein Aktiengesell.

schaft), the goods and any relevant records and documents; and shall

furnish to the Bank all such information as the bank shall reasonably

request concerning the expenditure of the proceeds of the Loan, the Pro-

ject, the Program, the goods, and the financial condition and operations

of the Borrowers.

Section 5.02. (a) The Bank and the Borrowers shall cooperate

fully to assure that the purposes of the Loan will be accomplished. To

that end, each of the parties hereto shall furnish to any other such

party all such information as such other party shall reasonably request

with regard to the general status of the Loan.

(Ybbs-Persenbeug kroject) 5/31/56

-9 -

(b) The Bank and the Borrowers shall from time to time exchange

views through their representatives with regard to matters relating to

the purposes of the Loan and the maintenance of the service thereof.

The Borrowers shall promptly inform the Bank of any condition which

interferes with, or threatens to interfere with, the accomplishment of

the purposes of the Loan or the maintenance of the service thereof.

Section 5.03. Each of the Borrowers undertakes that, except as the

Bank shall otherwise agree, if any lien shall be created on any assets

of such Borrower as security for any debt, such lien will ipso facto

equally and ratably secure the payment of the principal of, and interest

and other charges on, the Loan and the Bonds, and that in the creation

of any such lien express provision will be made to that effect; provided,

however, that the foregoing provisions of this Section shall not apply

to: (i) any lien created on property, at the tine of purchase thereof,

solely as security for the payment of the purchase price of such property;

(ii) any lien on commercial goods to secure a debt maturing not more

than one year after the date on which it is originally incurred and to

be paid out of the proceeds of sale of such cormercial goods; or

(iii) any lien arising in the ordinary course of banking transactions

and securing a debt maturing not nore than one year after its date.

Section 5.04. The Borrowers shall pay or cause to be paid all

taxes or fees, if any, imposed under the lntls of the Guarantor or laws

in effect in the territories of the Guarantor on or in connection with

the execution, issue, delivery or registration of this Agreement, the

- 10 -

Guarantee Agreement or the cnds, or the payment of principal, interest

or other charges thereunder; provided, however, that the provisions

of this Section shall not apply to taxation of, or fees upon, payments

under any Bond to a holder thereof other than the Bank when such Bond

is beneficially owned by an individual or corporate resident of the

Guarantor.

Section 5.05, The Borrov'ers shall pay or cause to be paid all

taxes and fees, if any, imposed under the laws of the country or countries

in whose currency the Loan and the Bonds are payable or laws in effect in

the territories of such country or countries on or in connection with the

execution, issue, delivery or registration of this Agreement, the Guaran.

tee Agreement or the bonds,

Section 5.0b, Except as shall be otherwise agreed between the

Bank and the Borrowers, the Borrowers shall insure or cause to be insured

the goods financed with the proceeds of the Loan against risks incident

to their purchase and importation into the territories of the Guarantor.

Such insurance shall be consistent with sound commercial. practice and

shall be payable in dollars or in the currency in which the cost of the

goods insured thereunder shall be payable.

Section 5.07* (a) Each of the Borrowers shall at all times main-

tain its existence and right to carry on operations and shall, except as

the Bank shall otherwise agree, take all steps necessary to maintain and

renew all rights, powers, privileges and franchises which are necessary

or useful in the conduct of its business.

5/31L/56

(b) Each of the Borrowers shall operate and maintain its plants,

equipment and property, and from time to time make all necessary renewals

and repairs thereof, all in accordance with sound engineering standards;

and shall at all times operate its plants and equipment and maintain its

financial position in accordance with sound business and public utility

practices.

Section 5.08. During the period of the Program of which the Project

is a part, the Verbundgesellschaft shall consuilt with the Bank on any

major construction not alrea6y included in the Program and requiring

for its completion substantial capital investment. The Verbundgesellschaft

shall undertake, and shall permit any affiliated company to undertake, such

construction only after the Bank, the Gu-arantor and the Verbundgesellschaft

have mutually agreed that the financing thereof is reasonably assured and

that the Program will not be impaired thereby.

ARTICLE VI

Remedies of the Bank

Section 6.01 (J) If any event specified in paragraph (a), para-

graph (b), paragraph (e) or paragraph (f) of Section 5.02 of the Loan

Regulations shall occur and shall continue for a period of thirty days,

or (ii) if any event specified in paragraph (c) of Section 5.02 of the

Loan Regulations shall occur and shall continue for a period of sixty

days after notice thereof shall have been given by the Bank to the Bor-

rowers, then at any subsequent time during the continuance thereof, the

Bank, at its option, may declare the principal of the Loan and of all

the Bonds then outstanding to be due and payable immediately, and upon

any such declaration such principal shall become due and payable immedi-

ately, anything in this Agreement or in the Bonds to the contrary not-

withstanding.

- 13 -

ARTICLE VII

kiscellaneous

Section 7.01. The Closing Date sha2l be December 31, 1959.

Section 7.02, November 30, 1956, is hereby specified for the pur..

poses of Section 9.04 of the Loan itegulations.

Section 7.03, The following addresses are specified for the pur-

poses of Section 8.01 of the Loan Regulationst

For the Verbundgesellschaft:

lsterreichische Elektrizitutswirtschafts-Aktiengesellschaft (erbundgesellschaft)

Wien 1Am Hof 6Austria

For the Donaukraftwerke:

ibsterreichische DonaukraftwerkeAktiengesellchaft

YWien 1Hohenstaufengasse 6Austria

For the Bank:

International Bank forReconstruction and Development

1818 H Street, N.N.Ivashington 25, D.C.United States of America

Section 7.04* All obligations of the borrowers under this Agree..

ment and the bonds, unless such obligations shall have been expressly

undertaken by only one of the borrowers expressly namd herein, shall be

joint and several, and the obligation of either of them to comply with

any provision of this Agreement is not subject to any prier notice to,

14

demand upon or action against, the other. No extension of time or for-

bearance given to either of the Borrowers in respect of the performance

of any of its obligations under this Agreement or the Bonds, and no

failure of the Bank or of any holder of the bonds to give any notice or

to make any demand or protest whatsoever to either of the Borrowers, or

strictly to assert any right or pursue any remedy against either of them

in respect of this Agreement or the Bonds, and no failure by either of

the Borrowers to comply with any requirement of any law, regulation oro

order, shall in any way affect or impair any obligation of the other

Borrower under this Agreement or the Bonds.

IN WITNESS WHEREOF, the parties hereto, acting through their

representatives thereunto duly authorized, have caused this Loan Agree-

ment to be sigred in their respective names and delivered in the District

of Columbia, United States of America, as of the day and year first above

written,

INTERNATIONkL BANK FORRECONSTRUCTION AND DEVELOPkENT

By

OSTERREICHISCHE EIEKTRIZITTSViIRTSCEAFTS-AKTIENGESELLSCHAFT (VERBUNDGESELISCHAFT)

By__ _ _ _ _ _ _Authorized Representative

6STER~iEICHISCHE DONAUKRAFTWERKEAKTIENGESELLSCHAFT

BYAuthorized Repregentative

- 15 -

SCHEDULE 1

Amortization Schedule

PrincipalPayment of Amount Outstanding

Principal (ex- After Each Paymentpressed in (expressed in

Date Payment Due dollars)* dollars)*

[ To be inserted ]

* To the extent that any part of the Loan is repayable in a currencyother than dollars (see Loan Regulations, Section 3.02), the figuresin these columns represent dollar equivalents determined as for pur,.poses of withdrawal.

16 -

Premiums on Prepayment and Redemption

The following percentages are specified as the premiums payable

on repayment in advance of maturity of any part of the principal amount

of the Loan pursuant to Section 2.05 (b) of the Loan Regulations or on

the redemption of any Bond prior to its maturity pursuant to Section 6.16

of the Loan Regulations:

Time of Prepayment or Redemption Premium

To be inserted J

- 17 -

SCHLDULE 2

Description of the Prject

The Project consists of the construction of the Ybbs-Persenbeug

hydroelectric plant more fully described below, as part of the Program.

The i1rdroelectric plant will be constructed on the Danube about

130 km by r4. ;er ab ave Vienna in which six 3-phase 50 cycle generating units

each having a capacity of 45,000 kva (36,000 kw at 8/10 power factor) and

conventional auxiliaries will be installed in two powerhousesg Eacn unit

will be provided with a transformer having a capadity of 45,OCO kva to

step up the voltage from 10.5 to 220 kilovolts. The two powerhouses will

form an integral part of the dam. The weir section of the dam will be

equipped with movable gates. The dam with the gates clzed will provide

a maximum head on the turbines of about 14 meters at average l'T water.

Two navigation locks, each 24 meters -ide and 230 meters long inside, will

be constructed on the left bank of the river. A road 9,.8 meters wide will

cross the river on top of the dam and powerhouses. Two gantry cranes,

each with a capacity of 135 tons, will operate on top of the dam and

powerhouses parallel to the road. Three of the generating units are

scheduled to be in operation during the first quarter of 1958 with a

partial head, and all six units are scheduled to be in operation with

full head by the end of 1959.

- 13 -

SCIEULE 3

Modfications of Loan Regulations N, 4

For the purpczes of this Agreement the provisions of Loan Regula-

tions No. 4 of the Bank, dated February 15, 1955, shall be deemed to be

modified a;3 follaws:

(a) The term "Borrower" shall mean the Borrowers; except that

as used in Sections 5,02 (b), (c), (d), (e), (f), 7.01 and

7,02 such term shall mean the Borrokers or either of them.

(b) The first two sentences of Section 3.01 shall read as

folla 7s:

"The Donaukraftwerke shall use rcasonable efforts to purchase

goods with the currencies of the cout:'. ies from which such

goods are acquired, The proceeds of the Lzan shall., to the

extent that the Bank shall so elect, be withdrawn from the

Loan Acc ount in the several currencies in which goods are

paid for; except that with respect to goods paid for in

the currency of the Guarantor or acquired from sources within

the territories of the Guarantor such withdrawals may, to

the extent that the Lank shall so elect, be made in any

currency selected by the Bank."

(c) The following paragraph shall be added to Section 3.,05&

"If a withdrawal is applied for on account of expenditures.

in the currency of the Guarantor, the value cf the currency

of the Guarantor in terms of the currency or currencies to

be withdrawn shall be as reasonably determined by the Bank."

Ybbs-Persenbeug Project 5/31/56we 19 -

(d) Section 4.01 shall read as follolls:

"ithdrawal from the Loan Account. The Borrowers shall be

entitled, subject to the provisions of these Regulations,

to withdraw from, the Loan Ac count:

(a) (i) Such amounts as shall be required by the Borrowers

to reimburse them for the reasonable cost of goods

that have neither been paid for in the currency

of the Guarantor nor been acquired from sources

within the territories of the Guarantor;

(ii)if the Bank shall so agree, such amounts as shall

be required by the Borrowers to meet the reasonable

cost of such goods; and

(b) Such amounts as shall be required by the Borrowers to

reimburse them for such portions as the Bank may from

time to time agree to of the reasonable cost of goods

that have been paid for in the currency of the Guarantor

or acquired from sources within the territories of

the Guarantor.

Except as shall be otherwise agreed between the Bank and the

Borrowers, no withdrawals shall be made on account of (a) expenditures

before January 1, 1956 or (b) expenditures in the territories of any

Ybbs-Persenbeug Project 5/31/56

- 20 -

country which is not a member of the Bank or for goods

produced in (including services supplied from) such territories.

(e) Section 5.04 shall read as follows:

"Application of .ancellation or Suspension to Amounts

Subject to Special Commitment.

Notwithstanding the provisions of Section 2,08 of the Loan

Agreement and of Sections 5.01, 5.02 and 5.03, no cancellation

or suspension pursuant to this Article shall apply to amounts

subject to any special commitment entered into by the Bank

pursuant to Section 4.02 except as expressly provided in such

comitment."

(f) Section 5.05 shall read as follows:

"Anplication of Cancellation to Maturities of the Loan.

Except as otherwise agreed between the 3ank and the Borrower,

any cancellation pursuant to this Article or Section 2.08 of

the Loan Agreement shall be applied pro rata to the several

maturities of the principal amount of the Loan as set forth

in the amortization schedule to the Loan Agreement, except

that no such cancellation shall be applied to Bonds theretofore

delivered or requested pursuant to Article VI, or to portions

of the Loan theretofore sold by the Bank."

*

On May 10, 1956, the Executive Directors decided that in view of the

special relationship established between the Eank and Switzerland by

the Agreement of June 29, 1951, the Bank should agree, if so requested

by borrowers, to permit loan proceeds to be used to finance expenditures

in the territories of Switzerland or for goods produced in (including

services supplied from) ouch territories,

Ybbs-Persenbeug Project 21 5/31/56

(g) The following sentence shall be added to Section 6.07:

"All Bonds shall contain appropriate provisions to the

effect that the obligations of the Borrowers are joint

and several as provided in Section 7.04 of the Loan Agreement."

(h) Paragraph (a) of Section 7.04 shall read as follows:

"Any controversy between the Bank and the Borrowers or

either of them or between the Guarantor and the Bank

and any claim by any such party against any other such

party arising under the Loan ! greement, the Guarantee

Agreement or the Bonds which shall not be determired by

agreement of the parties shall be submitted to arbitration

by an Arbitral Tribunal as hereinafter provided."

. IECLASSIFIED)

CONFIDENTIAL DRAFT APR 19 201TSject to change) WBG ARCHJVESFMOppenheimer/jgbMay 8, 1956

LOAN NUtIER _ AUA

LOAN AGREEMENT

(Voiteberg-St, Andrl Project)

betwoet

INTERNATIONAL BANK FOR RECONSTRUCTIONAID DEVELOPENT

and

OSTERREICHISOHE ELEKTRIZITXTSWIRTSCHAFTS-AKTIENGESELLSCHAFT (VEBUEGESELLSCHAFT)

and

6STERREI3HISCHE DRAUKRAFTWEIZEAKTIENGESELLSCHAFT

Dated 1956

LOAN AGR2EAMNT

AGREEWNT, dated , between INTMRNATIONAL BANK

FOR RECONSTRUCTION AND DEVELOPMENT, party of the first part (hereinafter

called the Bank), and LOSTERREICHICHE EIKTRIZITTS:7IRTSHAFTS-AKTINGESELL-

SCHAFT (VEP.U3TJDGEoELLSCHJT) and OSTERREICHISCHE LRAUKRAFT RE AKTIENGSELL-

SCHAFT, parNi2s of the second part (hereinafter collectively called the

Borrowers)*

5/7/56~2 -

ARTICLE I

Loan Regulations; Special Definitions


provisions of Loan Regulations No, 4 of the Bank dated February 15, 1955,


this Areement (said Loan Regulations No, 4 as so modified being herein-

after called the Loan Regulations), with the same force and effect as if


Section 1.02. Except where the context otherwise requires, the

following terms have the following meanings wherever used in this Agree-

ment or any 5cheduls to this Agreement:

(a) The term "Verbundgesellschaft" means 0sterreichische

Elektrizitltswirtschafts-Aktiengesellschaft (Verbundgesell-


of the Guarantor of March 26, 1947, No. 81 (2. Verstaatlichungs-

gesetz).

(b) The term "Draukraftwerke" means Csterreichische Draukraftwerke

Aktiengesellschaft, a company organized and existing under

the corporation laws of the Guarantor and such Federal Law

No. 81,

(c) The term "affiliated company" means any of the "Sondergesell-

schaften" organized and existing or to be organized under the

corporation laws of the Guarantor and such Federal Law No. 81

and any other company directly or indirectly controlled by the

Verbundgesellschaft.

S/31/56

-3-


schaft for the expansion of electric power production during

the period 1956-1960 as set forth in the Verbundgesellschaftte

memorandum, dated May 8, 1956.

-4-

ARTICIE II

The Loan

Section 2.01. The Bank agrees to lend to the Borrowers, on the


amount in various currencies equivalent to ten million dollars ($10o,0oo0o).

Section 2.02. The Eank shall open a Loan Account on its books

in the name of the Borrowers and shall credit to such Account the amount

of the Loan,. The amount of the Loan imay be withdrawn from the Loan

Account as provided in, and subject to the rights of cancell2ation and

suspension set forth in, the Lcan Regulations.

Section 2.03, The Borrowers shall pay to the Banc a coimitment



to time.

Section 2.04. The Borrowers shall pay interest at the rate of

- per cent (_) per annum on the princi-

pal amount of the Loan so withdrawn and outstanding from time to time.

Section 205. Except as the Bank and the Borrowers shall other-

wise agree, the charge payable for special comitiaents entered into by

the Bank at the request of the Borrowers pursuant to Section 4.02 of

the Loan hegulations shall be at the rate of one-half of one per cent

(1/2 of 1%) per annum on the principal amount of any such special com-

mitments outstanding from time to time.

5 .5/7/56

Section 2.06, interest and other charges shall be payable semi-

annually on March 1 and September 1 in each year.

Section 2.07. The Borrowers shall repay the principal of the


1 to this Ag:eemenut

~6-.

AhTICLE I J.

Use of Proceeds of tha Loan

Section 3.01, The Borro-=ers shall apply the proceeds of the Loan



to be financed out of the proceeds of the Loan shall. be determined by

agreement between the Bank and the Draukraftwerke, subject to modifica-


Section 3.02. The Borrowers shall cause all goods financed out


of the Project.

ARTICLE IV

Bonds

Section 4.01. Th Borrowers shall execute and deliver Bonds

representing the principal amount of the Loan as provided in the Loan

Regulations.

Section 4.02c, Any two members of the managing board (Vorstand)


gesellochaft and any two members of the managing board (Vorstand) of

the Draukraftwarke signing jointly on behalf of the Draukraftwerke

are designated as authorized representatives of the Borroaers for the

purposes of 3ection 6.12 (a) of the Loan hegulations,

-b- 5/7/56

ALTICLE V

Particular Co;renants

Section 5.01. (a) The Borrowers shall carry out the Project with

due diligence and efficiency and in conformity with sound engineering and

financial practices.

(b) 2he Borrowers shall furnish to the Bank, promptly upon their

preparation, the plans and specifications for the Project and ary material


from time to time request.

(c) The Borrowers shall maintain records adequate to identify

the goods financed in whole or in part out of the proceeds of the Loan,

to disclose the use thereof in the Project, to record the progress of the

Project and the Prcgram (including the cost thereof) and to reflect in

accordance with consistently naaintained sound accounting practices the

financial condition and operations of the Borrowers; shall enable the

Bank's representatives to inspect the Project, the Program (with the

exception of the plant of the Donaulraftwerk - Jochenstein Aktiengesell-

schaft), the goods and ari relevant records and documents; and shall

furnish to the Bank all such information as the Lank shall reasonably

request concerning the expenditure of the proceeds of the Loan, the Pro-

ject, the Program, the goods, and the financial condition and operations

of the borrowers.

Section 5.C2. (a) The Bank and the Borrowers shall cooperate

fully to assure that the purposes of the Loan will be accomplished. To

that end, each of the parties hereto shall furnish to any other such

party all such information as such other party shall reasonably request

with regard to the general status of the Loan.

(Voitsberg-St, Andra Project)

-9-





interferes with, or threatens to interfere with, the accomplishment

of the purposes of the Loan or the maintenance of the service thereof.

Section 5.03. Each of the Borrowers undertakes that, except as

the Bank shall otherwise agree, if any lien shall be created on any

assets of such Borrower as security for any debt, such lien will ipso

facto equally and ratably secure the payment of the principal of, and

interest and other charges on, the Loan and the Bonds, and that in the

creation of any such lien express provision will be made to that effect;

provided, however, that the foregoing provisions of this Section shall

not apply to: (i) any lien created on property, at the time of purchase

thereof, solely as security for the payment of the purchase price of

such property; (ii) any lien on comiercial goods to secure a debt

maturing not more than one year after the date on iwhich it is origi-

nally incurred and to be paid out of the proceeds of sale of such

commercial goods; or (iii) any lien arising in the ordinary course of

banking transactions and securing a debt maturing not more than one

year after its date.

Section 5.0h. The Borrowers shall pay or cause to be paid all

taxes or fees, if any, imposed under the laws of the Guarantor or laws


10 -


Guarantee Agreement or the Bonds, or the payment of principal,interest





Guarantor.


taxes and fees, if any, imposed under the laws of the country or

countries in whose currency the Loan and the Bonds are payable or laws

in effect in the territories of such country or countries on or in con-

nection with the execution, issue, delivery or registration of this

Agreement, the Guarantee Agreement or the bonds.

Section 5.06. Except as shall be otherwise agreed between the

Bank and the Borrowers, the Borrowers shall insure or cause to be

insured the goods financed with the proceeds of the Loan against risks

incident to their purchase and importation into the territories of the

Guarantor, Such insurance shall be consistent with sound commercial

practice and shall be payable in dollars or in the currency in which

the cost of the goods insured thereunder shall be payableo

Section 5-X- (a) Each of the Borrowers shall at all times

maintain its existence and right to carry on operations and shall,

except as the Bank shall otherwise agree, take all steps necessary to

maintain and renew all rights, powers, privileges and franchises which

are necessary or useful in the conduct of its business,

5/31/56




and shall at all times operate its plants and equipment and maintain its

financial position in accordance with sound business and public utility

practices.

Section 5.08. Duriag the period of the Program of which the Project

is a part, the Verbundgesellschaft shall consult with the Bank on any

major construction not already included in the Program and requiring

for its completion substantial capital investment. The Verbundgesellschaft

shall undertake, and shall permit any affiliated company to undertake, such

construction only after the Bank, the Guarantor and the Verbundgesellschaft

have mutually agreed that the financing thereof is reasonably assured and

that the Program will not be impaired thereby.

-- 1: -

ARTICLE VI

teredies of the Bank

Section 6Q01. (i) If any event specified in paragraph (a), para.



or (ii) if any event specified in paragraph (c) o0 Section 5.02 of the

Loan legulations shall occur and shall continue for a period of sixty






ately, anything in this Agreement or in the Bonds tothe contrary not-

withstanding.,

5/7/56.-13 -

AZTICIE VTI

lAiscellaneous

Section 7.01, The Closing Date shall be December 31, 1958.

Section 7.02, November 30, 1956, is hereby epecified for the pur-

poses of Section 9.4 of the Loan hegulations.

Secticn 7.0.3 The following addresses are specified for the purposes

of Section 8.01 of the Loan ftegulations:

For the Verbundgesellschaft;

Osterreichische Elektrizit*tswirtschafts-Aktiengesellschaft (Verbundgesellschaft)

4vien 1Am Hof 6Austria

For the Draukraftwerke:

sterreichische DraukraftvrerkeAktiengssellcchaft

KlagenfurtBaunfachplatz 2Austria

For the Bank:

Internati onal Bank forReconstruction and Development

1818 H Street, N.N.Vashington 25, D.C.United States of america

Section 7.04. All obligations of the borrov.ers under this Agree-

ment and the Bonds, unless such obligations shall have been expressly

undertaken by only one of the borrowers expressly named herein, shall be

joint and several, and the obligation of either of them to comply with

- 14 -

any provision of this Agreement is not subject to any prior notice to,


bearance given to either of the borrowers in respect of the performance

of any of its obligations under this Agreement or the bonds, and no

failure of the "ank cr of any holder of the bonds to give any notice or

to make any demand or protest whatsoever to eithsr of the Borrovers, or

strictly to assert any right or pursue any remedy against either of

them in respect of this Agreement or the bonda, and no failure by either

of the Borrowers to comply with any requirement of any law, regulation

or order, shall in any way affect or impair any obligation of the other


IN WITTESS 7iEREOF, the parties hereto, acting through their


ment to be signed in their respective names and delivered in the District


written.

INTERNATIONAL BANK vORRECONSTRUCTIDN AND DEVELOPENT

By

C8T2RRICHISCE ELEBTRIZITATSWIRTSCHAFTS-A T IEVG E EELTSCHAFi-T (,IhbUNDGESELISCHAFT)

ByAuthorized Representative

C6TERREICHISCME DRAUKRAFTERIEAKTIENGESELLSCHAFT

ByAuthorized zRepresentative

.15 -

SCMEDULE 1


Principa.Payment of Amount Outstanding

Principal (ex.- After Each Paymentpressed in (expressed in

Date Payment Dae dollars)* (dollars)*

[ To be inserted )

* To the extent that any part of the Loan is repayable in a currency

other than dollars (sce Loan hegulations, Section 3.02), the figuresin these columns represent dollar equivalents determined as for pur-

poses of withdrawal.

-v 16 -

Fremiums on Prepsyment and Redemption



of the Loan pursuant to Section 205 (b) of the Loan Regulations or on

the redemption of any Bond prior to its maturity pursuant to Section 6,16

of the Loan hegulations:


( To be inserted )

- 17 - 5/8/56

SCIEUE 2

Description of the PrMet

The Project consists of the expansion of two steam power plants,

more fully described below, as part of the Program.

1, The expansion of the existing Voitsberg steam power station by the

installation of a 3-phase 50 cycle turbo..generating unit having a capacity

of 82,OOO kva ( 6 5,000 lw at 8/10 power factor) and a boiler equipped to

burn brown coal and produCe a maximum of 210 tons of steam per hour at a

pressure of about 135 atmospheres with a temperature of about 530 degrees

Centigrade. The turbo-generating unit and boiler will have conventional

auxiliaries. A cooling tower of adequate capacity will be constructed to

provide cooling water. A main transformer with a capacity of 82,000 kva

will be installed to step up the generating voltage from 10,5 to 110 kilo-

volts, The station is scheduled to be completed by iarch 31, 1957"

2, The expansion of the existing 6t. Andra' steam power station by the

installation of a 3-.phase 50 cycle tu rbo-generating unit having a capacity

of 125,000 kva (100,000 kw at 8/10 power factor) and a boiler equipped to

burn brown coal and produce a maximum of 330 tons of steam per hour at a

pressure of about 188 atmospheres with a temperature of about 530 degrees

Centigrade. The turbo-generating unit and boiler will have conventional

auxiliaries. A water cleaning plant will be constructed to process water

from the nearby Levant brook to provide an adequate supply of cooling

water for the plant, A main transformer with a capacity of 125,000 kva

will be installed to step up the voltage from 10,5 to 220 kilovolts. The

station is scheduled to be completed by December 31, 1958*

- -5/7/56

SCHEDULE 3

Modifications of Loan hegulations Not 4

For the purposes of this Agreement the provisions of loan Legulations

No. 4 of the Bank dated February 15, 1955, shall be deemed to be modified

as follows:

(a) The term "Borrower" shall mean the borrowers; except that

as used in Sections 5.02 (b), (c), (d), (e), (f), 7.01 and

7.02 such term sha.ll mean the Borroaers or either of them.

(b) The irst two sentences of Section 3.01 shall read as

f ollojvs:

"The Draukraf t;erke shall use reasonable efforts to purchase

goods with the currencies of the countries f;om which such

goods are acquired. The proceeds of the Loan shall, to the

extent that the Bank shall so elect, be withdrawn from the

Loan Account in the several currencies in which goods are

paid for; except that with respect to goods paid for in the

currency of the Guarantor or acquired from sources within


the extent that the Lank shall so elect, be made in any

currency selected by the Bank,"

(c) The following paragraph shall be added to Section 3.05:

"If a withdrawal is applied for on account of expenditures

in the currency of the Uuarantor, the value of the currency

of the uuarantor in terms of the currency or currencies to


Voitsberg-St. iAnYr FrOject 5/31/56.- 19 -

(d) Section 4,01 shall read as follows:

"Withdrawal from the Loan Account. Tae Borrowers shall be

entitled, subject to the provisions of these Regulations,

to withdraw from the Loan Account:

(a) (i) Such amounts as shall be required by the Borrowers

to reimburse them for the reasonable cost of goods

that have neither been paid for in the currency

of the Guarantor nor been acquired from sources

within the territories of the Guarantor;

(ii) if the Bank shall so agree, such amounts as shall

be required by the Borrowers to meet the reasonable

cost of such goods; and

(b) Such amounts as shall be required by the Borrowers to

reimburse then for such portions as the Bank may from

time to time agree to of the reasonable cost of goods

that have been paid for in the currency of the Guarantor

or acquired from sources within the territories of the

Guarantor*

Except as shall be otherwise agreed between the Bank and the

Borrowers, no withdrawals shall be made on account of (a) ex.-

penditures before January 1, 1956 or (b) expenditures in the

territories of any country which is not a member of the Bank

Voitsbcrg-St. ;AdrE trOjOCt 5/31/56- 20 .o

or for goods produced in (including services supplied from)

such territories.*"

(e) The following sentence shall be added to Section 6.071

"All Bonds shall contain appropriate provisions to the

effect that the obligations of the Borrowers are joint

and several as provided in Section 7.04 of the Loan

Agreement."'

(f) Paragraph (a) of Section 7.04 shall read as follows:


either of them or between the Guarantor and the Bank and

any claim by any such party against any other such party

arising under the Loan Agreement, the Guarantee Agreement

or the Bonds which shall not be determined by agreement of

the parties shall be submitted to arbitration by an Arbitral

Tribunal as hereinafter provided."

*

On May 10, 1956, the Executive Directors decided that in view of the

special relationship established between the Bank and Switzerland by the

Agreement of June 29, 1951, the Bank should agree, if so requested by

borrowers, to permit loan proceeds to be used to finance expenditures

in the territories of Switzerland or for goods produced in (including

services supplied from) such territories.

DECLA SU F

CONFIDENTIAL DRAFT AP 1 9 2O1WiG AR C1 I N/

bsterreichische El)ektrizitatswirtschafts-Aktiengesellschaft (Verbundgesellscha'ft)

Osterreichische Donaukraftwerke Aktiengeselluchaft

Gentlemen:

Vfe refer to the Loan Agreement dated between

us and to Section 4.01 (b) of Loan hegulations No, 4, as amended in

Schedule 3 to the Loan Agreement, which provides in substance that you

are entitled to make withdrawals from the Lean Account for portions of

local expenditures for the Prcject0 Ive propose that the portions for

which you will be reimbursed be expressed in lump sums on the basis of

present estimates of the amounts required for the Project, as follows:

The total anount to be withdrawn on account of local expenditures

will be $18 million. Of this total an amount of no more than $12.5 million

may be withdrawn in 1956, and an amount of no more than $5.5 million may

be withdrawn in 1957. Amounts of no more than 25% of the respective

yearly allocation may be withdrawn in each calendar quarter0

Expenditures in excess of allowable withdrawalo may be carried for-

ward, to form the basis for disbursement in a subsequent quarter. If in

any calendar quarter an amount less than the maximum parmissible for that

quarter is withdrawn, the balance allocated to that quarter will be carried

forward for disbursement in any subsequent quarter,

Applications for withdrawals to meet local expenditures should be

accompanied by a statement of expenditures for the Project in the calendar

quarter during which the expenditures for which withdrawal is requested

were incurred, together with statements of acc.umulated expenditures on theProject and of total withidrawals since January 1. 2.956,

The aggregate amount withdrawn from the Loan Account may at notime exceed the total expenditures on the Project since January 1, 1956.

Please confirm your agreement with the foregoing by signing theform of confirmation on the attached copy of this letter and returning itto us,

Ve:-y sincerely yours;

INTERNATIONAL BA.NK FOR RECON3TRUCTIONAND DEVELOPIENT

By

Confirmed:

OSTERREICHISCHE ELEKThIZITATSI. RTSCHA.FTS-AKTIENGESELLSCHAFT (VERBUNDGESELISCFT)

By

STERREICISCEE DONAUKRA FT7jTWEAKTIENGESELLSCHAFT

DECLASS A

APR 19 2018CONFIDENTIAL DRLFTflay , 1956 WBG ARCHIIVE

8sterreichische iektrizitStswirtschafts-Aktiengesellschaft (Verbundgesellschaft)

Osterreichische Draukraftwerke Aktiengesellschaft

Gentlemen:

ie refer to the Loan Agreement dated between us

and to Section 4.01 (b) of Loan Regulations No. 4, as amended in Schedule

3 to the loan Agreement, which provides in substance that you are entitled

to make withdrawals from the Loan Account for portions of local expendi..

tures for the Project.

St. Andre Power Plant

For the St. Andr' power plant we propose that the portions

for which you will be reimbursed be expressed in lump sums on

the basis of present estimates of the amounts required for the

Project, as follows:

The total amount to be withdrawn on account of local

expenditures will be million. Of this total an amount

of no more than million may be withdrawn in 1956, an

amount of no more than million may be withdrawn in 1957,

and an amount of no more than million may be withdrawn in

1958, Amounts of no more than 25/ of the respective yearly

allocation may be withdrann in each calendar quarter of the

years 1956 and 1957. In 1958 one-third of the allocation for

the year may be withdrawn in each of the first three quarters.

Expenditures in excess of allowable withdrawals may be

carried forward, to form the basis for disbursement in a

.. 2 -

subsequent quarterr If in any calendar qtuarter an amount less than

the maximum permissible for that quarter is withdrawn, the balance

allocated to that quarter will be carried foraward for disbursement

in any subsequent quarter.

Voitsberg Power Plant

An amiount of $ million equivalent may be withdrawn to

meet expenditure in Austrian schillings on the Voitsberg power

plant. This amount may be withdrawn whenever corresponding

expenditures in Austrian schillings have been made.

Applications for withdrawal to meet local expenditures should be

accompanied by separate statements of expenditures for St. AndrR and

Voitsberg in the calendar quarter during whirh the expenditures for which

withdrawal is reque.ted were i'curred, together witi atatements of accumu-

lated expenditure on the Project and of total withdrawals since January 1, 1956"

The aggregate amount withdrawn from the Loan Account may at no time

exceed the total expenditures for the Project since January 1, 1956.

Please confirm your agreement with the foregoing by signing the form

of confirmation on the attachod copy of this letter and returning it to us.

Very sinccrely yours,

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPLENT

Confirmed: By

6STERREICHISCHE ELEKTRIZITTSY IRTSCHAFTS-AKTIENGESELLSCHAFT (VERBUNDGESELLsCHAFT)

By

OSTERREICHISCHE DRAUKAFTV.ERKE AKI NGESELLSGHAUT

By _ _ _ _ _ _ _ _

APR 192018

CONFIDENTIAL DRAFT WB( Al~t'liVES7ay 8, 1956

Osterreichische Elektrizilkit wirtschafts,-Aktiengesellschaft (Verbundgesellschaft)

Am Hof 6Vienna I, Austria

Gentlemen:

We refer to our discussions of your investment program for the

years 1956-2.960, as outlined in your memorandum dated May 8, 1956 on the

expansion of electric power production during that period, during which

we concluded that all the funds required for its execution can reasonably

be expected to be available,

However, there may be a temporary shortfall in the financial

resources available for the Program which may compel your Compary to

postpone certain construction works. Vith regard to such an eventuality

we should like to draw your attention to the fact that under Section 5.01

(a) of the Loan Agreements of even date between us, which requires the

carrying out of the Project with "due diligence and efficiency," the com-

pletion of the Ybbs-Persenbeug, Sto AndrX and Voitsberg projects has

first claim on all the investment funds available to you and your

affiliated companies and cannot be postponed because of the financial

requirements of other parts of your program, except os mutually agreed

between you and the Bank,


DECLASS1FIEDAPR 19 2018

CONFIDETIAL DRAFTTI y 8, 3.936 WGACIE

International Bank for Reconstructicn andDevelopment

1818 H Street, NVf,VIashington 25, DC,

Gentlemen:

VYe thank you for your letter of today with regard to the

bearing of Section 5.01 (a) of the Loan Agreements of even date

between us on the use of funds available to the Verbundgesell-

schaft for its investment program during the period 1956-1960.

Vvo are glad to confirm that this letter also expresses our

und&rstanding in this matter,

Yours sincerely,

OSTERhEICHISCHE ELEKTRIZITATSWIRTSCHAFTS-AKTIENGESELLSCHkFT (VERJBUNDGESELISCHAFT)

By

leiroraridum cntho FrnareM for the Qornsion Of

Electric PoVIr roductionDuring the Period 956-1960

Dated Liay 8. 196

The construction program of the Verbundgesellschaft and its

affiliated companies for the period 1956 through 1960 consists of the

addition to its system of 447,000 kw hydroelectric capacity, 165,000 kw

of thermal capacity, 126.4 km of 110 kv transmission lines, 418.5 km of

220 kv transmission lines, adequate transformer and switching stations

and minor construction work on various installations. in addition,

construction will be started on 200,000 kw of thermal capacity which

will be completed in 1961 or 1962 and there will be continuing planning

on future projects.

This program is estimated to cost 5.656 million schillings.

With amortizations of 692 million schillings falling due in the same

period the total financial requirements of the Verbundgesellschaft and

its affiliated companies are estimated to amount to 6,348 million schillings.

The estimated cost of the construction program in each year and

the major items included in the program are given below:

5/31/56CONSTRUCT IO1 PROGRAI

195-5 I l95 1960 Total

(Capacities in tIv)

Evdro Pover Stations

Kaprun (main station andupper station together) 8.o 8.0

Jochensteinxl 32.5 7.5 40.0

Reisseck-Kreuzeck 20.0 40.0 20.0 8.0 88.0

Ybbs-Persenbeug 62.0 130.0 192,0

Schvarzach-St. Veit 30.0 90.0 120.0

Ste2am Pover Statiors

Voitsberg 65.0 65.0

St. Andrae 100.0 100.0

Grand Total 125.5 109,5 150.0 228.0 - 613,0

Transmission Lines

(Kilometers)

110 kv 45.4 - 81 126.4

220 kv - 6.5 232 297.5

220 kv . - - 180.0

1/ This plant is being constructed jointly by Austria and Germany. Thecapacity shown is the Austrian share of the 60 iAW to be installed.

2/ Line from Kaprun to Oetz; the amount to be constructed in each yearnot yet determined.

ESCTIUATED CST CF TE CO0ESTRUTJCTION PROGRAM

Total

and Prnects ic6 IM 192 2159 19LO 1956-1960

(millions of schillings)

Donaukraftwerke A GYbbs-Persenbeug 595.0 650.0 401.0 201.0 - 1,847.0

Draukgrtwerkq A.G.Rreisseck-Kreuzeck 276.2 231.6 113.0 18.4 - 639.2Voitsberg 75.1 3.7 - - - 78,8

St. Andrae 18,5 193.0 182.5 - - 394.0Minor investmentsand plannikag 28.6 6.0 4.0 2.0 2.0 42.6

Ennraftwejg_A.Minor investments

and planning 22.6 4,0 2.0 2.0 2.0 32.6

Jonhenstein A.G.Jochenstein (Austrian

part) 139.5 92.4 - - - 231.9

Tauernkraftwerke A.G.Kaprun (completion) 75.4 20.0 - - - 95.4Schvarzach-St. Veit 313.6 393.4 227.5 32.7 4.4 971.6Minor investments andplanning 22.1 11.0 3.0 2.0 2.0 40.1

Verbundaesells haftTransmission lines &

substations 88.0 192.0 192.0 116.0 95.0 683.0

Thermal Plants to becompleted 1961-1962 . - 20.0 200 250.0 130.0 600.0

Total ConstructionProgram 1,654.6 1,817.1 1,325.0 624 1 235.4 5,656.2

Amortization 108.2 . 1/38 163. 10.9 924

Grand Total 1,762.8 1,923.5 1,468.8 787.2 406.3 6,348,6

DECL ASSF1ELAPR 1 92018

CONFIDENTIAL DRAFTS, 5 6 WBGRCGJIVES

International Bank for heconstructicnand Development

1818 H Street, N.Wf*Washington 25, D.C.

Gentlemen:

There is attached hereto the memoranduzLm, dated Liay 8,

describing our program for the expansion of electric power production

during the period 1956-1960, which is referred to in the drafts dated

hiay 8, 1956 of a Loan Agreement between the Bank, the Verbundgesellschaft

and the dsterreichische Donaukraftwerke Aktiengesellschaft and a Loan

Agreement between the Bank, the Verbundgesellschaft and the Osterreichische

Draukraftwerke Aktiengesellschaft.

Yours sincerely,

OSTEURICHISCHE ELEKTRIZITATS-YIIRTSC:IAFTS AKTIENGESELLSCHAFT

DRAFT 'ilace7May 8, 1956

International Bank for 1econstructionand Development

1818 H Street, N. V.Washington 25, D. C.

Gentlemen:

In connection with the proposed loans by the InternationalBank for Reconstruction and Development to the Verbundgesellschaftand to the 0sterreichische Donaukraftwerke A.G. for $21 millionequivalent and to the Verbundesellschaft and to the UsterreichischeDraukraftwerke A.G. for $10 million equivalent, I am writing onbehalf of the Republic of Austria to summarize and reaffirm certainfacts relating to the external debt of the Republic of Austria asf ollows:

(1) We have submitted to you with our letter of February l4,1956 the f ollowing:

Form A: List of external publicly-issued privately-heldbonded debt and debt payments during six monthstperiod ended: December 31, 1955,

Form B: List of other external public debt and debtpayments during six months1 period ended:December 31, 1955,

At various times in the past we have also submitted to you

Form C: Description of Individual Debt, covering each ofthe items of debt listed in Forms A and B.

(2) Except as indicated in Annex A attached hereto, such formsaccurately set forth the aamounts and principal terms andconditions of all outstanding public debt of the Republicof Austria and its political subdivisions, and of agenciesof the Republic of Austria and of any such political sub-divisions, as of December 31, 1,55. There has been nosubstantial increase in such external public debt sincethat time except as indicated in the memorandum attachedmarked Annex A.

(3) Except as stated in such forms and annex, no such debtis secured by any mortgage, pledge, charge or other lien.

It is our mutual understanding that, in making the proposedloan, your Bank may rely on the stater-ents and facts set forth hereinand in the documients mentioned above.

Very truly yours,.

REPUBLIC CF AUSTRIA

BY

DRAFTMay 8, 1956

~ST1ERREICHI5CtE EKTIZITTSIRTSCHTS-AKTUCGSELLSCAFT(7E'MRiUNDGsEL2OHAT)

Wien I.,Am Hof 6

/ate7

International Bank forReconstruction and Development1818 H Street, N. W.Washington, D. C,

Gentlemen:

In connection with the proposed loans by the InternationalBank for Reconstruction and Development to the Verbundgesellschaftand to the Csterreichische Donaulraftwerke A.G, for $21 millionequivalent and to the Verbundgesellschaft and to the sterreichischeDraukraftwerke A.G, for $10 million equivalent, you have asked usfor a staterrent of the financial policies covering the operations ofthe Verbundgesellschaft and its associated special companies.

In the past the net earnings of the Verbundgesellschaft andthe special companies have been retained and have been used forfinancing expansion, 'Te expect to continue this policy.

The Verbundgesellschaft will from time to time review itstariff schedules and will, whenever necessary, apply to establishedauthorities for tariff increases in amounts sufficient to enable itand its associated special companies to remain in a sound financialcondition. It is the intention of the Verbundgesellschaft that itstariff charges vill be sufficient to provide income to cover, foritself and associated special copanies, all operating expenses,adequate depreciation, financial charges (not including amortization):taxes and a reasonable return on their investment,

Yours very truly,

tsterreichischeElektrizit~tswirtschafts-

Aktiengesellschaft

DRAfTMay 8, 1956

Form of Letter from each of the 3orrorers to theBank transnitting its latest Fi4ancial. Statenents


1818 H Street, N. W.Washington 25, D. C.

Gentlemen:

17e are transmitting herewith the financial statements

of our Company as of December 31, 1955. Since the date of

these statements there has been no unfavorable substantial

change in the financial condition of our Company.

We shall send you audited copies of these financial

statements as soon as the auditing has been completed.

Sincerely yours,

LTqame of Borrower!

DRAFTId.ay 8, 1956


1818 H Street, N. W.Washington 25, D. C.

Gentlenen:

I refer to Section 3.01 of Article III of the Guarantee Agree-

ment of even date betvween the Republic of Austria and International

Bank for Reconstruction and Developmient.

In view of the broad scope of the term "agency" as used in this

Section, I fear that the Section may interfere with the business of

nationalized e.nterprises in Austria. These enterprises are organized

as cop.mmercial corporations under the Austrian Corporation Law, are not

included in the government budget, and conduct their business along the

lines of private companies.

LUy government therefore requests your agreement under said

Section 3.01 that said Section shall not apply to such enterprises which

have been nationalized pursuant to the Nationalization Law No. 168 of

July 26, 1946 (published in the Bundesgesetzblatt of September 16, 1946)

and pursuant to the Second Nationalization Law No. 81 of March 26, 1947

(published in the Bundesgesetzblatt of 4ay 1I0, 1947). It would be

understood that in the unlikely contingency that the central gold and

foreign exchange reserves of Austria were held by any such nationalized

enterprise then the said Section would apply to that enterprise notwith-

standing the foregoing agreement.

-2-

If you can give your agreement pursv'anlt to this request, please

do so by signing the form of confirmatioa on the enclosed copy of this

letter and returning it to us.

Sincerely yours,

F ,PUBLIC OF AUSTRIA


Confirmed:

IN'ERNTIOML BANK FCR MECOOS TRUCT IONAIM DE7ELOPEINT

By

Mr* Collier

Boom 4

Austrian Electricity Company

(Electric Power Corporation)

May 9, 1956.

International Bank for Reconstructionand Development

1818 H. Street, N.W.Washington 25, D.C.

Attention: Mr. P. KantersSubject: Re apportionment of the 1955 Power Loan

We refer to the figures made available to your delegation in Vienna onthe planned apportionment of the 1955 power loan. In partial modificationof the earlier temporary apportionment, the Electric Power Corporation willundertake the following distribution:

Donaukraftwerke A.G. 254.7 millionDraukraftwerke A.G. 268.8 "Tauernkraftwerke A.G. 318.7 "Verbundgesellschaft 115.3 "

Total 957.5 "

At the same time we are sending you a corrected statement as of December 31,1955 of the Donaukraftwerke A.G., Draukraftwerke A.G. and Electric PowerCoxporation. The Donaukraftwerke A.G. has to repay the debt to the ElectricPower Corporation of 70 million Austrian schillings shown on the statement outof the 1956 cash receipts on the share capital. The Electric Power Corporationwill use this amount to repay its short-term debt to the Draukraftwerke A.G.,under the heading of the 1955 power loan.

Please note the above mentioned apportionment.

Very truly yours

/s/

Austrian Electricity Ccmpany.

TANSLATION SECTION

Translated From: German, 5.11.56 BY: GA.

Statement of the Austrian Draukraftwerke AGas of December 31, 1955

(in 1,000 Austrian schillings)

Assets Book value Proforma Revaluationassordin2 to SEB

1) Fixed assets 852,2262) Less depreciation 145.6553) Net book value 706,571 1,006,5714) Installations under construction

a) present value of installationsunder construction includingproject costs 374,987

b) inventory of material invested 7,888c) payments to suppliers and other

contractors 109.810d) sum of a-c 492,685

5) Participations -6) Long-term claims

a) on affiliatesb) others 14,527

7) Working capitala) cash and bank assets 11,006b) accounts outstanding

aa) for sales of electricity tothe Electrical Power Corp. 9,571

bb) for others -c) inventories 16,066d) short-term claims

aa) on Electrical Power Corp. 70,000bb) on others 14,776

Miscellaneous (various Entries includingdiscounts of bills) - 2.54

9) Total Assets 1,337,74 631.173

1,637,744

Liabilities Book value Proforma Revaluationaccording to SIB

10) Share capital 265,00011) Advance payments on contemplated

capital increases, if any .12) Profit llQOO13) Legal and free reserves 15,00514) Reserves as result of revaluation

according to SEB15) Capital Resources (total of items 10-14) 291,005 300,00016) Long-term obligations 970,23817) Short-term obligations 45,04718) Obligations to banks (short-term) -19) Reserves 31,3420) Other -10

21) Total liabilities

1,637,744

Statement of the Austrian Draukraftwerke GAas of December 31, 1955

Assets Book value Proforma revaluation(according to SEB)

1) Fixed assets 14,273,987.862) less Depreciation 2.52A.539.9Q3) Net book value 11,749,447.964) Installations under construction

a) Present value of installationsunder construction 371,777,429.45

b) Inventories on invested material 41,772,821.34c) Payments to suppliers and other

contractors 167.332.A1Ad) Sum of a-c 580,872,682.20

53 Participations 1,000.-6 Long-term claims

a) on affiliatesb) others 186,765,898.26

7) Working capitala) cash and bank assets 3,283,804.41b) accounts outstanding

aa) for sales of electricity -bb) for others 36,395.41

c) Inventoriesd) Short-term claims 6,307,643.08

8) Miscellaneous (various items includingdiscounts of bills) 2_._2_.737.67

9) Total assets 809,441,608.99

Proforma revaluationLi"lites Bo2k nalue f(according to SEB)

) Share capital 400,000,000.-) Advance payments on contemplated

capital increases, if any -12) Profit13) Legal and free reserves14) Reserves as result of revaluation

according SEB .15) Capitql resources (total of items 10-14) 400,000,000.-16) Long-term obligations 268,130,054.6917) Short-term obligations

a) to Electric Power Corporation 70,000,000.-b) to others 68,721,766.30

18) Obligations to banks (short-term)19) Reserves 2,589,768.-20) Other

21) Total liabilities 809,441,588.99

Statement of the Electric Power Corporationas of December 31, 1955

Assets Book value Proforma revaluation

1) HF ed capital 564,463,467.51 (Acorin to SE)2) Depreciation 124.J04.91.393) Net book value 440,158,486.21 740,158,486.214) Installations under construction

a) present value 55,971,195.22b) inventories of invest. material 4,900,686.32c) payments 33.331.021.79

94,202,903.335) Participations 9,561,352.606) Long-term claims

a) on affiliates 529,241,921.58b) others 366,942,713.07Working capitala) cash and bank 6,052,137.28b) accounts outstanding

as) for sales of electricity 98,824,221.09bb) for other 37,948.60

c) inventory 5,257,685.53d) short-term claims

aa) on Donaukraftwerke 70,000,000.-bb) others 99,882,230.86

8) Miscellaneous 7.009.302.75

9) Total assets 1,727,170,902.90 1.287.012.A16.69

2,027,170,902.90

Proforma Revaluationabilities Book valug (according to SEB)

.&) Share capital 150,000,000.-11) Advance payments .12) Profit 3,042,085.7013) Legal and free reserves 29,972,741.8114) Reserves as result of revaluation

according to SEB - _300,000,000.-

15) Capital resources 183,014,827.5116) Long-term obligations * 1,112,231,696.9617) Short-term obligations 291,585,744.32US) Obligations to banks19) Reserves 139,913,194.8120) Other 425,439.30

21) Total liabilities 1,727,170,902.90 1.727.170.902.90

2,027,170,902.90

*Of which 70 million to Draukraftwerke for 1955 Power Loan.

OSTERREICHISCHE ELEKTRIZITXTSWIRTSCHAFTS-AKTIENGESELLSCHAFT(VERBUNDGESELLSCHAFT)

den 9. Mai, 1956

International Bank for Reconstructionand Development

1818 H Street, N. W.Washington 25, D. C..

Attention: Mr. P. Kanters

Betrifft : Neuaufteilung der Energieanleihe 1955

Wir beziehen uns auf das Ihrer Delegation in Wien zurVerfiigung gestellte Zahlenmaterial betreffend die geplante Auf-teilung der Energieanleihe 1955. In teilweiser Ab~nderung derfriiheren provisorischen Verteilung wird die Verbundgesellschaftnunmehr nachfolgende Aufteilung vornehmen:

Donaukraftwerke A.G. 254,7 MioDraukraftwerke A.G. 268,8 "Tauernkraftwerke A.G.. 318,7 I

Verbundgesellschaft 115,3 "

Insgesamt 957,5 "

Gleichzeitig senden wir Ihnen einen berichtigten Status zum31.12.1955 der Donaukraftwerke A.G., Draukraftwerke A.G. und Ver-bundgesellschaft. Die Donaukraftwerke A.G.. hat die in dem Statusausgewiesene Schuld an die Verbundgesellschaft in der Hbdhe vono. S. 70 Mio aus den Geldeingangen 1956 betreffend das Aktienkapitalzuruckzuzahlen. Die Verbundgesellschaft wird diesen Betrag zur Ab-deckung ihrer kurzfristigen Schuld gegen-iber der Draukraftwerke A.G.aus dem Titel der Energieanleihe 1955 verwenden.

Wir bitten, die vorgenommene Aufteilung freundlichst zurKenntnis nehmen zu wollen und zeichnen

Hochachtungsvoll

OsterreichiElektrizit** swirtsc ts-

ellsc t .bunidge U1 h t

Beilage

BILANZ (STA'LUS) DER OSTEPMEICHISCBEN DRAUKIAFWEKE A.G. PER 31. DSZEME 1955(in 1.000 6.8.)

Aktiva Buchwert Proforma Passiva Buchwert ProformuaAufwertg.lt.SEB Aufwertg.lt.SEB

1) Anlagenvermogen 852,226 10) Aktienkapital 265,0002) abzdglich Abschreibungen 145,655 11) Voreinzahlungen auf be-3) Nettobuchwert 706,571 1.006,571 absichtigte Kapitalerh8hungen,4) In Bau befindliche Anlagen falls solche vorh. sind -

a) heutiger Wert der in Bau 12) Gewinn 11,000befindlichen Anlagen ein- 13) geB. und freie RUcklagen 15,005schliesslich Projekte- 14) Rdcklagen als Ergebnis derKosten 374,987 Aufwertung gemdss SEB -

b) Vorrate an Invest.Material 7,888 15) Eigenkapital 291,005 300,000c) Anzahlungen an Lieferanten (Gesamtsumme der Posten 10-14)

& sonstige Kontrahenten 109,810 16) langfristige Verbindlichkeiten 970,238d) Summe a-c 492,Z85 17) kurzfristige Verbihdlichkeiten 45,047

5) Beteiligungen 18) Verbikdlichkeiten gegendber6) langfristige Forderungen Banken (kurzfristig)

a) gegenuiber Konzerngesell- 19) RTdckstellungen 31,344schaften - 20) Sonstiges 110

b) andere 14,5277) Umlaufvermdgen

a) Kassa und Bankguthaben 11,006b) noch ausstehende Rech-

nungen:aa) f-Ur Stromverklufe

gegendber der Ver-bundgesellschaft 9,571

bb) fidr Sonstiges -c) Vorrete 16,066d) kurzfristige Forderungen

aa) gegen Verbundgesell. 70,000bb) gegen andere 14,776

8) Diverses (verschiedene Posten,darunter Rechnungsabrenzungen) 2y542

9) Gesamtsumme Aktiva 1,337,744 631,173 21) Gesamtsumme Passiva 1,337,744 1,337,744

1,637,744

I

BIIAVZ (STATUS) DER OSTEBREIHISCWEW DONAUKRAFTWERE A.G. PER 31. DEZEMBER 1955

Aktiva Buchwerte Proformaaufwertung Passiva Buchwerte Proformaaufwertung(gemas EB) (gemlas SEB)

1. Anlagevermogen 14,273.987.86 10. Aktienkapital 400,000.000.-2. abzdglich Abschreibungen 2,524. 39.90 11. Voreinzahlungen auf beab-3. Nettobuchwert 11,749.44T.96 sichtigte Kapitalerhahungen,4. in Bau befindliche Anlagen falls solche vorhanden sind -

a) heutiger Wert der in Bau 12. Gewinn -befindlichen Anlagen 371,777.429.45 13. Gesetzliche und freie Rdck-

b) VorrAte an Invest. lagen -Material 41,772.821.34 14. Rdklagen als Ergebnis der

c) Anzahlungen an an Aufwertungen gem. SEB -Lieferanten und son- 15. Eigenkapital 4o0,oo0.000.-stige Kontrahenten 1672332.431.41 (Gesamtsumme d.Posten 10-14)

d) Summe a - c 580,872.682.20 16. Langfristige Verbindlich-5. Beteiligungen 1.000.-- keiten 268,130.054.696. Langfristige Forderungen 17. Kurzfristige Verbindlich-

a) gegenfber Konzerngesell- keitenschaften a) an Verbundgesellschaft 70,000,000.--

b) andere 186,765.898.26 b) an andere 68,721.766-307. Umlaufvermgen 18. Verbindlichkeiten gegendiber

a) Kassa- und Bankguthaben 3,283.804.41 Banken (kurzfristig)b) noch ausatehende Rechnun- 19. Rdckstellungen 2,589*768.--

gen: 20. Sonstigesaa) ffir Stromverkdufebb) Mr Solstiges 36.395.41

c) Vorrited) kurzfristige Forderungen 6,307.643.08

8. Diverses (verschiedene Posten,darunter Rechnungeabgrenzungen) 20,424.737.67

9. Gesamtsumme Aktiva 809,441.608.99 21. Gesamtsumme Passiva 809,441.588.99

BILANZ (STATUS) DER VERBUNDGEL.SCAFT PER 31. 12. 1955

Aktiva Buchwerte Proforma Passiva Buchwerte ProformaAufwertg.lt.SEB Aufwertg.1t.SEB

1) Anlagevermgen 564,463.467.51 10) Aktienkapital 150,000.000.--2) Abschreibungen 124,304.981.30 11) Voreinzahlungen3) Netto Buchwerte rX0,158.4b6.21 740,158.486.21 12) Gewinn 3,042.085.704) In Bau befindl. Anlagen 13) ges.u. freie Anlagen 29,972.741.81

a) heutiger Wert 55,971.195.22 14) RUcklagen als Ergebnis derb) Vorrete an Invest. Aufwertung gem. SEB -_300,000.000.--

Material 4,900.686.32 15) Eigenkapital 183, 014.827.51c) Anzahlungen 33,331.021.79 16) Langfristige Verbindl. 1,112,231.696.96

94,202.903.33 17) Kurzfristige Verbindl.* 291,585.744.325) Beteiligungen 9,561.352.60 18) Verbittdl. gegendber Banken6) langfristige Forderungen 19) Rdckstellungen 139,913-194.81

a) gegendber Kozernges. 529,241.921.58 20) Sonstiges 425.439.30b) andere 366,942.713.07

7) Umlaufvermdgena) Kassa & Bank 6,052.137.28b) noch ausatehend

Rechnungen:aa) fdr Stromverkdufe 98,824.221.09bb) " Sonstiges 37.948.60

c) Vorrete 5,257.685.53d) kurzfristige Forderungen

aa) an Donaukraftwerke 70,000.000. --

bb) an andere 99,882.230.868) Diverses 7,009.302.75

9) Gesamtsumme Aktiva 1,727,170.902.90 1,287,012.416.69 21) Gesamtsumme Passiva 1,727,170.902.90 1,727,170.902.90

2,027,170.902.90 2,027,170.902.90

* davon an Draukraftwerke f rEnergieanleihe 1955 $70 Mib.

~ay 9, 1956

Deer Mr. Aabessador:

have ie sure in oneli:t' s-' o ee a t rft documentcor th two los -ieh havebeen ore oit nring Le etottinsbet er ye r delepe .in and the nk, y raw your at, -ntion to thefact t -t th6s docuents rEust no- be orlly o roved y a nk'sane. e1nt ;n 11 then be subitt or eo'sidrtien yte xec -

V irectors. -h c is re st in any ur sufaeti ras, youilI be linrmed 1n" cosuIlted aottheU ithe t eA y.

As to the si - int o- he loan iec ants, shoule like to coi irmthe -qnkIs illin ness to sign ihi two - n s soon as -rbun-esellsch ft- applic- ti-n 'or an incro. se o por x tely 22 on neS es o r C( ti noy Co, ised el ectri. xe r has been api roved, tetinrease to be elective beginrlng JUly 1, 1956 or as yon thereafter

as awl. Is.. It is tar understaing 1rom our discuwsicas .ith y ,Lrdeleg ti ,-,ere and 'rom the ak is i n's recent cornvrs ti-ns in

-lenra vitii rmo ederal vinitr or lransprt and Nltic alised Indus-tri s as ell as - ith th- eder-l in ere mist r t, t te $inistriesconc-rned are in agreev rt ith the erbnd-esellschif' intentiens

and ill suc or, sieh an ap Ic ti n for trif- increases vi'ch, wev been inforred, vil be subitted fortwith.

~e a re ycir hope tV t the erbndgeselscheAt vil be b-le toobtain th necessrry oction on teir t-riff ar licti-r .s soon as ocs-aible so th t th signing o the loan docufmnts c n tke I: e at thee r1iest o-,ort nity.

It was a e - t :eaisure to ol thene e- oti ti ns with you -;ndyor coLegaes an we 1.e Ma1 y te t ing went so smoothly all theway.

RL. GarIHie xceliency Dr. nir mrub rSbaa ador of Austria

2144 iy in- e, . .

LLshin on, D.C.

VUmbricht:ms

Handed to Dr. Gruber in the Law Library en May 9 - 11 o'clock meeting.

Mr. George L. Martin May 8, 1956

S. R Cope

Proposed Loans for Austrian Power Development

I was glad to learn that the Manufacturers Trust Compaxywish to participate in our new Anstrian operation. We have beeninformd by the Austrian Embassy that the Philadalphia Nationalhave also expressed some interest in it, so I think they wouldlike to be informed about it.

Although the new operation is, from an overall financialand economic point of view, a single operation, it has beendivided into two separate loans as a matter of convenience. Twocompanies are co-borrowers in each loan. One loan is for $10million and the co-borramrs are the Austrian "Verbundgesellschaftuand the sterreichische Draukraftwerke A.G,, The second is for $21million and the co-borro rs are the Verbundgeslschaft and theOsterreichische Donaukraftwerk. A.G. The set-up of the Austrianpower industry and the part paid by these companies is describedin the S.L.C. paper SZ/0/84, dated April 10, 1956 entitled,"Report on the Proposed Loan to AustriaP.

The early maturities of the two loans are as followas

UO0 millio n loan Z-21 mi~llion loan

Sept Is 1959 182,000

Mar 1, 1960 187,000 Jan 15, 1960 267,000Sept 1, 1960 191,000 Juy 3,5 1960 2714000

Mar lo 1961 196,000 Jan 15, 1961 281,000Sept la 1961 201,000 July 15, 1961 288,000

Mar 1, 1962 207,000 Jan 15, 1962 295,000Sept 1, 1962 2110000 July 15, 1962 302,000

There is thus a total of 3,082,000 maturing up to Sept 1, 1962.Probably the bulk of both loans will be disbursed in dollars so thatthere will certainly be sufficient dollar maturities to cover the aboveamounts.

JHCollier:mo

AIR MAIL May 8, 1956

Dear Dr. Wagner:

I am sending enclosed the drafts of the two pro-

posed Austrian loan agreements both dated May 7, 1956

for your information. As you will see, none of them is

of any particular legal interest.

With best regards.

Sincerely yours,

Frans M. Oppenheimer

Enclosuress 2

Dr. Ernst WagnerKArntnerring 10Vienna, Austria

FMOppenheimer/tgb

ROTTERDAMSCHE BANK N.V.

C. F. KARSTEN

MANAGING DIRECTOR ROTTERDAM, Jiay 2nd, 1956.

4r. Eugene R. BlackInternational Bank for Reconstruction and DevelopmentWASHINGTON 25, D.C.

U.S.A.

Dear M.r0 Black,

Thanks for your letter of April 27thwhich I received yesterday. I am sorry to learn thatyou have not succeeded in gaining over Mr. Holtrop toother views* This does not astonish me very much, but I

halnevertheless some hope in this direction.It would still interest me to know

whether Mr. Holtrop flatly refused or whether he hasput forward arguments in support of his opinion.

For another question I had to visityesterday the Ministry and on this occasion I spoke to theTreasurer General, the Hon. van Lennep who told me thatit would last till the end of the year before issues forforeign account willagain become possible 0 ,0'

To my letter of April 13th I may stilladd, for your information, that coitrary to the expectationexpressed by me, the Government loan was not a success.The cause must lie in the fact that international investorsare particularly short of means and that private investorsare more in favour of investment in shares whereby gainsin prices can be made.

I join you in hoping, however, thatconditions may change and that we may then suce d inworking out a deal.

With kindest personal regar ,

Sincerel yours

0, )AL 4+

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Confident;Lal Rough Draft WBG AR(Subject to change)FM ppenheier/jgb5/2/5 6

LOAN NUMER

LOAN AGREEMENT

(Voitsberg-St. Andre Project)

between

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPTENT

and

OTERIRFICHISCOE ELEKTRIZITATSW fl{TSCIiuTES-AFTIENGES]ELISCHAFT (VERBUINDGESELLSCHAf)

and

OSTERREIC I{S DRAUKFTmERKAK-TIENGESELLSCHAFT

Dated

LOAN AGREWENT

AGRE2JENT, dated , betueen IMERNATIONAL BAVK

FOR RECONSTRUCTION AD DEVELOPMENT, party of the first part (hereinafter

called the Bank), and OSTERREICHISCEE EIEKTRIZITATS3.flTSCHAFTS-AKTIEIGESELL-

SCHAFT (VEFBUEGESELLSCHAFT) and OSTERREICHISCHE DRAUIG TRKE AKTIENGESEL.

SCHAFT, parties of the second part (hereinafter collectively called the

Borrowers).

2-

ARTICIE I

Loan Regulations; Special Definitions


provisions of Loan Regulations No. 4 of the Bank dated February 15, 1955,


this Agreement (said Loan Regulations No. 4 as so modified being herein-

after called the Loan Regulations), with the same force and effect as if


Section 1.02. Except where the context otherniise requires, the

following terms have the following meanings wherever used in this Agree-

ment or any Schedule to this Agreement:

(a) The term "Verbundgesellschaft" means Otterreichische

Elelktriitatswirtschafts-Aktiengesellschaft (Verbundgesell-


of the Guarantor of March 26, 1947, No- 81 (2. Verstaatlichungs-

CesetZ',,

(b) The term "Draukraftuerke" means Osterreicische Draukraftwerke

Aktiengesellschaft, a company organized and existing under

such F,!deral Law No,, 81.

(c) The tera "associated companies" mean. the "Sondergosellschaftenz

organized and existing under Federal Law of the Guarantor of March

March 26, 1947, No. 81 (2. Verstaatlichungsgesetz) and any other

compary directly or indirectly controlled by the Verbundgesell-

schaft.

-"3.


schaft for the expansion of power for the period 1956-1960

as set forth in the memorandum, dated

entitled

-4-

ARTICLE II

The Loan

Section 2,01. The Bank agrees to lend to the Borrowers, on the


amount in various currencies equivalent to ten million dollars ($10,000,000).

Section 2.02. The Bank shall open a Loan Account on its books

in the name of the Borrowers and shall credit to such Account the amount

of the Loan. The amount of the Loan may be withdrawn from the Loan

Account as provided in, and subject to the rights of cancellation and

suspension set forth in, the Loan Regulations.

Section 2.03. The Borrowers shall pay to the Bank a commitment



to time.

Section 2.04, The Borrowers shall pay interest at the rate of

per cent ( _) per a'nram on the princi-

pal amount of the Loan so withdrawn and outstanding fr-om time to time.

Section 2.05. Except as the Bank and the Borrowers shall other-

wise agree, the charge payable for special commitnents entered into by

the Bank at the request of the Borrowers pursuant to Section 4.02 of

the Loan Regulations shall be at the rate of one-half of one per cent

(1/2 of 1%) per annum on the principal amount of any such special com-

mitments outstanding from time to time,

-5-

Section 2,06, Interest and other charges shall be payable semi-.

annually on and in each year.

Section 2.07. The Borrowers shall repay the principal of the


1 to this Agreement.

6

ARTICIE III

Use of Proceeds of the Loan

Section 3.01. The Borrowers shall apply the proceeds of the Loan



to be financed out of the proceeds of the Loan shall be determined by

agreement between the Bank and the Draukraftwerke, subject to modifica.-


Section 3.02. The Borrowers shall cause all goods financed out


of the Project.

-7.

ARTICLE IV

Bonds

Section 4.01. The Borrowers shall execute and deliver Bonds

representing the principal amount of the Loan as provided in the Loan

Regulations.

Section 4.02, Arr two members of the managing board (Vorstand)


gesellschaft and ary two members of the managing board (Vorstand) of

the Draukraftwerke signing jointly on behalf of the Draukraftwerke

are designated as authorized representatives of the Borrowers for the

purposes of Section 6.,12 (a) of the Loan hegulations.

ARTICLE V

Particular Covenants

Section 5.01. (a) The Borrowers shall carry out the Projeot

with due diligence and efficiency and in conformity with sound engineering

and financial practices.

(b) The Borrowers shall furnish to the Bank, promptly upon their

preparation, the plans and specifications for the Project and any material


from time to time request.

(c) The Borrowers shall maintain records adequate to identify

the goods financed out of the proceeds of the Loan, to disclose the

use thereof in the Project, to record the progress of the Project and

the Program (including the cost thereof) and to reflect in accordance

with consistently maintained sound accounting practices the financial

condition and operations of the Borrowers; shall enable the Bank's

representatives to inspect the Project and the Progra., the goods and

any relevant records and documents; and shall fu.nish to the Bank all

such information as the Bank shall reasonably request concerning the

expenditure of the proceeds of the Loan, the Projectthe Program, the

goods, and the i-ancia.L condition and operations of the Borrowers.

Section 5.02. (a) The Bank and the Borrowers shall cooperate

fully to assure that the purposes of the Loan will be accomplished.

To that end; each of the parties hereto shall furnish to any other

such party all such information as such other party sha'.1 reasonably

request with regard to the general status of the Loan.

-9-





interferes with, or threatens to interfere with, the accomplishment

of the purposes of the Loan or the maintenance of the service thereof.

Section 5.03. The Borrowers undertake that, except as the Bank

shall otherwise agree, if any lien shall be created on any assets of

either of the Borrowers as security for any debt, such lien will ipso

facto equally and ratably secure the payment of the principal of, and

interest and other charges on, the Loan and the Bonds, and that in the

creation of any such lien express provision will be made to that effect;

provided, however, that the foregoing provisions of this Section shall

not apply to: (i) any lien created on property, at the time of purchase

thereof, solely as security for the payment of the purchase price of

such property; (ii) any lien on commercial goods to secure a debt

maturing not more than one year after the date on which it is origi-

nally incurred and to be paid out of the proceeds of sale of such com-.

mercial goods; or (iii) any lien arising in the ordinary course of

banking transactions ancd securing a debt maturing not more than one

year after its date.


taxes or fees, if any, imposed under the laws of the Guarantor or laws


- 10 -


Guarantee Agreement or the Bonds, or the payment of principal,interest





Guarantor.


taxes and fees, if any, imposed under the laws of the country or

co untries in whose currency the Loan and the Bonds are payable or laws

in effect in the territories of such country or countries on or in con-

nection with the execution, issue, delivery or registration of this

Agreement, the Guarantee Agreement or the Bonds.

Section 5.06. Except as shall be otherwise agreed between the

Bank and the Borrowers, the Borrowers shall insure or cause to be

insured the goods financed with the proceeds of the Loani against risks

incident to their purchase and importation into the territories of the

Guarantor, Such insurance shall be consistent with sound commercial

practice and shall be payable in dollars or in the currency in which

the cost of the goods insured thereunder shall be payable.

Section 5,07. (a) Each of the Borrowers shall at all times

maintain its existence and right to carry on operations and shall,

except as the Bank shall otherwise agree, take all steps necessary to

maintain and renew all rights, powers, privileges and franchises which

are necessary or useful in the conduct of its business,

-11 -




and shall at all times operate its plants and equipment and maintain

its financial position in accordance with sound business and public

utility practices.

Section 5.08. During the period of the Program of which the Project

is a part, the Verbundgesellschaft will consult with the Bank on any

major construction not already included in the Program and requiring for

its completion substantial capital investment. The Verbundgesellschaft

shall undertake, and will permit any of its associated companies to

undertake, such construction only after the Bank and the Verbundgesell-

schaft have mutually agreed that the financing thereof is reasonably

assured and that the Program will not be impaired thereby.

[ Additional covenants may be added )

- 12 -

ARTICLE VI

Remedies of the Bank

Section 6.01. (i) If any event specified in paragraph (a), para-



or (ii) if any event specified in paragraph (c) of Section 5.02 of the

Loan Regulations shall occur and shall continue for a period of sixty






ately, anything in this Agreement or in the Bonds tothe contrary not-

withstanding.

- 13 -

ARTICLE VII

iviscellaneous

Section 7.01. The Closing Date shall be

Section 7,02, A date days after the date of this

Agreement is hereby specified for the purposes of Section 9.04 of the

Loan Regulations.

Section 7.03, The following addresses are specified for the

purposes of Section 8.01 of the Loan Regulations:

For the Verbundgesellschaft:

Osterreichische Elektrizitatswirtschafts-Aktiengesellschaft (Verbundgesellschaft)

Wien 1Am HofAustria

For the Draukraftwerke:

Osterreichische DraukraftwerkeAktiengesellschaft

KlagenfurtBaumbachplatz 2Austria

For the Bank:


1818 H Street, N.W.Washington 2, 1)C.United States of America

Section 7.04. All obligations of the Borrowers under this Agree-

ment and the Bonds, unless such obligations shall have been expressl.y

undertaken by only one of the borrowers expressly named herein, shall be

joint and several, and the obligation of either of them t-o comply with

- 14 -

ar provision of this Agreement is not subject to any prior notice to,


bearance given to either of the Borrowers in respect of the performance

of any of its obligations under this Agreement or the Bonds, and no

failure of the Bank or of any holder of the Bonds to give any notice or

to make any demand or protest whatsoever to either of the Borrowers, or

strictly to assert any right or pursue any remedy against either of

them in respect of this Agreement or the Bonds, and no failure by either

of the Borrowers to comply with any requirement of any law, regulation

or order, shall in ar way affect or impair any obligation of the other


IN WITNESS WHEREOF, the parties hereto, acting through their


ment to be signed in their respective names and delivered in the District


written.

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPhENT

ByPresident

OSTERREICHISCBE ELEKTRIZITATSWIRTSCHAFTS.,AKTIENGESELLSCHAFT (VEABUNDGESELLSCHAFT)


OSTERREICHISCIE DRAUKRAFTw4EREAKTIENGESELLSCHAFT

ByAuthorized Representat :_W

- 15 -

SCHEDULE 1


Principal

Payment of Amount OutstandingPrincipal (ex- After Each Paymentpressed in (expressed in

Date Payment Due dollars)* (dollars)*

[ To be inserted ]

* To the extent that any part of the Loan is repayable in a currency

other than dollars (see Loan Regulations, Section 3.02), the figures

in these columns represent dollar equivalents determined as for pur-poses of withdrawal,

.16

Premiums on Prepayment and Redemption



of the Loan pursuant to Section 2.05 (b) of the Loan Regulations or on

the redemption of any Bond prior to its maturity pursuant to Section 6,16

of the Loan Regulations:


[ To be inserted 3

- 17 -

SCHEDUE 2

Description of the Project

The Project consists of the expansion of two steam power plants,

more fully described below, as part of the power expansion program of the

Verbundgesellschaft and associated companies, set forth in the memorandum

entitled dated to wit.

1, The expansion of the existing Voitsberg steam power station by the

installation of a 3-phase 50 cycle turbo-generating unit having a capacity


burn brown coal and produce a maximum of 210 tons of steam per hour at

a pressure of about 335 atmospheres with a temperature of about 530

degrees entigrade. The turbo-generating unit and boiler will have con-

ventional auxiliaries. A cooling tower of adequate capacity will be

constructed to provide cooling water. A main transformer with a capacity

of 82,000 kva will be installed to step up the generating voltage from

10.5 to 110 kilovolts.

2. The expansion of the existing St. Andra steam power station by the

installation of a 3-phase 50 cycle turbo-generating unit having a capacity


burn brown coal and produce a maximum of 330 tons of steam per hour at

a pressure of about 188 atmospheres with a temperature of about 530

degrees Centigrade. The turbo-generating unit and boiler will have

conventional auxiliaries. A water cleaning plant will be constructed

to process water from the nearby Lavant brook to provide an adequate

supply of cooling water for the plant, A main transformer with capacity of

125,000 kva will be installed to step up the voltage from 10.5 to 220

kilovolts.

.. 18 .-

SCIEDULE 3

Modifications of Loan Regulations No, 4

For the purposes of this Agreement the provisions of Loan Regula-

tions No. 4 of the Bank, dated February 15, 1955, shall be deemed to be

modified as follows:

(a) The term "Borrower" shall mean the Borrowers; except that

as used in Sections

such term shall mean the Borrowers or either of them.

(b) The first two sentences of Section 3,01 shall read as

follows:

"The Borrower shall use reasonable efforts to purchase goods

with the currencies of the countries from which such goods

are acquired. The proceeds of the Loan shall, to the extent

that the Bank shall so elect, be withdrawn from the Loan

Account in the several currencies in which goods are paid

for; except that with respect to goods paid for in the

currency of the Guarantor or acquired from sources within


the extent that the Bank shall so elect, be made in any

currency selected by the Bank."

(c) Section 3.04. shall read as follows:

"Currency in iihich Commitment Charge is Payable. The com-

mitment charge shall be payable forty per cent (4C%) in

the currency in which the Loan is denominated and sixty per

cent (60%) in the currency of the Federal iepublic of

Germarn. Such currency of the Federal Republic of Crmax

shall be valued in terms of the currency in which the Loan

is denominated as the Bank shall reasonably determine."

(d) The following paragraph shall be added to Section 3.05g

"If a withdrawal is applied for on account of expenditures

in the currency of the Guarantor, the value of the currency

of the Guarantor in terms of the currency or currencies to


(e) Section 4.01 shall read as follows:

"Withdrawal from the Loan Account. The Borrowers shall be

entitled, subject to the provisions of these Regulations, to

withdraw from the Loan Account:

(a) (i) Such amounts as shall be required by the Bor-

rowers to reimburse them for the reasonable

cost of goods that have neither been paid for

in the currency of the Guarantor nor been

acquired from sources within the territories

of the Guarantor;

(ii) if the Bank shall so agree, such amounts as

shall be required by the Borrowers to meet

the reasonable cost of such goods; and

(b) Such amounts as shall be required by the Borrowers

to reimburse them for such portions as the Bank

may from time to time agree to of the reasonable

cost of goods that have been paid for in the

currency of the Guarantor or acquired from sources

within the territories of the Guarantor,

- 20 -

Except as shall be otherwise agreed between the Bank

and the Borrowers, no withdrawals shall be made on account of

expenditures before of"

(r) Paragraph (a) of Section 7.04 shall read as follows:


either of them or between the Guarantor and the Bank and

any claim by any such party against any other such party

arising under the Loan Agreement, the Guarantee Agreement

or the Bonds which shall not be determined by agreement of

the parties shall be submitted to arbitration by an

Arbitral Tribunal as hereinafter provided."

D R A F TFMivppenheimer/jgb5/2/56

Osterreichische Elektrizitatschafts-Aktiengesellschaft (Verbundgesellschaft)

Am HofVienna I, Austria

Gentlemen:

We refer to our discussions of your investment program for

the years 1956-1960, as outlined in

during which we concluded that all the funds required for its

execution can reasonably be expected to be available.

However, there may be a temporary shortfall in the financial

resources available for the Program which may compel your Company

to postpone certain construction works. With regard to such an

eventuality we should like to draw your attention to the fact that

under Section 5.01 (a) of the Loan Agreement of even date between

us, which requires the carrying out of the Project with "due dili-

gence and efficiency," the completion of the Ybbs-Persenbeug,

St. Andrg and Voitsberg projects has first claim on all the invest-

ment funds available to you and your associated companies and can-

not be postponed because of the financial requirements of other

parts of your program, except as mutually agreed between you and

the Bank.



OFFICE MEMORANDUMTO: Mr. S. R. Cop&// DATE: April 30, 1956

FROM: George L. Martin

SUBJECT:

Vould you make a note in your files on the new AustriaLoan that the Manufacturers Trust Company are very keen to

participate? As you know, the Philadelphia National tookpart of our first loan to Austria but I doubt very much if

they would want to take any more. The Manufacturers werevery disappointed that they did not have a chance on that

one also, so I have assured them that we will be in touchwith them at the right time. If I should be away, wouldyou please contact either Jack Waage or Andrew Gomory?

By the way I have been turned down by the First National

City and the Bank of America on both Finland and Norway but I

expect to hear tomorrow from the Manufacturers Trust onFinland and I think they will probably come along. The NewYork Trust is also considering the Finland Loan, but theNorways were just too long.

OFFICE SERVICEs 17.10

April 27, 1956

Doar Mr. Karsten:

In reply to your letter of April 13thI am sorry to say that I have had no success ingetting permission from Dr. Holtrop for your par-ticipation in the Austrian loan. I regret thisvery- uch as I am always anious to help in anyway I can towards developing participation of theprivate market in our operations.

I hope that conditions will changeand that at some future time we shall be able towork out a deal together.

Best regards.


Eugene R. Black

Mr. C. F. KarstenManaging DirectorRotterdamsche Bank NV.RotterdamThe Netherlands

ERBimel

ce to Mr. Ventimiglia

(5 48 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OFFICE MEMORANDUMTO: Files DATE: April 26, 1956

FROM: V. Umbricht

SUBJECT: Meeting with ICA Officials on Austria

There was a meeting in Mr. Garnerts office today at 2:30 p.m.to discuss Austrian matters. Present were: Messrs. Garner, Copeand Umbricht; Dr. Lawrence B. Meyers, Yr. Calvin Cowles, Dr. HaleSherewte-14 and Mr. John Snell (ICA officials).

The conversation centered around two problems:

1. Forthcoming Loan Negotiations with Austria

The Bank representatives explained the major aspectsof the proposed new power loan which Umbricht supplementedby detailed information on the projects, financial resources,loan covenants on tariffs and priorities, rate policy, ERPallocations and other questions.

The ICA members were under the impression that the Bankhad asked for an undertaking from the Verbundgesellschaftthat the latter would receive each year a certain minimumamount of ERP funds. Umbricht corrected this mistaken impres-sion by explaining thatalthough the Bank claimed a priorityon all the funds available to the Verbundgesellschaft forinvestment, this did not mean that the Verbundgesellschafttafailure to obtain certain funds would affect the proposedloan; it might bring about a postponement of certain proj-ects but not of the Bank-financed projects.

2. Investment Corporation

The ICA members were interested to hear the Bank's viewson the return of the ex-German assets, particularly the USIAplants, to private ownership and the role which an investmentcorporation could play in achieving this goal. Mr. Garnerrepeated the broad outline of the memorandum which the Bankhad handed to Finance Minister Kamits in February 1956 onthis subject but added a word of caution that the internalpolitical situation in Austria was likely to jeopardize thereturn to private ownership of the assets involved. He men-tioned that an investment corporation could facilitate sucha return, but private foreign capital was unlikely to flowinto Austria as long as the Government had not clearly statedits policy regarding the disposal of the firms.

-2-

The ICA members then inquired what role the ER fundscould fulfill in this context. They were told that sincethese funds can hardly be separated from political influ-ences in Austria it might not be advisable to link themwith the proposed investment corporation,which should bean entirely private organization and free from any politi-cal strings. Mr. Cope added that the best way to dealwith the ERP funds might be to absorb them within the Aus-trian budget as this would relieve the capital market fromcertain pressures. The ICA representatives did not fullyshare this view.

Mr. Garner finally said that the Bank would send a copy of the memoon USIA disposals to the ICA mission.

VUmbricht:msa


Date

ROUTING SLIP

NAME ROOM NO.

Action Note and FileApproval Note and ReturnComment Prepare Reply-ull Report Previous PapersInformation RecommendationInitial Signature

Remarks

Q J4 t Atxxt~

NOTES FOR THE OPENING MEETING

Summary of Points to be covered during the negotiations.

1.. Matters already discussed in Austria.

(a) Amount of the loan. $31 million,.

(b) Currencies. Bank will use freely convertible or transferablecurrencies, probably mostly dollars or free Swiss francs,.

(c) Power tariff increase cf 22%. Bank would prefer to signloan after the increase has been officially approved. Thisneed cause no delay if other steps necessary to make loaneffective are not delayed.

/ r (d) Granting of priority to Bank projects in allocation ofV.G.'s funds.

(e) Bank's agreement to be obtained before V.G. undertakes anysubstantial new capital expenditure not already included inthe program. 4-

2. Other matters.

(a) Who should be the borrower? The Bank would prefer to makethe two special companies co-borrowers unless there are goodreasons not to,. This question is closely connected with twoother problems:

(i) the question of meeting the V.G.'s need for 460 millionschillings in 1956. The bank would prefer not to re-imburse previous expenditure on Ybbs-Persenbeug orVoitsberg but to meet the problem in a different way.But if Bank funds do not have to be "transferred" fromone company to the other, one of the objections tohaving two loans is removed;

(ii) Security. While the Bank does not intend to takesecurity by way of mortgage, it will require a negativepledge and it might be advisable to have a negativepledge directly from the companies.

(b) A clause in the Guarantee Agreement guaranteeing the availabilityof funds to complete the project.

(c) As in the case of the Reisseck-Kreuzeck loan, a la. er should beobtained from the V.G. undertaking to maintain rates sufficientto cover all costs plus a reasonable return on capital.

(d) The Bank would like to obtain a letter stating that the V.0, willnot build any projects which are not "self-liquidating" in thebroadest sense; i.e. which are strictly speaking un-economic.

(e) W-0-4 Position o New Yzrl: YZ44lg1- /IJLA" -'---,.r /

Note: Consequence of increasing proportion of Reisseck-Kreuzeckloan disbursed to 45%.

1) The DKW estimates that 253 million schillings will be spent onlocal expenditure during 1956. 30% of this is 76 million schillings,

2) We have received applications so far only for January and February.We do not know how much will be spent in March or April. InJanuary and February the DKW spent only 13 million schillings.

3) From March 1 to the end of the year the DKW will spend 240 millionschillings.

On 30% basis Bank would disburse 72 million schillingsOn 45% basis Bank would disburse 108 n n

Increase ~3

4) If the change were made at the end of April instead of the end ofFebruary, the extra disbursements would be less than 36 millionschillings by 15% of whatever the DKWpent in March and April.

April 25, 1956

NOTICE

A delegation has arrived from Austria in order to conduct

negotiations for a new loan. The members of the delegation

are as follows:

Dr. Karl Gruber, Austrian Ambassador to the U.S.Dr. W. Teufenstein, Ministry of FinanceDr. R. Stahl, General Director, VerbundgesellschaftDr. K. Kblliker, Director, VerbundgesellschaftDr. K. Krebs, Director, Usterreichische Draukraftwerke, A.G,Dr. W. Kastner, VerbundgesellschaftMr. F. Hermann, Verbundgesellschaft

It is expected that negotiations will take approximately

two weeks.

April 25, 1956

S

%Qrkin,; P&rty an Austria Apri no 15

4 U. C71iU1

eser..) ar..es i w

.The 0b is that the 4. . m4 ws to obt n 4-60 mzllionciliwrw- U* -k to me0t its nexe t a 195,'. Ac rdlz to

tne schwma of distbursmmat -;ivon in pWreraph 21 of th* rvpmrt mnte propaftd lemord "sg37.4 mima *eAI ir4; can be diz-Lursed

to Peet expmndturo lacurrod !q the t"e oanpwes Im 1956, Can theBank mwet tt roesaNi rood for 62.6 mIllian *chjmzgs ($2.4 :AMan)Thm 7artous pxmsibUe mothoda af UwAnng this prmblem wppar to bo asfollows

%4 RisbmrOesmbt post ex-,gzmltavs in

2. Inaewe sisi-xwmk-4.r,*msxk im t * now loan,

ftn *part frm the proibiI.Ay tohat -,qo. jd ;0) mjijh, betb*Wfit rAWeI~rabU in pr4cplft. it vou L! lead to preblazS CC security,since the 4uk uuU thmu hwvm bL* aaur-d wnd mmoecurod Nftd in tth*

vs-mm predwv in ,his *am would roally be noIuAn but a*vvieqm mtad of makine, funds avajn~ fo-rerries-rnek

3. The Va.-. shouId obtain *dtiosa inoerim .trnig e1C956.

71. T V.-. aul re-allaeata som ; r ty* nui comitted

,k prowmt us do not kni to what #%x jv Ir at &U, te v0.min I* aJlO to do eiter of these

5. Ancelmrate aishwmmntsa mner siec-rmn en12

Th* a-fficulty %dth 5) Is that lime dibr e tj Annet Lv:M,%tlv aeelratod weing to Uha Axi3Uv-IetIAm arrmkngemmnts g.,eraing

tim tranmrer of U* 11m,. liawver, it spp~ars frim a preILMxnwry lotk atth figuros Uht it uvald be pmmlible to no quito a lvV sg towards moot.ing

Um prObIAM iVAt disturbing tMe kuvtr*-It&Umn arrangomante vr Vh ak1.9 prmperd to accwerxWe 3vie freo d1*barsmonts,

The bLvxt promedure woul vmme to bo to discover how =vL h e V.vI,man do by im thed 3) mnd 4) wied than c,,jider whothtr we can -*,et +amdifforwne ynme 5).

eo. Nara. "mtrichts .3pattswood, Yanters oppendwbwr, strmt, eavw= h I--yJHoliermo ,k;x

April 19, 1956

Dear Mr, Ambassadort

The managonent of the Rank has now considered thereport of the mdasion which viaitod Austria upon the requestof yexw GMearnment in Febhary and Mareh of this year, anI take pleasure in informing yvu that the Bank is now pro..pared to wndartake negoationas for a loan amounting toapPrazinately $31 million equivalent for the Austrian powerinuvtry. We wouU wesow the arrival of an Austrian dewlogation in Washington a- sm as emveniently possible inorder to begin the negotiations,

I should to grateful if you would inform yourGoamrnwnt of this decisice and let as knmw the ans of theMambere of the delegation and the date they expect to arrivein Washington.

Yours sicrl,

a. . Garner

His Ee11t.y Dr. Karl GruberAmbaseadcr of AustriaAustrian EmbassyWashington, D. C.

JHCollier:moApril 17, 1956

Members of the Working Party Apri 19, 1956

V. Umbricht

Austrian Negotiatims

According to preliminary information the Austriandelegation wiU arrive in Washington between April 22 and21. We would hope therefore to start negotiations not laterthan Wednesday, April 25. The members of the delegation willbe Messrs. Teufenstein, Stahl, Kliker, Krebs and Her.man.

0. Mssrs. SpottswoodKantersOppenheimerStreetGavanaugh

JH Collier imo

Secretary's Hemorandum No. 1-404

INTERMATICUAL BANK FORRECONSTRWCTION AND DEVELOPIENT

FRCIH: The Acting Secretary April 18, 1956

AUSTRIA

The Management has now considered the findings of the

recent mission to Austria (see Cperational Report to the

Executive Directors, R-941) and has agreed to enter negotiations

for a new loan for the expansion of electric power production.

The Austrian authorities have been invited to send negotiators

to Washington.

Distribution

Executive Directors and AlternatesPresidentVice PresidentAssistant to PresidentDepartment Heads1r. Beevor - IFC

Sec. 10-188

Mr, L. Douct April 17, 1956

J. H. Collier

Information for Exeutive Directors - Negotiations with Austria

The Management has now considered the findings of therecent mission to Austria (see operational Report to theExecutive Directors, R-941) and has agreed to enter negotiationsfor a new loan for the expansion of electric power production.The Austrian authorities have been invited to send negotiatorsto Washington as soon as conveniently possible.

JHCollier:mo

FORM No. 27 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT(8-55)

OUTGOING WIRE

CLASS OF SERVICE: LETTER TELEGRAM DATE: APRIL 17, 1956

TO: DR. 1WDOLPH STAHLVERSUNDGESELTSCHAFTVIENNA

COUNTRY ( AUSTRIA)

EXT:

Cable No.

PIZEASE BRING INFORMIATION ON PRICE OF GAS AND COST PER KIIOWATT HOUR

FOR GAS FIRED TERMAL PIANTS PROGRAM TWO AISO NEW SCHEDULE OF WITEDRAWALS

mEisumC- uEzEcK 1956 TERmmG 1959 BY CURRENCIES AND QUARTERS

SPOTTSWOODINTBAFPAD)

Signed:

AUTHORIZED BY:

NAMEDr.E .Wayne 1 For Use by Archives Division

DEPT: Th rn do Checked for Dispatch

SIGNATURE:


(IMPORTANT: See oveoro guid in preparingOutqoinq Wire)


1. Class of ServiceType in class of service desired. Each class is described as follows:

Letter Telegram Letter telegrams are normally delivered the morning after day of despatch. The costis half the cost of full rate messages with a minumum charge for 22 words includingaddress and text.


IBF Govt. This is a preferential rate extended to the Bank by some of its member countries.Messages are sent at full rate speed and at about half the cost. This rate normallyshould be used whenever available, It is at present available for the followingcountries:Bolivia Cuba Guatemala * PeruBrazil Dominican Republic Honduras *SyriaBurma Ecuador Jordan UruguayChile El Salvador * Lebanon Venezuela

" China * Ethiopia Nicaragua YugoslaviaColombia * France PakistanCosta Rica Greece Panama

*In these countries the letter telegram rate is lower than IBF government ra te andshould be used for messages when immediate transmission is not required.

Code Code messages are transmitted at full rate (or IBF Govt.) speed and cost. This rateshould be used only for confidential messages to staff members having a code withthem,



2. AddressUse only last name of addressee and cable address whenever possible. The Bank cable address"INTBAFRAD" is registered in Paris, Beirut, Rio de Janeiro, Bogota, and Guatemala City. The nameof the country of destination must always be added. (No charge is made for the name of a country).

3. TextMessages to Bank Missions and to Resident Representatives should be numbered. These number< aybe obtained by calling Ext. 2008.Type text in capital letters and double space between lines. The text should be edited to eligiateunnecessary words and unnecessary punctuation. If punctuation is needed, spell out the wolds "Comma,""Stop," etc.Use common abbreviations whenever possible, i.e. reourlet, reurfive, etc. Write as one word hyp l1atedwords, hyphenated names, and certain two-word groups, e.-g. Airmail, Newyork, enduse.

4. SignatureType in last name of sender. Use INTBAFRAD as part of the signature only when addressee 4p~s notknow the address of the sender.

5. AuthorizationType in name and department of staff member authorizing message and have authorizing staff membersign the original (pink copy). A list of authorie xgnatures is kept in the cable office.

Forward messages in triplicate in a cable envelope to Roo'ilr210 for despatch. The cable service is openfrom 9:00 a.m. to 5:45 p.m. on working days. Special arrangements should be made for the despatch ofof cables outside of these hours.ANY QUESTIONS REGARDING INCOMING AND OUTGOING WIRES SHOULD BE REFERRED TO THECABLE POST, EXT. 2008.

4f

AUSTRIAN EMBASSYECONOMIC OFFICE

WASHINGTON, D. C.

Ref.No. 81145/56

April 16, 1956

Mr. Victor UmbrichtEurope, Africa, Australasia DepartmentInternational Bank for Reconstruction

and Development1818 H Street N.W.Washington, D.C.

Sehr g.ter Herr Umbricht:

Im Anschluss an unser heutiges Telephongespraech folgende Frage:

Das Bundeskanzleramt, Sektion V, ist derzeit mit der Counter-part-Programmierung 1956 fuer den Zjek-tDopne=9-k39r beschaeftigt,wobei auch Bemuehungen un eine Counterpart-Vorfinanzierung fuerWeltbankprojekte im Gange sind.

Man duerfte sich dabei nicht im Klaren sein, ob die Ueberlegungender Weltbank hinsichtlich der inlaendischen Komplementaerfinanzierungvon der Annahme ausgehen, dass Counterpartmittel in der Hoehe vonS200 Mio. fuer eine Reihe von Projekten, einschliesslich Njgjji,weltbankprojekte (z.B. aiT de'- ausschliesslich fuer Welt-bankprojekte zur Sicherung ihres Inlandfinanzierungsanteiles verwendetwerden.

Ich waere Ihnen fuer eine moeglichst rasche Stellungnahme zudieser Frage sehr dankbar und bin mit den Empfehlungen

Dr. Robe Baier

DrRB/ Lw

~ ~L~( /1 i 4.L

FOR No. 61 ERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CONFIDENTIAL

AP 2A",STAFF LOAN COMMITTEE sLc//627mnutes of Staff Loan Committee Meeting held Monday, April 16, 1956 at

3:00 p.m. in Room 1005

I. Present;

Mr. R. L. Garner Mr. A. BrochesMr. 31 A. B. Iliff * Mr. 0. A. SchIidtMrS. R.o Cope * Mr. R. H. Dorr *Mr. H. 1. Riley * Mr. M. M, Rosen *Mr. R. H. Demuth * Mr. G. M.ALter *Mr. B. H. Colquhoun Mr. H. G. A. Woolley) Secretary

In attendance:

Mr. J. G. Beevor Mr. E. W. RembertMr. R. W. Cavanaugh * Mr. A. p. SpottswoodMr. J. Hp CollJier Mr, E. SymondsMr. A. N. Kamarck Mr. V. UmbrichtMr. F. K. Oppenheimer

* Part only.

II. Austria

The Committee considered Memorandum SC/0/844., "Austria a ProposedLoan," and

AGREED

(1) with the conclusions and recommendations in paras. 30 and 31 of theMission Report, subject to:

(a) further consideration and discussion during the loan negotiationsof whether it might be more advantageous

(i) to speed up the Bank t s disbursements for the iaisseck-Kreuzeck project to cover the present gap in the financingof that project than to reimburse the borrower for expendi-tures before the end of 1955 on the ybbs-Persenbeug project;

(ii) to make two separate loan agreements for the Donaukraftwerkeand Draukraftwerke projects, with the Verbundgesellschaft (V.G.)as co-borrower;

(b) a letter instead of a covenant being obtained to cover the Banktsrequirement in clause (f) (ii) of para. 31;

(c) amendment of clause (f) (iv) of para. 31 to provide that the V.G.should obtain the Bank's agreement before undertaking, in the period1936-60, any substantial capital expenditure not already includedin its program;

(2) that the Bank should infon the Government by cable that it considers arate increase of 22f. suitable and that it is ready to start negotia-tions on the proposed loan.

III. The meeting adjourned at 4:4O p.m.

FORm No. 27 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT(8.55)

OUTGOING WIRE

CLASS OF SERVICE: LE"TER TELEGRAM DATE: APRIL 16, 1956

TO: STHVERBUNGu!ELICHAFTVIENNA

COUNTRY ( AUSTRA)

FEXT:

Cable No.

BANK PREPARED ACCEPT POMn|l TARIFF INCREASE OF APPRaKIMTELY 22% ON

DOMMICATL.I CONumED pow R STOP YOU MAY THEROREm INITIATE STES

FOR IMP!ENTAliTIONl STOP HAVE IUURMlED AUSTRIAN EMASSY THAT BAN~K

READY NEGTIATE NEW LOAN

Signed: 1MBICHT

AUTHORIZED BY:NAME: V. Umbr-ichtNj For Use by Archives Division

DEPT: Assistantt Director of Oprtions Checked for DispatchSIGNATURE~p)Arc adAtaai

Cleaned with Mr. Spottswoodcc: Mr. Spottasod

Umbrihtme ORIGINAL (File Copy)

(IMPORTANT.Seeor or nuitde nm an uaina ial


1. Class of ServiceType in class of service desired. Each class is described as follows:

Letter Telegam Letter telegrams are normally delivered the moring after day of despatch. The costis half the cst of full rate messages with a minumunm charge for 22 words in cludingaddress and text.

Full Rate Full rate messages are normally transmitted and delivered immediately. There is minimum charge for 5 words, including address and text.

IBF Govt. This is a preferential rate extended to the Bank by some of its member countries.Messages are sent at full rate speed and at about half the cost. This rate normallyshould be used whenever available, It is at present available for the followingcountries:Bolivia Cuba Guatemala * PeruBrazil Dominican Republic Honduras * SyriaBurma Ecuador J orda UruguayChile El Salvador *Lebanon Venezuela

*China * Ethiopia Nicaragua YugoslaviaColombia * France PakistanCosta Rica Greece Panama

*In these-countries thes letter telegram rate is slower than IBF..government latse andshould be use for messages when immediate transmission is not required.

.Cnde Cod messages are transmitted at full rte (or IBF Govt.) speed and c:ost. This rateshould be used only for confidential me'ssages to staff members having -a -code withthem.

Day Letter Day letters -ae delivered-during the day of transmission and should be used, only formessages in the United States and to Mexico and Canada. There is a minimumcharge for 50 words in text.

Teletype To be used only for messages to the New York Office, United Nations,- and certaincommercial firms For information, call Cable Post (Ext. 2008).

2. AddressUse only last name of addressee and cable address whenever possible. The Bank cable address"INTBA#RAD* is registered in Paris, Beirtit, Rio de Janeiro Bogota, and Guatemala City. The nameof the country of destination must always be added. (No charge is made for the name of a country).

3. Text

Messages to Bank -Missions and to Resident Representatives .should be numbered. These numbers maybe obtained by calling Et. 2008.Type text in capital letters and double space between lines. The text should be edited to eiirinateunnecessary words and unnecessary punctuation. If punctuation is needed, spell out the words "Comma,*"Stop," etc.Use common abbreviations whenever possible, i.e.* reourlet, reurfive, etc.. Write as one word hyphenatedwoqrds, hyphenated names, and certain two-word groups, e.g. Airmail, Newyork, enduse.

4. SignatureType in last name of sender. Use INTBAFRAD as part of the signature only when addressee does notknow the address of the sender.

5. AuthorizationType in name and department of staff member authorizing- message and have authorizing staff membersign the original (pink copy). A list of authorized signatures is kept in the cable office.

Forward! messages in uilate in a -cable envelope to Room 210 for despatch. The cable service is openfrom 9:00am to 5:5p~m. on working days. Special arrangements should be made for 6fe despatch ofof cables ouside of thse hours.ANY QUESTIONS REGARDING INCOMING AND OUTGOING WIRES SHOULD BE REFER(RED TO THECABLE POST, EXT. 2008.

r~

2') 2'~*


C. F. KARSTEN

MANAGING DIRECTOR ROTTERDAM. April 13th, 1956.

i;1r. Ea BlackInternational Bank forReconstruction and DevelopmentWASHINGTON 25, D.C.

Lear Mr. Black,

In London we arranged that I was to inform you when it became

desirable that you would approach Dr. Holtrop personally regarding

the Austrian loan. The reason, why I have waited so long, is that

I still cherished the hope that by private intervention Minister

Waldbrunner would be found prepared to change his point of view

as regards the X.L.M./Air Austria. This question stands apart

from our loan it is true, but a succesful intervention would have

furnished us with an argument to ask Dr. Holtrop to give his

consent, also in connection with other Dutch interests.

Ideanwhile it appeared that fdinister Waldbrunner is not prepared

to act in the aviation-question before the elections and this

means that if we wait for this we will be pressed hard for time0Therefore I would propose to you now to approach Dr. Holtrop per-

sonally with a request to give sympathetic consideration to the

question of a loan to be given by a group of Dutch banks in com-

bination with a Worldbank loan to be given simultaneously. The

arguments in favour of such a plan and the interest of Holland and

the Worldbank to take such an initiative need hardly be given by me.Surely you will be able to give such arguments in a more convincing

way.

Whether there is a chance of success I do not know, although I

must confess that I am not very optimistic. Dr. Holtrop still holds

the view that the market must be kept free partly for industrial

issues, through which part of the bankcredits is to be consolidated.

Now the question is of course whether the subscribers to these issues

will be the same as those to a foreign loan. A favourable symptom

is in my opinion that yesterday a new Government loan was announced.

The subscription-date is April 19, 1956; interest 3-fo; the price

of issue 99%vt duration 30 years; the amount involved is 400 millioen

guilders of which there has already been subscribed an amouit of

100 million guilders. This loan is in harmony with the state of the

market and will probably be a success. If it is a success it will

undoubtedly improve the sentiment at the Ministry of Finance (which

had been upset by the failure of the previous loan in autumn 1955).

Therefore there is less reason for it to keep the market free from

foreign issues.

-2-

A4 NeK A 4a

4Y~stcC


C. F. KARSTEN

MANAGING DIRECTOR ROTTERDAM. April 13th, 1956.

-2-

iar. E. Black - Washington 25, D.C.

Naturally you may tell Dr. Holtrop that at any time I am prepared

to furnish him with further information but so far I have refrained

from filing an application because same, as emanating rom us,would certainly be declined0

I am, awaiting your news with great interest,

Yours s' cerel

FOR 57 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OFFICE MEMORANDUMTO: Mr. S. Aldewereld DATE: April 13, 1956

FROM: S. Lipkowitz/$

SUBJECT: Austria - Power Project

At 1ir. Spottswood's suggestion, I have looked over theAustrian power project mission report. As I indicated orally tohim, the proposed rate increase (para 14) was a long step in theright direction. However, I feel that the statement in the missionreport that an increase which provides earnings sufficient to showa return of about 4% of total equity "is sufficient to place theV.G. in a reasonably sound financial position", is too strong.

I would suggest that this point be made in the SLC meeting.I do feel that the 22% increase in rates is substantialand agreewith Spottswood that it represents about the maximum concessionfor the present to be expected from Austrian authorities underexisting circumstances.

My purpose in emphasizing this point is to leave the wayopen for further rate increases at a future date to increase thereturn on overall investment to a higher figure, say at least 5%,which probably more closely approximates the real cost of capitalin Austria. This would also avoid the necessity of fully "justifying"a 4% rate of return in our project report.

Cc: Mr. A. SpottswoodMr. I. Rosen

SL/ro

Mr. F. M. Oppenheimer April 12, 1956

V. Umbricbt

Austria: Third Loan Operation (Power)

The Austrians forwarded to the Bank a few days ago an English

translation of their legal opinion on the Danube as an international

inland waterway.

Please find enclosed a copy of this translation.

YUbricht gas

Form No. 60 International Bank for Reconstruction and Development CONFIDENTIAL(12-5j1)ECLASS1F~IEI)Di

APR I 2 STAFF LOAN COMMITTEEWVB3 AR(Th 6 &/A/627

FROM: Office of the SecretarySecretary, Staff Loan Conmittee

April 1Up 1956NOTICE OF MEEI'ING

A meeting of the Staff Loan Cormdttee ill be held on Monday,April 16) 1956, at 300 pam., in ibom 1005.

AGEN4DA

Austria

The Conmmttee All 0onsider the attached Memorandum SLC/0/8A,

"Austria - Proposed Loan" dated April 10, 1956.

DISI'RIBUTION

President Director, Department of For Information:Vice President Technical Operations (3)Assistant to President General Counsel (2) SecretaryDirector, Department of Operations Director, Economic Staff (2) Director, Office of Information (2)

Asia and Middle East (2) Treasurer (2) Director, Economic Development InstituteDirector, Department of Operations Director, Technical Assistance Special Representative in Europe

Europe, Africa and Australasia (3) ard Liaison Staff FilesDirector, Department of Operations Engineering Adviser

Western Hemisphere (2)

Mr. Beevor (IFC)

DECLASSIFIElD

APR 19 2018Wk3 A R(i\ Ci CONFIDEITIAL

April 10., 1956

STAFF LOAN COIMTTEE

Memorandum from Department of OperationsEurope, Africa and Australasia

AUSTRIA - PRIOPOSED LCAT

1. The report on the findings of the mission which visited Austriain February/larch last, is herewith submitted for consideration. A drafteconomic report and a technical report will be distributed in due course,

2. Also attached is a letter by the Austrian Pinance Minister, Dr.Kamitz, to Uir, Black on the proposed loan operation.

3. The issues to be discussed are outlined in the Conclusions andReconmendations of the enclosed rep.ort (paragraphs 30 and 31).

4. I concur with the conclusions of the report and recomrend thatthe Bank inform the Austrian Government that it is ready to start negotia-tions on the proposed loan forthwith.

S. R. CopeDirector of Operations

Enclosures

REPORT ON THE PROPOSED LOAN TO AUSTRIA

I. PURPOSE OF TIE MiSSION

1. After consideration of the report of the mission which visitedAustria in November 1955, the S.L.C. decided that the Bank would consideranother loan to Austria and that expansion of power production shouldhave first priority. A mission, consisting of Mr. V. Umbricht of the De-partment of Operations, Europe, Africa and Australasia, Mr. A.D. Spotts-wood and Mr. P. Kanters of the Technical Operations Department, visitedAustria in February and March, 1956, to examine in detail the situationof the Austrian power industry and to study individual projects suitablefor Bank financing.

II. PR2VIOUS LOAUS TO AUSTRIA

2. The Bank has made two previous loans to Austria, both for electricpower development. The first, for $12 million equivalent, was made onJuly 19, 1954, to the Verbundgesellschaft and the Usterreichische Draukraft-werke as co-borrowers to assist in financing the Reisseck-Kreuzeck project.The second, for 010 million equivalent, was made on June 14, 1955, to theVorarlberger Illwerke to assist in financing the Lifnersee project. As ofthe end of February this year $4.8 million equivalent had been disbursedfor the Reisseck-Kreuzeck loan and 'i4.2 million for the LUnersee loan.

III. T'IE ORGANI7ATION OF TIE AUSTRIAN POKER IIDUSTRY

The Verbundge sellschaft

3. The law nationalizing electric power industry, passed in Iiarch 1947,established four special companies to own and operate large generating sta-tions and the Verbundgesellschaft (V.G. for short) to own and operate thehigh-tension transmission system which inter-connects the generating plantsof the special companies with each other and with the provincial networks.Prior to nationalization almost all of the electric energy consumed by thepublic was produced in plants owned and operated by the provinces and muni-cipalities. Privately owned plants supplied only small isolated areas andvillages. The Nationalization Law did not materially affect the privatelyowned sectors of the power econorry. Its purpose was to reorganize the pub-licly owned sector and to provide for federal ownership and financing ofpower production and transmission. The special companies established bythe Nationalization Law are jointly owned by the Federal Government and theProvinces. The V.G, is 1OO% federally owned and is the Government's trusteefor the shares which the Government owns in the special companies. As theGovernrant holds 51% or more of the shares of the specialJ companies, theV.G. is, in fact, a federally owned holding eoompayu

-2-

4. The V.0. is also the selling agency for the special companiessince they supply energy only to the V.G. All revenues from the sale ofelectricity accrue to the V.0, Strictly speaking, the V.G. does not pur-chase energy from the special companies but pays to them the actual costof their operation and, in addition, it decides what investment in newfacilities will be made by the special companies and allocates the fundsrequired. The allocation of profits to the special companies is made bythe V.G. in such a manner as to result in the lowest payment of taxes.(Hereafter the term "V.0, combine" will be used whenever reference is madeto the V.G. and special companies as a group.)

5. At the end of 1955 the V.0. combine had 41% of the total generatingcapacity installed in Austria and in 1955 it sold wholesale to distributingcompanies and a few large industries about 59, of the electric energy con-sumed by the public. The distributors, who are the provincial and munici-pally owned companies, also own and operate generating plants which supplythe remainder of the energy not provided by the V.G, combine,

IV. THE GROIWTH OF CONSUiPTION OF POWER ANTD THE V.G.'S COWSTRUCTION PROGRAM

The Growth of Power Consumption

6. The Federal Government, through the V.G. combine, has providedthe major expansion of electric power in Austria in the post-war period.This has been mostly in hydro-power, since Austria has not been self-sufficient in fuel The consumption in the past five years in the areasserved by the V.G../ has increased at an average rate of 12,4%, somewhatabove the European average; and although the demand so far has been met,there is at present no reserve of capacity in Austria during the wintermonths and imports must be obtained to meet part of the demand. The in,crease of the total domestic consumption in the area served by the V.G.is estimated at 135 in 1956, 9% in 1957 and is expected to decrease graduallyto 6% by 1960w Compared with the increase in the past five years, this isa conservative estimate,

The Construction Program of the V.G. Combine

7. To meet this prospective increase in demand the V.. has underconstruction projects which will increase its installed capacity by 612,000kw (447,WOO kw hydro and 165,000 kw thermal) by 1960, thus bringing itstotal installed capacity to 1,522,000 kw or 48% of the total in Austria.The program originally provided for expenditure on additional hydro plantswhich would be started in 1957 but which would not be completed until 196 J-62.The total cost of this program was 8.1 billion schillings (0310 million)2 overthe period 1956-60, In the opinion of the mission it was unrealistic to

All of Austria except the province of Vorarlberg,

2/ U.S. $3,.00 a 26 Austrian Schillings

-3-

assumie that the '.0. would be able to obtain such a large amount of capitaland, upon the mission's insistence, it prepared a less costly program in-volving expenditure of 6.3 billion schillings (l244 million) over the sameperiod. Even with the revised program there is a possibility that certainparts of it may have to be postponed if sufficient resources do not materi-alize, The reduction from 8,1 billion schillings to 6.3 billion schillings(or by $66 million equivalent) was achieved not by making any changes inthe program under construction but by substituting cheaper gas fired thermalplants for the planned hydro projects scheduled to be started in 1957 andcompleted in 1961-62. The planned capacity of the thermal plants is thesame as that planned for the hydro projects.

V. THE FINAUCfING OF THE PROGRAYI AD TE PROPOSED LOAN

8. Before setting forth the details of the V.G,'s present financialproblem and the projects selected for Bank financing, some general remarkson the proposed loan operation as a whole may be helpful.

9, The form and the amount of the proposed loan are determined byneeds of the V.G. Since its establishment in 1947, the V.G. combine hasfaced the task- of Ymeting an unusually rapid increase in power demand andit has endeavored to do so by developing Austria's hydro-power potentialsince hydro power in Austria is more economic than thermal owing to theavailability of relatively cheap hydro sites and the absence of cheap fuel.This policy, although economically sound, creates two problems: (a) Thefirst is the obvious one of finding the large amounts of capital required forhydro-power development. Up until 1952 this was overcome by the use of ERPfunds and from 1953 until the present the V.G. has been able to raise sub-stantial amounts in the local capital market and has also obtained one loanfrom the 3ank. B3txt with the development of the boom, the capital narketcannot supply the amounts needed and the V.G.'s problem has thus become muchmore difficult. (b) The second problem arises because any large expansionprogram based on the development of hydro power must, for reasons of econor,include large projects, As Austria is a small country, this inevitablycreates some inflexibility since it becomes difficult to slow the programdown in the face of a temporary shortage of funds without considerably in-creasing its cost.

10. The problem faced by the V.G. at the present moment is thereforethat it must either obtain additional capital outside Austria or it mustcease work temporarily on one or more of its large projects and incur theadditional costs and adverse consequences for the power supply which thatwould entail. The proposed loan is designed to help the V.3. over the nextthree years when the financial problem is particularly difficult.

11. Although the loan will be used for specific projects within theprogram, it is necessary to see the operation against the background ofthe V.G.ts overall position in order to obtain a true perspective,

12. The total cost of this program up to 1960, plus amortizationfalling due during the years 1956-60, will amount to 6348.6 millionschillings ('244 million). The financing scheme for the program is givenin the table below. It has been divided into two time periods in order toemphasize the importance of the situation during the next three years.

Period 1956-58 Period 195g-60(Schillings million)

Total Cost of Program 5.155.1 (198 m.) 1,193.5 ($h6 m.)

Internal Sources of Financing

Equity contributions fromthe Government 565.9 341.0

Net profits and other incomeof VG. combine 383.6 261.0

Depreciation 721.1 698.h

Long-term borrowings 1,704.4 950.0

Short-term Interim Financing 785.5 -

Sub-Total 4,160.5 2,250.4

External Sources of Financing

Remainder of IBRD loan toReis seck-Kreuzeck 19h.6 6.0

Total 4,355.1 ($167 m.) 2,256.4 ($87 -,.)

Gap remaining to be covered 800.0 ($31 m.) -

13. The total of available funds for the period 1956-58 is thus still800 million schillings ($31 m.) short of requirements. It is not realisticto expect that the V.G. could obtain any further funds from the sourceslisted above. As the Austrian capital market is very tight, the IBRD isthe only remaining source available. If the V.G. is not able to obtainfrom the Bank the 800 million schillings required for financing its program,it may mean that power expansion will fall behind and a shortage in the supplyof electricity will develop before 1960 with serious consequences for theoverall Austrian econortr. The mission examined the financial program and isof the opinion that although it may not be very easy for the V.G, to obtainthe amounts which it plans to raise from the Austrian capital market, theprogram is nevertheless a workable proposition.

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Ticome and Tariffs of the V G,

14. The figures given in the above table for depreciation and netprofits of the V.G. combine take into account the effect of an increasein the V.Gts power tariff. During the past four years, the averagecost of production of the V.G. combine per klih has about equalled theaverage revenue per kwh sold, The profits of the VG,, combine thereforehave accrued from income other than the sale of electricity, such astransformer rentals, installation charges, etc. The V.G, combine wouldhave operated in the red if adequate depreciation had been charged in1953, 1954 and 1955. This unsound situation had arisen principally owingto the political resistance to increasing rates in a large government-otmedenterprise. The mission informed the Austrians that the Bank could makeno loan until it was corrected. After a considerable amount of pressurethe VG.., the Finance inistry and the llinistry of Nationalized Industriesagreed to increase tariff charges after the elections on Lay 13, 1956, byapproximately 22" on electricity sold in Austria. Export prices will notbe increased, since almost all e:ports are sold under long-term contractsat fixed prices determined with regard to the specific provisions of eachcontract. In general, the rates charged for ex;ports have been somewhathigher than those for internal consumption. The proposed increase, whichTould go into effect in August 1956, is estizatad to provide revenuessufficient, after copletion of all projects now under zonstruction, tocover all operating expenses including depreciation based on revaluedassets and would also provide earnings sufficient to show a return of about7- on face value of share capital and about 4% on total equity. This in,.crease should be sufficient to place the V.G. in a reasonably sound finan9cial position,

Time Schedule of Expenditures and Receipts

15. The timing of expenditures and receipts for the V.G.'s program isas f ollows:

Verbundgesellschaft: Financins of Expansion Program(Schillings Yillion)

1956 1957 1958 1959 1960 Total

A. Total Cost of Program 1,763 1,924 1,468 787 '406 6,39

B. Finance Available 984 1,578 1,007 l,456 800 5,825

C. Proposed IBRD Loan 460 285 55 - -

Total ",hhh 1,863 1,062 1,456 800 6,625

D. Deficit or Surplus -319 - 61 -406 669 394 276

E. Necessary InterimFinancing (CumulativeTotal of Line D) 319 380 786 117 -4

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16. Although the total neans available, according to this presentation,show a surplus over the whole period, this surplus arises only in the years1959 and 1960. For the first three years it will be necessary for the Ver-bundgesellschaft to obtain considerable interim financing, which will amountin 1958 to as much as 786 million schillings, The mission checked theproposed sources of interim financing and believes that there are goodprospects that the V.G. will be able to obtain the necessary amounts. Forthe first years of the program, however, the V.G.ts financial situation isstill far from an easy one. The net surplus of 276 million schillings ($10.6million) arises entirely from operations in 1960 since the surplus shown for1959 must be used for the repaypent of interim financing. Proportionately itis a small sum and will most likely be absorbed by errors in the estimates.

The Projects

17. From the various projects in the V.G. program the mission proposesthe selection of three as being the most suitable for Bank financing. Thefirst of these is Ybbs-Persenbeug, a large run-of-the-river hydro plant onthe Danube, 130 km by river above Vienna. This project was started by theGermans in 1939-40. Work was suspended during the war and in 1945 the projectwas taken over by the Soviets as a German asset. In 1953, however, the Sovietauthorities suddenly handed the project back to the Austrian Government onthe understanding that work upon it would be resumed. Although the projectis a sound one, it would probably have been more desirable not to resum con-struction at that time, purely because of the difficulty of finding thenecessary capital. HowLver, the Austrian authorities felt obliged to do so,in view of the special circumstances, and this decision is partly responsiblefor the tight position in which the V.G. now find themselves.

18. The project is being constructed by the Osterreichische Donaukraft-werke A,G. It will cost a total of 2,365 million schillings ($91 million) ofwhich 519 million schillings ($20 million) had already been spent by the endof 1955. It will be completed by the end of 1959 and will have a capacity of192,000 kw from six generating units installed in two power houses. In anormal water year it is expected to produce at least 1,153 million kwh. Twounits will go into operation in December 1957 and a further one in the earlypart of 1958, and these will permit the production of valuable winter powerbefore the second power house is completed. The cost per kilowatt of capacitywith six units installed will be the equivalent of about $474 per kilowatt.The cost of production with six units installed (although one unit will beregarded as a spare unit) is estimated to be about 15.5 groschen per kwh, orthe equivalent of about 6 U.S. mils per kwh, with maximum interest charges.As interest decreases the cost will decrease. During the construction periodwhen the three units are in operation pending the completion of the secondpower house, the cost of production will be about 18 groschen per kwh, orthe equivalent of about 7 U.S. mils/kwh.

19. The other two projects are Voitsberg and St. Andrae, both expansionsof thermal plants using domestic brown coal. They are estimated to cost atotal of 570.0 million schillings ($21.8 million) and are under construction

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by the Draukraftwerke, the same company which is building the Reisseck-Kreuzeck project. The expansion will consist of the addition of one 65,000 kwunit to the existing 60,000 already installed in Voitsberg and the additionof 100,000 kw to the 67,500 kw in St. Andrae. The Voitsberg expansion is ex-pected to be completed in October 1956.. Actual construction of the St. Andraeexpansion is expected to start in January 1957 and be completed by the end of1958. Orders for the equipment have already been placed mostly in Austriaand partially in Germany after competitive bidding. The cost of the 165,000.kw expansion is estimated to be the equivalent of $133 per kw, a very reason-able figure. The cost of production from the new equipment is estimated tobe about 20.J4 groschen per kwh or the equivalent of about 8 U.S. mils per kwh.In the existing plants at Voitsberg and St. Andrae with old equipment theproduction cost is about 28.8 groschen per kwh or 11 U .S. mils per kwh.

Currencies

20, For all these projects import requirements amount to only $6.4 millionduring the disbursement period of the loan, so that most of the loan proceedswould be used to meet expenditure in Austrian schillin-s. In this respect theloan would be similar to the two previous Bank loans for Austrian power de-velopment. Insofar as the loan is used to meet expenditure in schillings thecurrencies used cannot be tied to imports from particular countries. Theymust, therefore, either be European currencies freely transferable throughoutEPU or else dollars or Swiss francs, in view of the scarcity of transferableEuropean currencies the best course might be to disburse the loan largely indollars or Swiss francs. Host of the 6.4 million of imports will come fromGermany.

Coverage of the Verbundgesellschaft' s Requirements in 1956

21. In 1956 the V.G.' program requires a total expenditure of 1,763million schillings ($68 milli on) and the available finance amounts to only1,303 million schillings (050 million) as shown in the table in para. 15. Itwill therefore be necessary to use 460 million schillings ($18 million) of theproposed Bank loan in 1956 in order to fill the g ap. The proposed method ofdisbursing the loan in order to meet this problem is shown in the followingtable:

Expenditures on the Projects and Disbursementof the Proposed Loan(Schillings million)

Project Spent up toEnd 1W 1956 195? 1958 1959 Total

DonaukraftwerkeYbbs-Persenbeug

Expenditure 519 595 650 401 201 2,366 ($91 m.)Use of Loan 62,6 314 167.6 - - 54.2 ($21 m.)

DraukraftwerkeSt. And're

FExpenditure - 18.5 193 182.5 - 394 ($15.2 m.)Use of Loan - 8.3 86,7 82 177 ($6.8 m.)

VoitsbergExpenditure 96.,2 75.1 3.7 - 175 ($6.7 M.)Use of loan a 75.1 3.7 - 78.8 ($3 m.)

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If the loan is disbursed in this way, it will finance 23% of the cost ofYbbs-Persenbeug, 45% of the cost of St. Andrae and 45 of the cost of Voits-berg. The problem of meeting the Verbundgesellschaft's requirements of 460million schillings in 1956 would be met by covering the whole of the expen-diture on Voitsberg in 1956 and by disbursing 62.6 million schillings ('2.4million) to cover past expenditures on Ybbs-Persenbeug in addition to the314 million schillings ($12.1 million) to be disbursed to meet expenditurein 1956 on this project. It is necessary to reimburse past expenditure onthis project instead of meeting a larger proportion of expenditure in thecurrent year because the Donaukraftwerke already has secured funds in theamount of 281 million schillings for 1956 and those funds are specificallycomitted to this company. Thus, if the Bank loan were to be substituted forthem they still could not be re-allocated to meet the requirements elsewherein the V.G* combine.

International Aspects of the Danube River

22. The Danube river is an international waterway and its use isgoverned by various international treaties. The Austrian Government hasprepared a legal memorandum giving an account of the relevant treaties andstating that no legal difficulties can be raised by other contracting partiesto the construction of the Ybbs-Persenbeug project. This was confirmed byindependent legal advice.

Security

23. Both the Bank's existing loans to Austrian power companies aresecured by mortgages and assignments of revenues from power export contracts.But two of the projects now under consideration, Ybbs-Persenbeug and St.Andrea, have no outstanding mortgages and the third, Voitsberg, has only onemortgage, securing an outstanding debt of $5OO,OOO to be repaid in 1964. Inthese circumstances there is no special reason for the Bank to take mortgagesfor the proposed loan. A negative pledge should be sufficient.

24. lione of the three new projects are directly connected with theexport of power. However, the Verbundgesellschaft has agreed upon a draftcontract for power export to Electricite de France. This contract was ori-ginally partly motivated by the prospect of a surplus of summer power fromthe Ybbs-Persenbeug project. But at the present time it is not possible tosay when this contract will becomie effective. Even without this uncertaintythere is no good reason for the Bank to attempt to obtain security for theproposed loan in the form of an assignment of revenues from power exportsbecause the currency, French francs, could not be used to make the projectself-liquidating in foreign exchange. In this respect also a negative pledgeshould be satisfactory.

The Borrower

25. There are two possible methods of setting up the loan. It couldfollow the precedent of the Reisseck-Kreuzeck loan in that the operatingcompanies could be included in the loan agreement as co-borrowers with the

Verbundgesellschaft. Alternatively, the loan could be made to the V..,alone and separate project agreements concluded with the companies. TheWorking Party believes that the second method would be preferable as other-wise the transferability from one company to the other of re-imbursed fundsmight not be possible. The Draukraftwerke was included as a co-borrower inthe Reisseck-Kreuzeck loan because the loan was secured by a mortgage on thecompany's property. But in the present case, if the Bank obtains a negativepledge instead of a mortgage, such a pledge could be given by the V.G. onbehalf of the companies. However, if it turns out during the course ofnegotiations that to make the loan to the V.G. alone would have disadvantagesthat are not yet apparent, then both the companies could be included as co-borrowers. In that event, it might be necessary to have two loan agreements,one for each company, with the VG. as co-borrower in both.

Creditworthiness of Austria

26. The present public external debt of Austria amounts to $123 millionequivalent, including a recent U.S. "food-import" loan. This is equivalentto only 4.2% of national income and the total annual debt service amounts toabout 1.2% of the value of annual exports. Proportionately, therefore, Austriahas a lower external public debt than any other country in Western Europe.It may also be compared to the present level of Austria's foreign exchangereserves which amounted, at the end of January, to $351 million equivalent.

27. Account must also be taken of Austriats obligation under the StateTreaty to deliver to the Soviet Union $25 million of goods each year for 6years and 1 million tons of crude oil for 10 years. The implications of theState Treaty are analyzed in some detail in an economic report on Austriawhich will be circulated later. This report concludes that the deliverieswill not cause undue difficulty for Austria even though they come at anawkward moment when the economy is fully extended by an investment boom.

28. In view of the economic importance of meeting the demand for electricpower and of the present tight situation in the local capital market, Austriawould certainly be justified in using additional external capital for thepower industry and would have no difficulty in meeting service payments onthe proposed loan.

Possible Public Issue in the Netherlands

29, The question of a public issue in the Netherlands, amountingprobably to 25 million guilders ($6.6 million equivalent) was discussed bythe mission with the Austrians and with a representative of the Rotterdam.sche Bank. Such an issue will require the consent of the Netherlands Bankand it is not yet known whether such consent will be forthcoming. In themeantime negotiations could start as soon as possible and, if necessary,provision can be made in the loan agreement for a subsequent adjustment inthe amount of the loan if at a later date a public issue is made which isspecifically linked to the Bank's operation.

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VI, C01CLUSIONS

30, As a result of the examination of the needs of the Austrian powersector and of the financial position of the prospective borrower, the follow-ing conclusions emerge:

(a) The amount of the loan. A Bank loan of $31 million tothe Verbundgesellschaft for the three projects, Ybbs-Persenbeug, Voitsberg and St, Andrae, would be fullyjustified. This conclusion rests upon the followingconsiderations:

(i) the amount of $31 million is well within thelimits of Austria's creditworthiness;

(ii) the projects concerned are all sound;

(iii) after the proposed increase in power rates theborrower should be in a reasonably satisfactoryfinancial condition;

(iv) when measured against the V.G.?s needs over thenext three years, the amount is moderate, as canbe seen by the amount of interim financing whichwill in any case be necessary;

(v) if the Bank loan were reduced below $31 million,the V.G. would face acute financing difficulties.If the construction program were to be reducedfurther, there would probably be a period ofsevere power shortage which might hold back theprogress of the whole econoLy unless expensivepower was imported. On the other hand, the AustrianGovernment might feel compelled, in order to maintainthe minimum power expansion program, to permit theutilization of foreign exchange reserves. In otherwords, recourse would be taken, in one way or another,to central bank borrowing. In present Austriancircumstances, this would be most undesirable. TheMinister of Finance is relying heavily on creditrestriction to control the present boom. If theV.G. were allowed access to central bank borrowingit would be more difficult to resist other demandsfor capital. At best, the pressure upon the FinanceMinister would be greatly increased; at worst, theprincipal bulwark against inflation might be severelydamaged.

(b) The borrower. The loan should be directly to the Verbundgesell-schaft, with separate project agreements with the Donaukraft-werke and the Draukraftwerke unless negotiations reveal reasonsfor preferring the inclusion of these two companies as co-borrowers.

(c) Increase in the V.G.ts power rates, A rate increaseof the order of 20-22% is necessary and should besufficient to place the V.G. in a reasonably satisfactoryfinancial condition.

(d) The Bank-financed projects should have first claim onall the V.G.'s available investment funds. Althoughthe financing program as at present proposed appearsreasonably in line with what can be expected from theAustrian capital market, the possibility that all theexpected resources may not materialize cannot be ruledout. In that event it would be necessary to postponepart of the construction program. The granting ofpriority to Bank-financed projects will ensure that theV.G. does not postpone these projects without the agree-ment of the Bank.

(e) The V.G. should consult the Bank before undertaking anysubstantial capital expenditure during the period 1956-60,which is not already included in the program. This obliga-tion is intended to safeguard the Bank, should the V.G.plan to start large projects in circumstances where it isdoubtful whether sufficient capital can be obtained forthem.

(f) Security. The Bank should not require security in theform of mortgages on the projects or assignments ofrevenue from power export contracts but should obtainnegative pledges in both these resepcts.

(g) Coverage of the V.G.'s requirements in 1956 , In orderto meet this problem, it will be necessary to reimbursea certain amount of expenditure made by the Donaukraftwerkeon Ybbs-Persenbeug prior to 1956,

(h) Local expenditure loan. Part of the proceeds of the loanwould have to be used to meet local expenditure as wasthe case in previous Bank loans in Austria.

VII. ECO 1ENDATICNS

31. It is recommended that:

(a) The Verbundgesellschat be the borrower with projectagreements executed by the Donaukraftwerke and theDraukraftwerke.

(b) The Bank agree to make the loan in the amount of $31million or the equivalent in other currencies toassist in the financing of the Ybbs-Persenbeug, St.Andras and Voitsberg projects.

l12 -

(c) Negative pledges be obtained from the V.G. and nosecurity in the form of mortgages or assignmentsof revenue be required.

(d) The reimbursement up to the equivalent of $3 millionof the expenditure made by the Donaukraftwerke onthe Ybbs-Persenbeug project prior to 1956 be authorized.

(e) Part of the proceeds of the loan be used to meet localexpenditures.

(f) In addition to the usual covenants included in theLoan and Guarantee Agreements, the following requirementsshould be taken into account:

(i) the effectiveness of the loan be dependent uponthe implementation of an increase of about 22%in the rates for the sale of electricity to allV.G.'s domestic consumers;

(ii) the V,Q. agree that Bank-financed projects shouldhave first claim on all of its available invest-ment funds and that before work on any Bank-financed project is postponed or reduced, theBank's agreement should be obtained;

(iii) the Government should give an undertaking thatsufficient funds will be available to complete theBank-financed projects;

(iv) the V.G. should agree to consult the Bank beforeundertaking, in the period 1956-60, any substantialcapital expenditure not already included in itsprogram..

For the NissionsV. Umbricht

April 10, 1956

BUNDESMINISTERIUMFUR FIAWZEIJ

Wien, I,, den March 17th, 1956The Federal Minister of Finance Himmelpfortgasse 8

Dear Mr. President,

As I understand, the chief of the delegation of your Bank to Austriaand the responsible top executive of the Bank of Rotterdam will, duringyour short stay in London on your way back to Washington, have a firstopportunity to report to you personally on the results of discussionsheld in Vienna concerning the envisaged loan project for the Austrianelectricity industry.

The preliminary negotiations between your delegation, on the one hand,and the Federal Ilinistry of Finance, the Federal Uinistry of Transport andNationalised Enterprises as well as the presumable borrowers, viz. theOesterreichische Elektrizitatswirtschafts AG. (Verbundgesellschaft) and twocompanies belonging to their combine, on the other, have been held in aspirit of mutual understanding as has become customary in dealings betweenthe Bank and Austria. Those discussions have had most important resultsand have, as I am led to believe, brought about a farreaching rapprochementbetween the views held by your delegation and by the Austrian authoritiesconcerning the credit worthiness of borrowers, the technical aspects ofthe project, the policy to be followed in the near future by the Austrianelectricity industry as well as the need for, and the time of extension of,the proposed loan.

Vhen I now make myself spokesman for the Austrian electricity industry,I am prompted by the consideration that the continued development and com-pletion of those Austrian power plants which are partly to be financed withthe help of foreign capital, constitutes one of the most essential precon-ditions for assuring the results ,of the reconstruction work achieved thusfar and forms an indispensable contribution towards the recovery work stillto be done.

The way that led to the results of reconstruction achieved thus far inAustria was doubtless a very hard one. Notwithstanding the fact thatAustria counts among the countries which have especially been affected byboth the hot and the cold war, it has been possible during the period 1945to 1955 to create economic conditions which nearly in all instances aremore favorable than before the occupation of Austria by the German Reich.

Mr. Eugene BlackPresident, World BankHotel ClaridgesLondon, England

2-

Austria has now a stable currency, adequate monetary reserves and a wellfunctioning credit system. Throughout all economic branches and in par-ticular in industry and agriculture, extraordinarily large new investmentswere made involving considerable production increases. The achievementsof Austrian export industries are remarkable and lend themselves, no doubt,to further development so that the Austrian balance of payments will con-tinue to show the trends as may be expected from a sound financial policy.The favorable employment level has resulted in an enhanced standard ofliving and thus has precluded the coming into existence of radical politicaltendencies. In recent years the social product has grown considerably.

During the reconstruction period, the development of Austrian electricpower plants has played a decisive role. It was only by supplying.-the.Austrian national economy with adequate quantities of power at cheapestpossible prices that maxium accomplishments could be achieved by Austria'sindustries, agriculture and the other economic sectors. The improvedliving standard of the Austrian population has required an adequate supplywith household current and at the same time provided employment to a numberof Austrian consumer goods industries.

Development of Austrian power plants, in general, and of hydro powerplants, in particular, which, owing to the favorable geographical condi-tions prevailing in Austria, were given preference, was, at the outset,partly made possible by using considerable ERP-counterpart funds. In con-sultation with the Government of the United States, the Austrian FederalGovernment could allot some three billion schillings to the power industryfor such purpose. After the gradual decline of that source of financingthe Austrian economy has had recourse to the foreign and domestic capitalmarket. From the domestic capital market two and a half billion schillingswere raised for the power sector in the years 1953 to 1955. During thatperiod also a first loan was extended by the International Bank for Recon-struction and Development for projects of the "Oesterreichische Draukraft-werke" and the "Vorarlberger Illwerke". With the help of all of those funds,a number of large-scale power plants were constructed which now representan essential portion of Austria's national assets.

In view of the further rising requirements of her economy which hastaken a particularly steep upward trend since the conclusion of the StateTreaty, maintenance and further expansion of power supply within Austriaappear indispensable in order to continue and complete the developmentwork begun.

At this time, extension of a large loan by the International Bank ofReconstruction and Development will be of decisive importance for thefuture of the Austrian economy.

The studies undertaken by your delegation with the greatest conscien-tiousness were, inter alia, focussed on the field of tariff policies, onthe long-term financing programme of the Verbundgesellschaft as well as on

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other aspects of the overall programme. At this stage of the negotiationsand in order not to anticipate your pertinent decisions, the delegationwas, however, not in a position to give any concrete data concerning theextent of the envisaged loan, which fact was clearly understood by theAustrian agencies.

Concerning the wishes pronounced by your delegation in connectionwith the granting of the loan, I am able to inform you that the problemsinvolved have been carefully studied in Vienna. The initiated investiga-tions are conducted further in detail. I may, however, inform you alreadyat this stage that the management of the Austrian ElektrizitatswirtschaftsACy has decided to give due and far-reaching consideration to the pointsmade by your delegation which, in part, involve drastic modifications.The measures to be taken in this respect have, as I learn, found approvalby the competent Members of the Federal Government. I, too, endorse themeasures which your delegation has considered to be indispensable. In viewof the close cooperation displayegl between the Bank of Reconstruction andDevelopment and the Austrian Federal Government it appears, however, impor-tant to me to inform you already now of my views concerning the requiredcredit amount which are based on en extensive survey of the financialposition of the institutes involved. It is my opinion that the line ofcredit would have to be of an order of 800 million schillings ( l milliondollars). A loan of such extent would actually provide to the overallAustrian economy a decisive aid and its effects are bound to rake themselvesfelt over a very long period of time,

In view of the above considerations I am supporting the applicationof the Austrian electricity industry for a loan by the International Bankfor Reconstruction and Development, possibly under participation of otherforeign institutes, in an amount of 800 million schillings, and I willpropose to the Council of Ministers that the guarantee for said loan beassumed by the Federal Government.

I instructed the competent official of my Ministry to be at your dis-posal in London for giving you any information you may wish to have con-cerning pertinent problems of credit policy.

With my very best wishes for a happy return home and the expressionof my sincere hope that eventually I shall have the priviledge and pleasureof welcoming you personally here in Vienna, I remain, dear Mr. President,with the assurances of my highest esteem,


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J. H. Collier

Loan Forecast - Austria

A nev loan for power dvelopment in Austria is under consideration.Two important points await a decision by the S.L.C.: the amount of theloan and the borrower. The recmaendations put forward for the S.L.C.'sconsideration are that the loan be for $31 million equivalent and thatthe borrower be the Verbundgesellschaft (V..). As regards the borrower,the final decision may be that the two companies, the Draukraftwerke andthe Donaukraftwerke, which are constructing the projects, should beincluded as co-borrowers. It is probable that the decision on this pointwill not be firm until actual negotiations take place.

The loan will be to assist in financing the V.G.13 expansionprogria. This program covers the years 1956-1960 and envisages a totalexpenditure of $244 million. The loan will be to assist the programdiring the three years 1956-1958 when the V.G.'s available funds fallshort of requirements by 800 million schillings ($31 million). Theloan proceeds will be used to help the construction of three projects,one hydro and two thermal. The bydro project is Thbe-Persenbeug, alarge run-of-the-river plant on the Danube, which is being constructedby the Donaukraftwerke. The two thermal projects are Voitsberg and5t. Andrae. Both are expansions of existing plants and both are beingconstructed by the Draukraftwerke, the same comparq which is construct-ing the Reisseek-Kreuseck project.

As was the case in previous loans to Austria for power develop..ment, import requirements are small, amounting to only about $6.4 million.Most of the loan will therefore have to cover expenditure in local cur-rency and will have to be disbursed in currencies not tied to importsfrom a specific country. It will thus be necessary for this part of theloan to use either currencies freely transferable within E.P.U. or elsedollars or Swiss francs.

We expect to submit this loan to the Executive Directors in lateMay or early June,

4I~WolieW/Jcd

FOfm No. 27 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT(8.55)

OUTGOING WIRE

CLASS OF SERVICE: LETTER TELEGRAM DATE: APRIL 9, 1956

TO: STAHIVERBUNDEIGSELLSCHAnTVIENNIA

COUNTRY ( AUSTR )

'EXT:

Cable No.

BANK IS T.11.T TO GIVE FIRAL INSTRUCTIONS FR NGISOTITIOS END

THIS WEEK OR EARLY NEXZT STOP BELIEVE THERE IS GOOD CHANCE FCR

BEGINNIG NEGOTITIONS ON APRIL 25 STOP SUGGEST YU MAKE PRO-

VISICKAL TRAVEL ARANGEM TS

Signed: UNBRICH

AUTU0RIZED B3Y:AU E BY. UnibrieFor Use by Archives DivisionNAME: V. Umbr'1.htDEPT: Assistant Dirfttor of Cperations Checked for Dispatch

SlGNATUR?"o',J MAf" ad Autan

VIambrichtteed ORIGINAL (File Copy)

(IMPORTANT: See over for nuide in onrearinaOutaoina Wire)


1. Class of Service

Type in class of service desired. Each class is described as follows:

Letter Telegram Letter telegrams are normally delivered the morning after day of despatch. The costis half the cost of full rate messages with a minumum charge for 22words includingaddress and text.


IBF Govt. This is a preferential rate extended to the Bank by some of its member countries.Messages are sent at full rate speed and at about half the cost. This rate normallyshould be used whenever available. It is at present available for the followingcountries:

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* China * Ethiopia Nicaragua YugoslaviaColombia * France PakistanCosta Rica Greece Panama

* In these countries the letter telegram rate is lower than IBF government rate andshould be used for messages when immediate transmission is nor required.

Code Code messages are transmitted at full rate (or IBF Govt.) speed and cost. This rateshould be used only for confidential messages to staff members having a code withthem.



2. Address

Use only last name of addressee and cable address whenever possible. The Bank cable address"INTBAFRAD" is registered in Paris, Beirut, Rio de Janeiro, Bogota, and Guatemala City. The nameof the country of destination must always be added. (No charge is made for the name of a country).

3. TextMessages to Bank Missions and to Resident Representatives should be numbered. These numbers maybe obtained by calling Ext. 2008.Type text in capital letters and double space between lines. The text should be edited to elirrinateunnecessary words and unnecessary punctuation. If punctuation is needed, spell out the words "Comma,*"Stop," etc.

Use common abbreviations whenever possible, i.e. reourlet, reurfive, etc. Write as one word hyphenatedwo,rds, hyphenated names, and certain two-word groups, e.'g. Airmail, Newyork, enduse.

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Forward messages in triplicate in a cable envelope to Room 210 for despatch. The cable service is openfrom 9:00 a.m. to 5:45 p.m. on working days. Special arrangements should be made for the despatch ofof cables outside of these hours.ANY QUESTIONS REGARDING INCOMING AND OUTGOING WIRES SHOULD BE REFERRED TO THECABLE POST, EXT. 2008.

AIR MAIL April 4, 1956

Mr. W. HahnOsterreichische DraukraftwerkeAktiengesellschaftKlagenfurtAustria

Dear Mr. Hahn:

Your letter of March 29 was received this morning. I shall,

as you request, substitute the figures enclosed in your letter for

those which you gave me in Vienna. I appreciate your sending me the

corrections.

I want to take this opportunity to thank you for your

cooperation and very prompt compliance with all of my requests for

information about the Voitsberg and St. Andraes plants.

With kindest regards,

Yours very truly,

A. D. SpottswoodAssistant ChiefPublic Utilities DivisionDepartment of Tachnical Operations

ADS:fmc

Op. FilesThe report referred to is not

complete and is not read to be sent toyour files.

Air Mail April 3, 1956

Mr. Petrus Kantersc/O Mr. Bernard ChadenetHotel (randRome, I taly

Dear Pete:

Since I arrived in the office on March 3e' I have been swamped.I found that the loan to Ecuador had not been presented to the Board ofDirectors; therefore I had to give attention to some details on this loanand could not devote my entire time to Austria. The Ecuadorian loan wassigned on hursday, March 29, and the two Ecuadrians left the followingday.

I am enolosing for your information a copy of my report on the v.0.loan, which I drafted in Viennas along with the annexes. When I got back .Ifound that the management had introduced a new system for the presentationof reports on proposed loans which consists of, first, a brief swwiary ofthe project with a presentation of the issues involved. This brief paperhas to go to the Staff Loan Comidttee as soon as pos4ible after the Missionreturns. It will be prepared jointly by the TOD and the Area. Ihe SLCwill consider the issues and decide whether or not negotiators should beinvited. Assuaing that SLC authorises an invitation to the negotiators,a complete technical report will be prepared after the negotiatiuoyhawebeen completed. This report will go first to the SLC and then to the Boardof Directors.

This system puts a great deal of pressurs on the mission as soonas it returns to Washington. It was fortunate that I had the draft of myreport completed because it greatly facilitated preparation of the preliminarypaper for the SLC.

we anticipate that the preliminary paper will go to Staff Loanearly next week and that the Austrians will be invited for negotiationsabout the .ddd of April and they should be in Washington before the endof the month. It would be desirable, therefore, that you get back toWashington as soon as you possibly can. In fact, if I had known that thisnew system was to be put into effect, I mould have originally tried toarrange for someone else to go to Italy.

I hope that the balmy Italian sun shine has cleared your cold andthat we can look forward to seeing you in the not too distant future.

Encl. Draft ap raisal Sincerely yours,AnnexeS& sukMMary

4n4losures-f --9wafAappraisal ( .. d

Yr. F. M. Oppenheimer April 2, 1956

V. Umbricht

Austrian Loan Operaticn - 1956

Before the last mission left for Austria in February 1956, theWorking Party on Austria had expressed the view thnt a new loan forthe Austrian powvr sector should not crry a positive security inthe form of mortgagee and an assignrert of a pover cortrAct butshould c rry a negative pledge clause in respect of these items.

I had asked Dr. Wagner, the Bank's legal counsel in Vienna, tolet me have a memorandum on the proper legal fort for such negativepledges, Fe gave his legal opinion in a merorandum dated March 2,1956, the original of which is attached.

Attachment

VUmbricht:ms

A& ord an group

Record Removal Notice NjE-

File Title Barcode No.

Power Project - Austria - Loan 0149 - P037352 / Electric Power'Project - Austria - Loan 0148 - 1516754P037351 - Negotiations - Volume 1

Document Date Document Type

April 2, 1956 Memorandum

Correspondents I Participants

To: Mr. UmbrichtFrom: Frans M. Oppenheimer

Subject / Title

Choice of borrowers for the proposed Austrian power loan

Exception(s)Attorney-Client Privilege

Additional Comments

The item(s) identified above has/have beenremoved in accordance with The World BankPolicy on Access to Information or otherdisclosure policies of the World Bank Group.

Withdrawn by DateVlada Alekankina April 25, 2018

Archives 01 (March 2017)

FORM5-48) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OFFICE MEMORANDUMTO: Files DATE: March 29, 1956

FROM: J. H. Collier

SUBJECT: The Danube as an International Waterway

Attached to a running report of the mission toAustria received from Mr. Umbricht was a legal memorandumprepared by the Austrian Government describing the inter-national treaties governing the use of the Danube river andtheir bearing upon the Ybbs-Persenbeug project. I sent thismemorandum to Mr. Oppenheimer.

JHCollier:mo

OSTERREICHISCHE DRAUKRAFTWERKEAKTIENGESELLSCH AFT

L E 2inschreiben

A.D. S p o t t s w o o d

c/o International Bank forReconstruction and Developemient

1818 H Street i.W.

Washington25 D.C. U.S.A.KLAGENFURT,

lhr Zeichen ihre Nachricht vom Unser Zeichen Baumbachplatz 2

/Ia/Kh 29th 'arch, 1956

Betrifft:

Dear Lr.Spottswood

I rejret to say that I have to correct the fiures

which I gave you in Vienna for Voitsberg 2. When I tried to

break up the sum of 175 Lio S I had not the correct amounts

with 1e.

ilease find the correct Estimate of Cost attached

which gives also a better amount for interest ( 4,2 S' ). It

is in accordance with the figures given to the Verbundgesell-

schaft.

Tihe alteration of the figures has almost no influence

on the calculated Cost per Unit on Sheet 11o.3.

I hope you had a good journey hone and found your

family in good health.

Jith kindest regards,

Yours very truly

('. H a h n )

1 Encl.

Du/2 D

1 K

-o Vorstand: Dr. Karl Krebs (Vorsitzer), DipL.ing. Erich Werner

Vorsitzer des Aufsichtsrates: Dir. Dipi-ing. Franz Hintermayer 0Drahtanschrift: Fernruf: Fernschreiber: Postscheckkonto Bankkono K Postfach 10000/Vil/52ucBank fo~r Karnten, Klagenfurt, Nr. 9180Potah10 0/V/2

Draukraft 46-11 Serle 034 51 157.185 Osterr. Lhnderbank, Villach, Nr. 2303 254 K. BauerDraukraft Klgft. Creditanstalt-Bankverein Wien Nr. 0424

FORM No. 57

(5-48) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OFFICE MEMORANDUMTO: Mr. Unbricht DATE: March 27, 1956

FROM: D. Sommers

SUBJECT: Proposed Austrian Loan

I have your memorandum to files of March 23, 1956. Ithink it is misleading to talk about a public issue as "part of"a Bank loan to Austria. In our combined operations the publicissue is really not a part of the Bank loan. While the two aretimed together, the extent to which they are tied together byprovisions for disbursement etc., varies with the circumstances.

So far as I can see there is no reason for preparingalternative loan contracts for the various eventualities. Wecan prepare a loan contract providing that the loan shall becancelled to the extent of any public issue in the Netherlandswithin a given period. And, if we want the proceeds of the futurepublic issue to be used for a particular program or project that canalso be written into the loan contract.

cc: Mr. Oppenheimer

FORMNo. 57 INTERNAT ONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OFFICE ORANDUMTO: Messrs., R. er/l. A. B. 5 f DATE: March 23, 1956

FROM: V. Umbricht

SUBJECT: Austria

As you may know there was a meeting in London on Monday, March 19,to discuss the possibility of joint Bank-Dutch operation for Austria.The Austrian Government was epre sented by Dr. von Teufenstein who

V-"brought the attached letter from Finance Minister Kamitz to Mr. Blackwhich contains the Austrian view on the amount of the proposed loan forthe power sector.

Mr. Black has read the letter and has asked me to inform you ofMinister Kamits' request. Mr. Black's only comment to Dr. von Teufensteinwas that the matter will be considered by the Bank's management withoutdelay.

Attachment 11 'J

FORM 48) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OFFICE MEMORANDUMTO: Files DATE: March 23, 1956

FROM: V. Umbricht

SUBJECT: Proposed Austrian Loan

At a meeting in London on Monday, March 19, at the ClaridgesHotel with Messrs. Black, Ventimiglia, Miller, Karsten (RotterdamscheBank), von Teufenstein (Austrian Ministry of Finance) and Umbrichtpresent, the possibility of a joint operation with the Dutch capitalmarket for Austria was discussed.

Dr. Karsten reiterated his Bank's willingness to launch a publicissue and explained that he had not yet asked for Mr. Holtrop's consentto a public issue for Austria, but that he had approached Finance Minis-ter van de Kieft whose reaction was encouraging. The consortium ofDutch banks, however, was not in a position to commit itself to a publicissue before the result of the Austrian elections to be held on May 13were known. Dr. Karsten mentioned that a possible Socialist landslidemight adversely affect the chances for a public issue in Holland andcause a postponement of a public offering#

Mr. Black then explained the procedure for a joint operation andstressed the advantages of such a transaction. The Bank would be happyto see it come through and would wish to help to achieve it. He addedthat he had already inquired from Mr. Holtrop via Mr. Lieftinck whetherthe Dutch National Bank would allow a public issue for Austria. Thereply was however not very favorable.

It was then agreed that no further steps with Mr. Holtrop shouldbe taken for the time being. Dr. Karsten will explore first what thebest timing for some pressure by the Bank on Mr. Holtrop might be andwill then so inform Mr. Black.

Mr. Black asked Umbricht to clarify meanwhile with the LegalDepartment in Washington whether the Bank could negotiate with theAustrians in the second half of April or early May on the basis oftwo loan contracts:

1. a Bank loan with a public issue and a loan without a publicissue, and

2. a loan now for say $30 million and a public issue in autumnonly, but in such a way that the latter would still be partof the Bank loan to Austria.

cc: Mr. SommersMr. Cope

VUmbricht:ms

BUNDESMINISTERIUMFOR FINANZEN Wien, i., den Mrch 17th, 56

The Federal Minister of Finance Himmelpfoaws8

Dear Mr. President, &

As I understand, the chief of the delegation of

your Bank to Austria and the responsible top executive

of the Bank of Rotterdem will, during your short stay

in London on your way back to ashington, have a first

opportunity to report to you personally on the results

of discussions held in Vienna concerning the envisaged

loan project for the Austrian electricity industry.

The preliminary negoti ations between your delegation,

on the one hand, and the Federal inistry of Finance,

the Federal Ministry of Transport and Nationalised

Enterprises as well as the presumable borrowers, viz.

the Oesterreichische Elektrizitatswirtschafts AG. (Ver-

bund,-esellschaft) and two comnaniec bolongiP to their

combine, on the other, have been held in a spirit of

mutual understanling as nas become customary in dealings

between the Bank and Austria. Those _iscuss icns have

had nest important resul s ani Yave, as I en led to

believe, brought about a farreac igrapprochement

between the views held by your delegation and by the

Austrian authorities concerning the credit worthiness

of borrowers, the technical aspects of the project,

the policy to be followed in the near future by the

Austrian electricity industry as well as the need for,

and the time of extension of, the proposed loan.

When I now make myself spokesman for the Austrian

electricity industry, I am prompted by the consideration

that the continued development and completion of those

-2-

Austrian power plants which are partly to be financed

with the help of foreign capital, constitutes one of

the most essential preconditions for assuring the re-

sults of the reconstruction work achieved thus far and

forms an indispensable contribution towards the recovery

work still to be done.

The way that led to the results of reconstruction

achieved thus far in Austria was doubtless a very hard

one. Notwithstanding the fact that Austria counts among

the countries which have especially been affected by

both the hot and the cold war, it has been possible

during the period 1945 to 1955 to create economic con-

ditions which nearly in all instances are more favourable

than before the occupation of Austria by the German

Reich. Austria has now a stable currency, adequate

monetary reserves and a well fun.ctioning credit system.

Throughout all economic branches and in particular in

industry and agriculture, extraordinarily large new

investments were made involving considerable production

increases. The achievements of Austrian export industries

are remarkable and lend themselves, no doubt, to further

development so that the Austrian balance of payments

will continue to show: the trends as may be expected

from a sound financial policy. The favourable employment

level has resulted in an enhanced standard of living

and thus has precluded the coming into existence of

radical political tidencies. In recent years the social

product has grown considerably.

During the reconstruction period, the development

of Austrian electric Dower plants has played a decisive

role. It was only by supplying the Austrian national

economy with adequate quantities of power at cheapest

possible prices that maximum accomplishments could be

achieved by Austria'- industries, agriculture and the

other economic sectors. The improved living standard of

the Austrian population has required an adequate supply

with household current and at t-e same time provided

employment to a number of Austrian consumer 7oods industries.

Development of Austrian power plants, in general,

and of hydro power plants, in particular, which, owing

to the favourable geograp1ical conditions prevailing

in Austria, were given preference, was, at the outset,

partly made possible by using considerable ERP-couiter-

part funds. In consultation with thc Governm ent of the

United States, the Austrian Federal Gover nent could

allot some three billion schillingo to the power industry

for such purpose. After the gradual decline of that source

of financing the Austrian economy has had recourse to

the foreign and domestic capitl market. From the domestic

capital market two and a half billion schillings were

raised for the power sector in the years 1953 to 1955.

During that period also a first loan way extended by

the International Bark for Reconstruction and Development

for projects of the "0esterroichischo Draukraftwerke"

and the "Vorarlberger Illwerke". With the help of all

of those funds, a number of large-scale power plants

were constructed which now re-orosent an essential por-

tion of Austria's national assets.

In view of the further rising requirements of her

economy which has taken a particularly steep upward

trend since the conclusion of the State Treaty, maintenance

and further expansion of power supply xithin Austria

appear indispensable in order -to continue and complete

-the development work begun.

At this time, extension of a large loan be the

International Bank of Reconstruction and Development

will be of decisive importance for the future of the

Austrian economy.

-4-

The studies undertaken by your delegation with

the greatest conscientiousness were, inter alia, focussed

on the field of tariff policies, on the long-term financing

prograTmine of the Verbundgesellschaft as well as on other

aspects of the overall programme. .At this stage of the

negotiations and in order not to anticipate your per-

tinent decisions, the delegation was, however, not in

a position to give any concrete data concerning the

extent of the envisaged loan, which fact was clearly

understood by the Austrian agoncies.

Concerning the wishes pronounced by your delegation

in connection with the granting of the loan, I am able

to inform you that the problems involved have been care-

fully studied in Vienna. The initiated investigations

are conducted furtlher in detail. I may, however, inform

you already at this sta-e that the I management of the

Austrian Elektrizitatswirtschafts AG. has decided to

give due and far-reaching consideration to jhe points

made by your delegation which, in part, involve drastic

modifications. The measure3 to be taken in this respect

have, as I learn, found approval by the competent Mem-

bers of the Federal Government. I, too, endorse the

measures which your delegation has considered to be

indispensable. In view of the close cooperation displayed

between the Bank of Reconstruction and Development and

the Austrian Federal Government it appears, however, im-

portant to me to inform you already now of my views

concerning the required credit amount which are based

on an extensive survey of the financial position of -the

institutes involved. It is my opinion that the line of

credit would have to be of an order of 800 million

schillings (31 million dollars). A loan of such extent

would actually provide to the overall Austrian economy

a decisive aid and its effects are bound to make them-

selves felt over a very long period of time.

-5-

In view of -the above considerations I am supporting

the application of the Austrian electricity industry for

a loan by the International Bank for Reconstruction and

Ievelopment, possibly under participation of other foreign

institutes, in an amount of 800 million schillings, and

I will propose to the Council of Ministers that the

guarantee for said loan be assumed by the Federal Govern-

ment.

I instructed the competent official of my Ministry

to be at your disposal in London for giving you any

information you nay wish to have concerning pertin. ent

problems of credit policy.

With my very best wishes for a happy return home

and the expression of ny sincere hope that eventually

I shall have the privilege and pleasure of welcoming

you personally here in Vienna, I remain, dear Mr.President,

with the assurances of my highest esteem,

Very sincer y yours,

BITLJNATINAL BAMK FOR

HWX&STRUCTION AhD DEVELOPIM1iT

"imap Austria, March 16, 1956

Dr. E. W"e awrtDepartmunt of Tcuniical OperationsIntenational Bank for aconstruction

ami DevelopaentWasnto, D. C.

Doear a

Enclosed herewith is the end-use inspection report covering thetechical aspects of the Fbiseek-rausscc project. Kanters mW a spotcheck of disbursements and it revealed that disbursements were in order.He could not, however, obtain from te Drakraftwerke the informationca how the ompwr proposes to finance increased costs of the project.This infmaton can only be obtined from the V.0. and Pote will got italong with the financial program of the V.0. for the period 1956-1960widch the V.0. is preparing for us in econation with the proposed loan.Pate will prepare the fnancial report on the project at a later date.

Pat expects to leave for i A on Sunday Marsh 18 as scheduled.He has already advised Chadet. I an plaing to leave ThursdayrMarch 22 at the latest. By that tim I expect to have a preliminary draftof mV report. Pete will have prepared most of the financial data for thereport before he leaves for Rome. There will be a ftw items which theV.0. will give me after he eaves.

Ba mv last letter I said tnat we had suggested that the V.0. outits program to bring it more close2y in line with the financial resourcesmilabla. We have now resived a revised program which has been reduced

sbstanti&12; from the am originally submitted to us. The princial re-duction resulted from a substitution of thermal power plants for b)dro powerplants. Fuel for the thermal plants proposed will be natural gas. WhenI first arrived I discussed posiMudities for awe thermal power in the V.0.Qwtin which, at prosent, is 83% 1r'dro mid was given nuumerous reasons Uyit vu not advisable, including the difficulty in getting sufficientallocation of the natural gas supplies available. Apparently, now that fin-anclal casidenation pose the alternative of thermal poimr or a reduction inproposed capacity after 1960, the various problems appeared to have been solved.

We also reived the figures showing financial results fram the pro-posed 22% increase in the V.0. tariffs. The increased revenue will cover alloperating wxpanses including depreciation, taxes, interest, and a 1% returnon share capital. Ia addition there will be soe reasonable surplus afteralloestions for dividwmds. The dividends will, of course, not be p&id out,but will be used for investant. The increase appears to the mission to bereLsonable, but we have not indicated to the V.0. whet our opinio of the

increase is; we have on3 told them that we Would submit the figures tothe Bank along with our cosmvents.,

The V.G. hae agreed to all the proposals of the mision includingreduction of their program, Increase in the tariffs, "nd they stated thatthey would be Wiling to give an undertaking regarding the site of theirfMutue construction program. Oom* of these steps were very painful forthem. ach or* of course had to be cleared with various Goverment depart-mente mnd that took time.

The financial cover tor the constraction program 1956-1960 is reason-ably assured. Ih. mission has chocked the reasonablenes. of the various itW4*included and has been assured by banks, and Govenuont agencies ooneredthat the estimates are realistic.

Victor left last night for Swit-erland. il will maet Mr. BlIack inLondon on Aonday and vill probably get to Washington before I do.

Peter has not fully recovered from hi. cold (he now has a cough);perhaps the Italian uinshina will be helpful. By the time you receive thisyou will have received a cable from me coenrning uy departure.

Sincrely youras

A, Do spottmmood

*s Messrs. RosenCopeUmbriohtJag*

FOtm No. 27 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTt-55)

OUTGOING WIRE

CLASS OF SERVICE: DATE: MARCH 16, 1956

TO: BLACKCL&RIDGES HOTELLONDON., ENGLAND

COUNTRY (

rEXT:

Cable No. 2

HOLTROP HAS INFORMED TIETINCK THAT E IS UNABLE TO TAKE A DEINIT .

POSITION RIGHT NOW ON PROPOSED AUSTRIAN LOAN IN NET AN BUT THAT

PERSONALLY HE IS NOT REPEAT NOT OPTIMISTIC

COE

Signed: COPE

AUTHORIZED BY:NAME: S. R. Cope For Use by Archives Division

DEPT. Director of Operations Check$ for DIspotchNEurope, Africa and AustCralasia

SIGNATURE:

SRCopeans


IMPORTANT: See over forguide in Denaa~tonino Wire)


1. Class of ServiceType in class of service desired. Each dass is described as follows:

Letter Telegram Letter telegrams are normally delivered the morning after day of despetch. The costis half the cost of full rate messages with a minumum charge for 22wordsincludingaddress and text.


IBF Govt. This is a preferential rate extended to the Bank by some of its member countries.Messages are sent at full rate speed and at about half the cost, This rate normallyshould be used whenever available. It is at present available for the followingcountries:Bolivia Cuba Guatemala * PeruBrazil Dominican Republic Honduras *SyraBurma Ecuador Jordan UruguayChile El Salvador Lebanon Venezuela

* China. * Ethiopia Nicaragua YugoslaviaColombia t France PakistanCosta Rica Greece Panama

*In these countries the letter telegram rate is lower than IBF government rate andshould be used for messages when immediate tansmission is not required.

Code Code messages are transmitted at full rate ( or IBF Govt.) speed and cost. This rateshould be used only for confidential messages to staff members having a code withthem.

Day Letter Day letters are delivered duing the day of transmission and should be used. oly formessages in the United States and to Mexico and Canada. There is a minimumcharge for 50 words in text.


2. AddressUse only last namse of addressee and cable address whenever possible. The Bank cable address"INTBAFRAD" is rejistered in Paris, Beirut, Rio de Janeiro, Bogota, and Guatemala City. The nameof the country of destination must always be added. (No charge is made for the name of a country).

3. TextMesages to Bank -Missions and to Resident Representatives should be numbered. These numbers may

be obtained by calling Ext. 2008.

Type text in capital letters and double space between lines. The text should be edited to elirrinateunnecessary words and unnecessary punctuation. If punctuationiis needed, spell out the words "Comma,""Stop," etc.11e common abbreviations whenever possible, i.e. reourlet, reurfive, etc. Write as one word hyphenated

- ,6.ds, hyphenated namnes, and certain two-word groups, e.j. Airinail, Newyork, enduse.

Z 4. ftue

U.11

e in last name of sender. Use INTBAFRAD as part of the signature only when addressee does notW wthe address of the sender.

5. AthorizationTyein name and department of staff member authorizing. message and have authorizing staff member

p!jgn the original (pink copy). A list of authorized signatures is kept in the cable office.

FXadmessages in triplicate in a. cable envelope to Room 210 for despatch. The cable service is openfr~m00 a.m, to 5:45 p.m. on working days. Special arrangements should be made for the despatch of

Wles outsidie of these hours.

ANY QUESTIONS REGARDINyG INCOMING AND OUTGOING WIRES SHOULD BE REFERRED TO THE

CABLE POST, EXT. 2008.

*N

THE VERBUNDGESLLSCHAFT PXWER PWOGRAM

March 15, 1956

Generalities

1. The Austrian Government has asked the Bank for a loan for the powersector without specifying the amount. The mission examined the futuremarket for power, the present capacity of the Austrian power industry tomeet this amount, the additional capacity required, investment needs tocarry out the construction program for new projects and the financialcoverage available to meet these investment needs.

2. The overall financial needs for the period 1956-1960 were submittedto the mission in early February as amounting to 8.050 billion schillings,equivalent to $310 million. To meet these costs Austria reckoned to beable to raise, internally and externally, approximately 6.8 billionschillings whereas an amount of 1.2 billion schillings (M8 million)was left uncovered.

3. The mission considered the Austrian financing plan as unrealistic andunsound. Indeed, the Austrian capital market as well as Austria's possibi-lities to borrow money abroad are, in the mission's view, not as securesources of funds as estimated by Austria. After long and somewhat painfuldiscussions the mission worked out several conditions as prerequisites toany Bank loan for the power sector:

(a) The financing plan should be revised and brought in line withthe capacity of the limited Austrian capital market. Doubtfulsources of funds should be deleted.

(b) The construction program should be adjusted to the revisedand reduced plan of available funds. Expenditures should becut by at least 1.8 billion schillings between 1956-1960.This would imply postponement of projects or the abandoningof some of them.

(c) Thermal power capacity should be substituted for an equivalenthydro power capacity in Austriats future program because ofthe lower capital cost of thermal power.

(d) Austrian power tariffs should be increased sufficiently toenable the company to adhere to classical business principles(The raise was estimated by the mission to be of the order of20-22% at least).

(e) The VG should give an undertaking that all financial resourcesof the VG should be earmarked first for the Bank-financed pro-jects and could only in the second place be used for otherprojects. Bank-financed projects must, therefore, have a firstclaim on all the funds available to the V.G. system.

f L

-2-

4. As expected, these conditions created some stormy weather withinAustria in view of their economic as well as of their political character.However, the Austrian electricity industry and the Ministers of Finance andNationalised Industries have now agreed to accept all of them.

5. The question now arises regarding the amount of a possible Bank loan.The mission has been convinced that Austria needs a minimum of 800 millionschillings equivalent to $31 million to carry out the reduced power program.The Austrians have, however, been warned that the Bank may not be willingto go that far. This has caused serious disappointment in Austria - parti-cularly in view of the fact that the Austrian Government has for all practicalpurposes accepted all the mission's conditions which are far-reaching by anystandard.

6. The mission is ready to recommend a loan of $31 million eqiivalent,not only because Austria is creditworthy for it, but also because theconsequences of a further reduction of the loan amount would create far-reaching difficulties in Austria. The rehabilitation of the industriesin the ex-Russian sector and the increase of the productivity wouldseriously be hampered if the power industry were not able to provide aminimum increase of power. The assistance for the Bank would also loosemuch of its value if help were reduced to too modest a figure, becausethis would compel the VG to stop construction of projects already under way,which in turn would lead to a substantial and unnecessary increase in theirtotal costs. The mission sees no convincing argument why such an addi-tional reduction should be advocated.

70 The technical report will show that the projects which the Bank isasked to finance are economically and technically sound.

8. A point of some importance lies in the timing of the negotiations.In view of the urgency of Austria's needs it would be highly advisable thatthe negotiations take place as soon as possible. The Austrians trust thatthe proposed joint operation with a Dutch consortium will not delay this.

VERBUND1ESELLSCHAF T A.G.


1818 H Street, N.W.Washington 25, D.C.

Gentlemen:

We refer to Section of Article of the LoanAgreement of even date heir-eifth between the InternationalBank for Reconstruction and Development and ourselves.

This is to confirm that it is our policy to finance theexecution of only such major projects or major additions toour plants or other properties which will be self-liquidatingin a reasonable length of time.

Yours sincerely,

VERBUNDGESELISCHAFT A. G.

INTERNATIONAL BANK FOR

RECONSTRUCTION AND DEVELOPMENT

WASHINGTON 25. D. C.

Vienna, March 8, 1956

Letter No. 3

S.R. Cope, Esq.,Director of Operations- Rurope, Africa and Australasia -International Bank for Reconstructionand Development

Washington, 7).c.

Dear Raymond,

I send you enclosed some other reading stuff:

(a) The second part of the Running Report;

(b) A Note on the discussions with General Manager Karsten of

the Rotterdamsche Bank.

As you may see from the Running Report I had somewhat un-

pleasant discussions with the Ministry of Nationalized Industries

about tariff increases. Some of the top officials, quite suddenly

and unexpectedly and contrary to the views already expressed by the

responsible Ministers, felt angry and bitter about the Bank's pressure

for a tariff increase. This tempest in a tea-pot was however short-

lived because I was not prepared to reopen this discussion again on

this point. The full story ended up with the Ministry not backing up

these fellows, by apologies and by the Minister himself inviting the

mission to a luncheon next Tuesday. This intermezzo may show you that

the mission's position in this matter is not always easy.

Yours sincerely,

Encls. V. Umbricht

ViennaMarch 7, 1956

Dear Raymond,

I just received your cable No. 4 regarding the "seventh ameo" - million.Sorry, I did not know it, although I thought it would mean million. I lookedit up in the Code Book, but unfortunately I oampletely forgot that I had asecond green booklet with me - and that would have given me the answer. Toobadl

Things have been pretty rough. This tariff increase proved to be avery delicate and hot political potato. We had to be very, very firm to makeour friends understand that no money would flow without adequate rate increase.They have now swallowed the bitter pill - but it is not the last one. Nowcomes the amount of the increase and the amount of the loan.

The increase has to amount to at least 20%, but possibly to 25% or even30%, to put the house of the VG in order. This will cause some surpriseseThe amount of the loan has so far not been discussed with the Austrians. Ithink, however, that the mission will come up with a higher recommendationthan $20 million. The needs here are great and urgent and, although we willout down their program substantially, we should not press the reduction toa point where our assistance would no longer constitute a solution of theirunquestionably great difficulties. But we shall avoid talking to the Austriansabout this.

The Dutch issue? A very interesting and promising proposal. But itseem that Holtrop does not like it because he has set a limit of 150 millionguilders a year for public issues in Holland - and the present commitmentsalready reach that figure. We shall see.

I hope to return directly from London to Washington - around the 20th ofMarch.


/s/ Victor

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FORM No. 27(1153 INTERNATIONAL BANK~ FOR RECONSTRUCTION AND DEVELOPMENT

OUTGOING WIRE

DATE: MARCH 7, 1956 CLASS OF SERVICE DESIRED

TO: UMBRICHT NIGHT LETTER CODEHOTEL SACHERVIENNA (AUSTRIA) FULL PATE TELETYPE

TEXT:FOUR

REUR SEVEN FOR 5dWSEVENTH MMO READ L-k \ A

COPE

For Use by Archives Division

AUTHORIZED BY:8.R. COPE Checked for DispatchDirector of Operations

NAME Europe , Africa and Austral _ia

DEPT.SRCope :vpa

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FORM No. 26(1.50)


INCOMING WIRE

DATE OF WIRE: MARCH 7, 1956 ROUT ING

TO: INTERNATIONALBANK FOR ACTION COPY TO MR. COPE

RECONSTRUCTION AND DEVEIOPMENT FOATNCPYTFROM:INFORMATION COPY TO

FROM:

VIENNA Decoded By

TEXT:

SEVEN TOUR THREE TWENTYSEVENTH MEMO NOT RECEIVED

UMBRICHT

DUPLICATE

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Dr.W-R

Herrn

Dr. Victor Urm b rich tp.A. i Hotel S a c h e r

W i e n I.,

Philharmonikerstrasse 4

Sehr geehrter Herr Direktor!

In der Anlage beehre ich mich, zu Ihrer Information

Kopie meines Schreibens an Herrn Dr. Oppenheimer vom 6.d.M. samt

Anlagen zu Ubermitteln.

Da die Strecke Langen - Lech durch Lawinen unter-

brochen war, kann ich erst heute abreisen, stehe Ihnen aber, wie ge-

meldet, jederzeit telefonisch, aber auch persinlich zur VerfUgung.

Mit den besten Griissen

Ihr stets ergebener

3 Anlagen

RechtsanwaltDr. Ernst Wagner 6, a" 1956Wien, I., Karntneuing 10

Teldon U 46-5-10 Serie

Dr. WA.

Outerreichische DrwakraftwerkeAktiengesallachaft

Ilag eafurt

hubamachplat Nwr. 2

hr Zeichen SN/St/WaBetrifftt Weltbankk.edit Kreuzeck-Reissok

lo2 AlL - Pfandbestellung - Yink uliungder Venicehlrngpolizsgg

Ich danke beatens fr Ihre geashtston Zilon Yom 2A.S.eat Polisson-.itachrift Nr. 15863/Z[ Kbohinenbruch, Kraftwk

tiesomk u=d Zwietausfertigungen don Nachtrags VI aur PolimsIr. 2#113.ol6, des Rewhtrages V zur bolisse Jr. 2,113.14 %=d 4..

Nachtrag.s V sur Plisse Vr. 2126.792,

Gleichseitig besttige ich, das. ioh in lesitme der Jah-

tre I bis X der Hauptpolizse Ir. 15863 bin.

Der uasittelbarn Einsendung kbnftiger Zvwitasfertignu.

gan der Polisen aeitm. der Wiener Allians Vernicherugs.-AG. ashe

ich nit Intere.se entgegen uM ampfohle mioh

sit vorszglicher Ioohachtuug

OSTERREIC - SCHE DRAL)KRAWERKEA K T IE N G E S L L i 'J'L,

Herrn

Dr. Ernst W a g n e rRechtsanwalt

W i e n_ I.,

Karntnerring 10

Saa:S R/St/ , n 2.3. 1956

Weltbankkredit ReiIeck -Virn'.ulierung der Versicherun2Spolizen

Wir kormen zurUlc: auf unser letztec Gesprdch wegen der laufer-

den Ubermittlun. der Polizzenzeitschrif ter unserer Versioh-rur.-

scheine fur dnp Winters:peicherwerk Reileck-Kreuzeck in Zisamvmer'>

mit den aus,-ectellten Vinkulieruigsbestntifun-en.

Die vor Thren bei der Vilener Allianz mit BDrief vom 30.1 1

angeforderte 7o-"lizz'enzweitsrhrift Nr. 15.863/XI V chinerbrur

Kraftwer> 'ei cc, hrt sich bei unseren Akt>e efundey unj ; r

reichen Ihnen da> Diurplikat in der i9eilare. i ir hoffen in df : "

me riohti" zu gehe, da2 es sich ledilich um den YpNchtra" XI

llauptpoli zze !r. 1 . 6' hndelt und da2 Sie~diese sowvie i e

7tr e I Jbi- X Iereits hesitzen. R',citere Hibpr-eden ir Ihirin ir

der Zwipebenzeit ein celanrte ZuepItausferti-ungen de,' 7,ihtreef e

zur Pol. ?,113.016, de- NChtr2geF V zur Pol. 2,113.014 und der

Machtraies V zir Pol. 2,126.792.

TI (lbri-en h3ber wir laut beilierender Durchschrift neuerling

die Wiener Alliqrz ersucht, jeweils3 die ZweitausfertiungiPer der z'ur

Aus-tellunr -ela evdet Polizzer oder Polizzenna-htrage dirert an

Sie zu sEnder, n mnnoti !e Tere z erpparen.

.,r b'f genheit voriufi Jf de, ler iff

ho hnchtp .rvo.

Bei\Ep

LLL (IA

Vorstn: Dr. Kawl Kr\ e(ovsirw). Depi ng. Erich Werner

Voritzer des Auf chbrateia Dir. Dpt-Ing. Franz Hintermoyer

Drohsnschri" Fmnrut- Fernscliretber: Poshcheckkono: B KnIkenft K Posotech : 5000/VIll. 55Drouraft46-t Sot* 0445 157185Bank lGr KI(rniar' Klogenfudf Nr. 9180

DraukrefI 46-li Ser1 034 451 157.185 Ostrr. Linderbank, Villech Nr.2303 254 K. BauerDr.Aukr. Kigli. Credtansht.#-Unkvren Wien Nr.0.0424

RechtsanwaltDr. Ernst WagnerWien, I., Kiirntnerring 10 6. mrs 1956

Teltou U 45-5410 Sed

Dr. W/R

Titl.International Bank forReconstruction and Developments.3d.d. Mr. Fran X. Oppenheimer

1818-H-Street, N.W.,Washington 25, D.C., USA.

Setrifft: 1o2 AUA Kreuseck-Reisseck -Vinkulierung der Veriioherungs-polisien

Lieber Herr Kollege!

In der Anlage beehre ich mich, Abschrift des Schreibens

der Osterreichischen Draukraftwerke AG. an mich von 2.d.M. und Ko-

pie meines Antwortsohreibens vom 6.d.M. zu ubermitteln, woraus Sie

entnehmen wollen, dass der vo-n mir angeforderte Nachtrag XI zur

Polisse Nr. 15863 nunmehr eingelangt und mir weitere drei Zweit-

ausfertigungen von Nachtragspoliszen zugemittelt wurden, die ich zu

meinen Akten genommen habe.

Nit den besten Empfehlungen

ergebener Kollege

2 BeilaAen

March 6, 1956

No. 2 014y,,

Y dear Victor: 7V JMany thanks for your letters 2, your report No. Iand other enclosures. I have alspa a copy of Spottswood's

letter to Reabert of February 21, 1956. These give a clearpicture of the situation and I think you have done very well ingetting the Bank's point of view accipted so quickly.

Dr. Kloss called to see me today and I enclose for yourinformation a copy of my memorandum on this subject.

Best wishes to you and the other members of the mission.

Yours,

Raclosure

Mr. V. UmbriehtSacher HotelVienna, Austria

SRCope :eed

Dr. P, Uaftinok March 5, 1956

S. R. Cope

Proposed Loan for Electric Poer Project3 in Austria -Possible Joint Operation with Dutch Banks

The Bank mission which is at present in Austria isengaged in working out the form of a now lon for Austrianelectric power development. As the mission is still in the fieldwe do not know for certain exactly how the loan operation will beset up but we do know the general lines which it will follow.

The Oterreichische Elektrisititswirtschafts-A.G. (or"Verbundgesellschaft") is a government-ownad holding compary andit controls six special power producing companies which constitutethe public power system in Austria. It is in need of additionalcapital in order to cary out its program to expand power capacityin order to meet Austrian requirements. This program consists ofseveral different projects which are being contructed and will beoperated by one or other of the special producing companies. TheBank's loan and the suggested Dutch issue would be to finance partof one or more of these projects. It is most probable that one ofthe projects would be that known as Ybbs-Persenboug, a large run-of-the-river plant on the Danbe. This project is already underconstruction and it is expected to be completed in 1958. Anotherpossible project is the expansion of a thermal power station atSt. Andri in southern Austria.

The previous Bank loan for the Verbundgesellsehaft was madejointly to the V.G, and the special company constructing the project;namely the Usterreichische Drankraftwer)a A.G. This loan was securedby a mortgage and an assignment of revermes from a power export con-tract to Italy. The new loan mq follow the same pattern in whichcase the co-borrower would be the sterreichische Donankraftwerke A.0.for the Ybbe-ersenboug project and the Draukraftwerke for the St. Andr"project. However, it my be that the loan will be made to the Verbund-gesellschaft alone. The question of security for the now loan has notyet been settled.

The sise of the proposed loan has not yet been agreed but theBank is t.inkng of total external financing amounting to $20 million.Thus, if the issue in the Netherlands amounted to $8 million the Bank'sloan would be $12 million.

JHCollier to

FORM No. 27INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OUTGOING WIRE

DATE: MARCH 5, 1956 CLASS OF SERVICE DESIRED

TO: UMBRIGHT NIGHT LETTER CODE

HOEL A FULL RATE [ TELETYPE

AUSTRIA

TEXT: 3

YOUR FIVE KAGREE POM TARIFF QESTION E HANDED IN WAY YOU SUGGEST STO

YOUR S MNAGEMENT AGRE GENERAL LINES JOINT OPERATION AS OUTLINED YOUR CABIE STOP

BLACK VERY INTERESTED POSSIBILITY DTCH ISSUE AND WOULD LIKE TO MEET KARSTE LONDON

MORNING OF MONDAY MARCH 19 SUGGEST YOU TEUFENSTEIN AND VENTIMIGLIA BE THER STOP

BIACK HkS DISCUSSED WITH IIEFTINCK WHO IS WRITIIG KOLTROP STOP BANK CAN HARDLY E

READY BEFORE MAY 15 SO THAT DUTC ECISION ON TIMING CREATES NO PROBLEM FOR US STOP

REGARDING AMOUNT SUGGEST YOU WORK ON BASIS OF TWENTI FOR BANK LOAN AND PUBLIC

ISSUE 00"INED.

COPE

For Use by Archives Division

AUThORIZED BY: Checked for Dispatch

NAME S. R. CopeDirector of Operations

DEPT.Europe, Africa and uStralasiaC

SRCope. us

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S.Raymond Cope, Esq.Director of Operations- Europe, Africa and Australasia -International Bank for Reconstruction and

DevelopmentWashington, D.C.

Dear Raymond:

Please find enclosed another set of documents:

(a) A letter from Yugoslavia which was addressed to me. I thinkthat Wheelock or Bachem can deal with it.

(b) The copy of a letter from Spottswood to Rembert regarding theprogress of our discussions, and a copy of the end-use reporton I1nersee.

(c) A note on the procedure to be followed for an increase ofelectricity tariffs.

(d) A letter to Morton Mendels (with a copy for you).

You may have read in the papers that the dissensions withinthe Austi-lan coalition have now led to the dissolution of Parliamentand new elections are set for May 13. This does not affect our workhere, but has 9,gnfronted us with some difficulty regarding a tariffincrease theI4Chracter of which is naw coming more and more to thefore. However, we can handle this aspect also; the main element ofprogress in our work is the fact that the Government and the VG haveby now accepted the Bank conditions for an adequate tariff increasebefore any loan can be made.

It is Sunday today and we should not work, but I am under suchpressure that I thought that I should for once follow your example andsanctify this twholy-day" by sticking to the by now classical "Cope-version".

Si::erely yours,

E. i

Encls. V. Umbricht

s --. . -- - - -- - - - - 4 -

FORM No. 26

(1.50)


INCOMING WIRE


TO: INTERNATIONAL BANK FOR RECONSTRUCTION ACTION COPY TO MR. COPEAND DEVELOPMENT


Decoded By

TEXT:

SIX KARSTEN ROTTERDAMSCHE BANK STAHL VENTIMIGLIA AND I

DISCUSSED POSSIBILITY JOINT OPERATION STOP KARSTEN VERY

HOPEFUL THAT DUTCH CONSORTIUM WILLING FLOAT ISSUE

APPROXIMATELY EIGHT MILLION DOLLARS EQUIVALENT TWENTY

YEARS FOR VG WITH GOVERNMENT GUARANTEE STOP DUTCH

COULD HOWEVER NO ENTER FORMAL COMMITMENT BEFORE MAY 15

BECAUSE OF NEW AUSTRIAN ELECTIONS SET FOR MAY 13 STOP

THEY ACCEPT THAT PUBLIC ISSUE BE USED FOR SAME PROJECTS

AS BANKLOAN AND VG ALSO ACCEPTS ALTHOUGH RELUCTANTLY

CORRESPONDING REDUCTION AMOUNT BANK LOAN STOP DUTCH ISSUE

REQUIRES CONSENT BY DUTCH NATIONAL BANK WHICH SOMEWHAT

DOUBTFUL STOP KARSTEN HOPES RECEIVE ANSWER FROM HOLTROP

WITHIN NEXT TEN DAYS STOP WHETHER ANSWER FAVORABLE OR NOT

KARSTEN WOULD WISH MEET BLACK LONDON MARCH 18 OR 19 FOR

DISCUSSING FURTHER PROCEDURE PERHAPS ALSO FOR ENLISTING

BLACKS SUPPORT IF NECESSARY TO OBTAIN APPROVAL HOLTROP STOP

AUSTRIAN GOVERNMENT KEPT INFORMED WOULD WELCOME JOINT

OPERATION AND WOULD DELEGATE TEUFENSTEIN N'O LONDON MEETING

IF BLACK CONSIDERS ADVISABLE

UMBRICHT

ORIGINAL

J A A" X . . +~

2 4 ..+ *

? k }A

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44

A

4 P h

4/5 + ++. ++>++ +++

FORM No. 26(1.50)


INCOMING WIRE


To: INTERNATIONAL BANK FOR RECONSTRUCTION ACTION COPY TO MR COPEAND DEVELOPMENT


Decoded By

TEXT:

FIVE PRIMO VG AND GOVERNMENT HAVE ACCEPTED PRINCIPLE OF

TARIFF INCREASE AS PREREQUISITE FOR LOAN STOP WE HAVE NOT

YET DISCUSSED SIZE INCREASE BUT BELIEVE THAT TWENTY PERCENT

IS ABSOLUTE MINIMUM STOP BOTH COALITION PARTIES WISH FOR

POLITICAL REASONS THAT MISSION SHOULD CONFIRM BY LETTER THE

ORALLY GIVEN REASONS FOR NECESSITY OF INCREASE SO THAT PARTIES

CANNOT EXPLOIT AGAINST EACH OTHER TARIFF QUESTION IN FORTHCOMING

ELECTIONS STOP MISSION SEES NO OBJECTION TO SUCH LETTER BUT

WOULD LIKE YOUR AGREEMENT STOP LETTER WOULD BE RESTRICTED TO

GENERAL ECONOMIC CONSIDERATIONS WITHOUT DEALING WITH PERCENTAGE

INCREASE OR OTHER DETAILS SECUNDO OTHER WORK PROGRESSING

SATISFACTORILY BUT SLOWER THAN EXPECTED STOP I HOPE LEAVE

VIENNA BEFORE MARCH 15 SPOTTSWOOD KANTERS NOT LATER THAN 20

STOP COULD RETURN VIA LONDON IF DESIRABLE IN LIGHT OF MY SIX

UMBRICHT

ORIGINAL

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Conversation between Uasrs# Krsten& Stahl Venti and Umbrichton ,h a o ra on r e Abaft.

'Friday-saturdaM march 2-3, 1956l.. UMbricht gives some gnerl information on the work of the mission, an

the projects lMk07 to be considered by te Bank and on some otherpects of the loan operation aurrently under investigation.

2&- Karsten eolains that the Rotterdamscbe Bank was approached by the Voalreatr some months ago about a Dutch loan for the Austrian powerinduztry; amounts approwmite3y 30 millio guilders 20 yes 42t to4j'%. The Dutch Wational Bank. however, did not loot with favour upona public issue bemunse 11oltrp wanted the natch capital market toprovide funds in the first place for the eonsolidation of internalindustrial crodital moreover he wished the Ditch issue to be coupledeither id. th a simtaneous Swiss Issue for Austria or with a WorldBank operation. The Swiss bankers who were apprwufhwd by Uarstan feltunable to oo-operate bemuse of numerous oter counitments alreatrentered Into.

3... The present possibility of a World Bank loan for the Austrian powersector has opened the door again for consideration of a DNtch publicissue to be guaranteed by the Austrian Government. the amount? Appror.lmate3y 25 i1lion guilder equivalent to $6 - $7 MLion-. Dratenbelieves that the TDtch capital market imuld asily absorb such anissue. He would therefore wish to approach the other DNtch bankswithout delay In order to proceed with the preparation for a loan.

e. ntim4flia and Umbricht then explain that the Bank does not give itsguarmntee for a public issue and that a public issue woul"Eave abearing an the size of a possible Bank loan. Stahl, as well asKarsten, are not very happy about the prospect of a reduction of theBank loan, but accept this fact after some further discussion.

5. Karsten and Stahl also agree with the condition that the public fundsbe used for the ame projects as the World Bank loan. fnitial3y, theDutch intended to disburse the guilders on the Jochenstein project inview of the latter's connection idth the proposed rhine !idn-Dambe

canal, the construction of which Holland supports strongly. Umbrichtstates however, that the mission Is unlikely to rtommend he inclusionof JoU mong the projects to be financed by IBM, because it isa joint aermni-Austrian venture and would involve lengUh and cumbersome Investigations and formlities which in turn wouild cause a delain the effectiveness of a loan.- Tis point of view is accepted byStahl and Karteno

6.- Mrtgages and other collaterlso? IArsten takes note that any securitiesfor a World Bank loan would apply pro tanto to a public issue.

7.Ka rsten is somemhat doubtfu11 as to Mr. Holtrop's reaction to a jointoperation which needs his consent. He thdnks that Holtrop might refuseIf so, he would wish W-. Black to use his good influence with Hr. Holtrop

to secure a positive anwer. Karsten wmuld be hpp to most *,r 1Aackin Londm in order to discuss additional details of a joint operationand the fhrtbor prwedure.

8... Link with XI

rstwi explains that on the rutoh side there is a tendenoy to linkthe approval of a pablio issue with a conoession by the Austrian

vernament to rKL to operate an airdine in Austria. This point is apolitical stuoing bleck in Austria.-Thtch relations since a forWnthe. Ventimiglia and Unbrioht deprecate such a oonnection.Mrsten ful3y shares this point of viw*

9- r. Venitglia explains details of other joint operations like theexample of Relgim and Worviq and hands Karsten the respective pubLi*prospecka"W.

lo,-. Austrian elections arsten states that in view of the unoerainty ofthe Austrian elections the mitch bank cannot enter into a fomalooedtmet before *y r&gding a publio issue. Should the Austriansoialists obtain a substantial majorit, the public issue miht beadverse3y affected, although arsten considers this very unlikealy.

UL.- At the end of the meeting it is agreed that Karsten will inwmdiatelyreturn to Holland to obtain the required approval by Mr. Holtrop, whileUmbricht will inform the Mank and endeavour to organise a meeting injandn an March 18 or 19*

RechtsanwaltDr. Errst W gner -Wien, I., KMintrajg1

Telefon U 46-540 Yede 2. mrs 1956

a a tw n u mia

Betrttttz Votbk- MA-ersettb~m

Die InIternatioaal Ba k for Rqcon ut Zction

and De 6diexit (im-1001euden kerz Weltbank genannt)

QrwAgt, dWi 6seirsieis hden tlektrizitavir tcchaf ts-

Attiendeselisehaft im igenden Terbundgesellsehaft

gen-arit eindn-iedi't insbesonde re zu weiterem 4us-

bad det uDnaukka'ftwerkes Ybbz-Persenbgua zu gewdhren.

Zu prUfen Ist, weione %zblchketten bestehen,

um die Poerunng doi fi~n gt enUber dex Verbund-

gesellsobirft ret'tlch 4erdestalt zu sichern, dass

81n Zuvcdk~mia DrIt ter,_ also fromder Gldubiger ,

mtdj-l-chot aus gschlossi wrd 'Es musz glei. ein-

'mS befont werden, 4aat-hiebe_ keinqp4g, s eg twa an

die lMdglichkeit einer vertragswidrIgen liandlungs-

vels dti er undg sllsaf a gedacht zi pondern

a Scbl . te clf lio er anerer, GIiibi,&p; Clo.r Ver-

bAhdg;ebelldhaft, gegen w el jie dIq e Vrtuj|6e s e11s cha ftmabhto ilre.

Die~ Vcrbuadk; selsch t hat vorgesclaaen,

der' eTbtbahk vs'rtrajlich ain belastango- uad. Ver Aus-SO-rutigtirbot tnr aile LieGeuvchaften etuzursumen,

weiteh tdt& Krafterk ;ehbren wer4en. Vortxoaglich des-

hali *,oil, ach elteudem bsterreiabischera Rcht die

' 564 6 de s a lkLeme inen bdrgerlichjrn Gesetz-

-2-

buches besa6t namlich:

"Ein vertragsmdssige odor letztwilligesVergussorungs- o4eg '.ela tw36gerbot hinsichtlicheiner sache 0OXe-Ae f -g.-asRechtes verpflich-tet nur den ersten Elgentdmer, nicht aber seine Er-ben odor sonstigen iechtsnachfolger. Geoen Drittewirkt es dann, wenn es zwischen Lhegatten, Elternund Kindern, Wahl- oder Pflegekindern oder derenEheat ten begr ande. imd44,offoAtlicktio JgoAe ; *ttgetragen wurde."

Akus dem jetzten, etwas varklausuliertenSatz dieser Gesetzessteile ertgibt sich;

1.) Das Verdusqerux Gs- und Bqlmstujagsver-bot wirkt rundadt h ter pax also nichteeganaler Dritten. Drltte, da helst~fremde Glaubi-ger, sind dadurch anr ebunen. we das Verdusserungs-

d Belastungsverbot

a) -'wlschen den im Gesetz auf4&,ezhltennn Terwadten begrindet wurde u,~

i Grtxndlbuch a etraasn Ist.-21Die grndbdch-arliche lxtrcguig Ist eben

SlSM Grude el den im Ge se t anteifuhr tonnhen Tiurkand te mb e c.

Darugwisderum ergibt sichil dagsz die vondeV nerbundgelellschaft an,6 pootene vpsrtragljche "eatklitrnel* wohl die Ve bldg~aes liaft vertraglich

gegtnter der ielebank pf'i-ct die za Kraft-werk ;ehUrien Liegenschaften weder Su verdussern nochzu belasten. Die theonitifcxh Gefab, dass die Ver-bundgeselIscha. t a'e:se ver p fichtun4g nichat elnh -lt,wtire wdhbelanlos, da pin solcher Vqxtrvgubruch

der Vakbua~e'S'eji ft Ja nicit aazuaehmv ist. Nichtbelah 1,6a'ist es iaer, dasp de Verbuudgesio413schaftDritti , also fremde GI.,"ubiger, n Uqt hiudoru I6nate,auf den Grunastacken mttiejo Exekutjon zoanGsweice

Pfandrechte uu erwerben odor cine Verwortung der Liegen-

aahaften durch gerichtlicho- Zwengoverwaltung mi or-

wirken.,odar gar dle-llegonschaften wagon ihrer For-derungen Swangsversteigern zu lascSen. In alln die-sen tlla kanate die Weltbank wegen des ilhr entstan-

donen Schadeas sch nur au die Vorbundgesllechaf t

baltemj wche alew ih~rzreits in einer der&Tt fi-nmalell. amemegloraft 5ituation kolne befriedigmzg fardie teltbazk .=hr abgebaa U~nate.

SAuf Grw d dos 364 c des allgemetnen bar-

gexlJkmaa Goaetzbuc ist daher die von die erbund-gesellvehfft aagetwteme vortmigliche Linraumang cinec

Ver~at.erung . und belastagsverbotes far de Welt-bank wertlo,. KS ass 84mit eine Pfandbestellwtgsur-

kunde arrichtet und die Vorderung der leltbaftk grund-

biiaherlich auf allan gum Kraftwerk gohdrigen Liegen-

sabaften einggetragen worden. Mir so kann die Welt-

bank aueh fr do& fall des agriffee fremder Glaubi-ger gesichert blelben.

Is E1gebuis &h.leh verMlt e6 tich beider Frag der Abtretung von R 1*fermngsETren.

Die Verbundgesellsohat* at ahuh hier eine vertraC-liahe Aegativklauval aagaboten, oneaeh aie sech alsogagoadber der ikeltbank verpflichten mill, die jhr

(dor .erbandgesellshatt) suStehnden Stromleiferungs-

ertr1ge zLcht eu fraud* 4Mbigor abatreten (u

Dios wrda abor wlederun nar inter parteswirken. Wirde eln fremder Gltubiger der Vorbundge-aellsahaft zur befriedigung a4ia&r Amsprche dic derVerbundgesellachaft gege froads Strtmabnehmer zu-stehenden Re-hte auf StZeMihfer tr&ge sor iht-lich, das heisat exekutiv, pUAnden, so kUnnte die

VerbWd'ESS61fcar t ale jchujdu&r alas nlbt hinder-n.

Dami t warim alber die iekte der 4elt bank i3 jnor ifich

geworden,

L6 ervheint dckmr nct* 4Aig* 0.9a die

Vsrbu4Adge4&lveemft die ibhr zuztehexiden A4nspriiete

Fgegau ftresud ; tromahuebmr auf StromlifruAngsex-

trabe a tD e Weltb** d btrI tt (zediert) .Im tfuablick

auf die baGrunewenaswe9j1rm idex VarbuxAgesll-

rachaft kann these "ession otue vetteres als stIlle

Zeasso oxfolgen, das helust data dhe 6*huldne der

Verb.nsl 4 v d *axfolgten Zesuioan uon chat

xsic Lt veretdnAdit werdeu, godass &s vor],&ufig waiter

aa die VerexAdgesellachaft zsbhlsu massez, kie i4alt-

bak hat Je*o4h da& "eet, diwe s Fabuiex jedeeIt

zu Ve;ft4AdIgez des 110ist die zeesia Offea zi I.-

gen, at wuebAwh iZoitpujkt da"n weiters 7ablngan der

Siehulduar fUr 14-rcAeferungen aux mebar direkt au die

eltbank erfolg ban ddrfen.

Zu Loweizzwecken wird die ierbund, esell-

scliaft bei dieuer 1alunig in ihen Bcher die Tat-

acle der Zessionan Sewei-ls bei 4ader einzel.--en For.

deraz, elaWaudfral ergichtlich zacben xidesen, damait

dicso Tatsach, insbosondere gagoxaber fre.iden

ilaubigSa der Verbpn dgalse luciit, Jeaderselt en-

wandratbeweseaweren azin, Anerkennen diese a-

bider die Zeasion trotsdew ulcht., dann kdnnea sle

sohin von der ltveltbank durch Kl<,ie dazu go-auungea

weiden (EGxAaieraaG-aklage nA*L- 37 der I-xokutions-

-! G aklzmierte YOX,6ang vrixd "Stille ZcSSiOnL

Seltst wenn also die Veltbank auf eine

Zossion der ForderuAgon der Verbundgesellschaft aufatromlieferuikTsertradge an oic.' keinorn ert legenwUrde, Ist diese Zessino wegen der triLkung geen-

dbor britten doch nowni.Intorn kannm die ' :elt-bank &.a;enaber der Vorbaudgesellschaft ja ioder-zeit die Erkllaruz abeben, dass sie bis auf Ader-riuf einver tanden ist, wenn die Verbundgesellschaft

die gegenstdadlichon Forderunton vorllzufl , selbst

einsieht wnd Schin zur laufeiden Abdeckun g des ausahaftenden Ueltbankkerdites verwendet.

Bomxrkt wird, dass die Errichtung der Pfaa4-bostellungsarkande, die Eintragung des PfandreahtonIm Grunduch, die apatere LEsehung deselban und auahdie Errichtung der Abtretungerklrung ti h -r a f r ei *rfolgen kana.





Letter No. 2

S. R. Cope, EsDirector of OperationsEurope, Africa and AustralasiaInternational Bank for Reconstruction

and DevelopmentWashington, D.C.

Dear Raymond:

I have pleasure in sending you the enclosed set of documents:

a) A memorandum on my conversation with Mr. Gabriel Le Fort;

b) A memorandum of my conversation in Brussels with Minister

Buisseret and his staff;

c) A letter to Bill Howell with copy to you on my visit to

Walter Hill; ( -+-/ & tW ).

d) A copy of a letter to Dr. Steger-Marenpach.

These documents do not require any additional comment; I may say,however, that my talk in Brussels was very much "a propos" since they. /did not expect that t& Bank operation for Ruanda-Urundi may be faced

with a number of unusual problems.

Our investigations in Austria continue satisfactorily and I think

that the mission's efforts to convince the Austrians of the necessity

of a rate increase for power are bearing fruit. The VG, as well as

the ministries concerned with price problems, have in principle accepted

the Bankts stand-point that a rate increase is a pre-requisite for any

Bank loan. Spottswood and Kanters are at present going through the

financial picture of the company and after that we shall try to form an

opinion as to what increase is adequate in the circumstances. As far as

we can ascertain at this stage, this increase has to be of the order of

20% as an absolute minima However we shall submit our recommendations

to the Bank before pushing the Austrians into the legal procedure to get

such an increase sanctioned by the Price Control Board. This procedure

is of some importance in view of its bearing on the time by which a

possible loan can become effective. The sooner it can be started the

sooner the covenants for the effectiveness of a loan will be met.

In view of the dramatic capital needs of the Austrian power industrythe time to make a loan effective should be as short as possible.

- 2 -

Otherwise everything is fine. Messrs. Spottswood and Kanters aredoing an excellent job and Miss Jousselin is a very efficient andpleasant secretary. We have not suffered towmuch from the cold inEirope which, by any standards, was about the worst wave of cold onecan get into, but since yesterday a warm air spell is breaking overAustria which makes us all look forward to sunnier days.

I hope you are not overwhelmed with work in Washington.

With my kindest regards,

Yours sincerely,

V. Umbricht

P.S. I still hope that I can leave Austria before Spottswood andKanters, perhaps between March 10 and 15, but this dependson a satisfactory understanding on the power rate increaseabout which I shall cable you in the next few days. I alsoforgot to mention that Dr. Karsten, General Manager of theRotterdamsche Bank is coming to Vienna tomorrow Friday todiscuss the possibility of a joint operation. Ventimigliais joining us here. I shall use my best endeavours to helpsettingesuch an operation, but frankly I cannot see theDutch subscribing at this stage to a public issue by theVG in Holland. This also is Ventimiglia's view with whomI discussed the matter last week-end in Paris.

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FORM N.75 INTERNATIONAL BANK FOR

(3-52) RECONSTRUCTION AND DEVELOPMENT

ROUTING SLIP

NAME ROOM NO.

Action -ote and FileApproval NoteadRtr

Comment Prepare ReplyFull Report Previous PapersInformation - Recommendat ionInitial Sig nature

Remark s

t


RECONSTRUCTION AND DEVELOPMEN


Vienna, February 24, 1956

Letter No. 1

S.R. Cope, Esq.Director of Operations- Europe, Africa and Australasia -International Bank for Reconstructionand Development

1818 H. Street N.W.Washington 25, D.C.

Dear Raymond:

I am just now preparing my luggage to take a plane for Paris and

Brussels, but before leaving Vienna I should like to send you a first

report on the mission's work so far. Here are the major problems which

have come up in our discussions with the Austrian authorities and VG.

1. Loan amount. The gap in the financial coverage of the VG construction

program in 1956 amounts to approximately 800 to 1,000 million schillingsequivalent to $31 - 38 million. The VG expects the Bank to finance this

gap since it has become obvious that the Austrian capital market is not

in a position to provide any additional funds. I told all parties concernedthat & Bank loan of this size was out of question for a great number ofreasons. I avoided, however, to say what the Bank might be prepared tolend since we do not have yet a complete picture of the minimum requirements

which should be met iftvery serious bottle-neckdin the Austrian economy has

to be avoided. The Finance Minister as well as the Minister for Nationalized

Industry informed us that additional appropriations out of the budget or out

of other governmental sources could not be envisaged and that consequently

any shortfall in the Bank loan would involve a corresponding reduction inthe construction program.

This Austrian interpretation appears to be justified, but I have notfailed to point out that the Austrian capital market being in such a tightposition all investment progranm would have to be adjusted to that situation,however unfortunate this might be. I think that this has by now been under-stood and that the VG is at present engaged in revising their program inthe light of our explanations. To what extent a reduction is economicallyjustified needs further investigation. It is likely that some restrictions

in power consumption may have to be imposed next winter, but the Austrianswill have to understand that they can only carry out constructions forwhich the financing is assured. The VG'Iengaged'the construction of projectsfor which an adequate financial coverage is not in sight. We told them thatthis procedure is of very questionnable merit and that the Bank will insiston a more classical method of operation.

Mr. Cope - 2 -

2. Disbursements. The great gap in the VGts financial program will occurin L9?56. The Austrians' wish, therefore, is to receive a loan which canbe disbursed almost fully during the current year. Here again we had toput their thinking right by stressing that the Bank is most unlikely toconsider a sort of balance of paymentc-loan for the VG, but that any loanwill have to be tidt to specific projects and that disbursement willhave to fit into the progress of the works concerned. However, we areexamining now to what extent we might bring this disbursement policysomewhat closer to the Austrian desires and we hope to find ways andmeans which might lessen the hardship on the VG.

30 Joint operation. I cabled you that the VG, prior to our arrival, hadgot into touch with the Rotterdamsche Bank (Messrs. van der Mandele andKarsten) to explore the possibility of a public issue in Holland. Accord-ing to Dr. Stahl, the Dutch bankers seem to be ready to launch such anissue, provided it is linked with a World Bank loan. Frankly I am notquite sure that Stahl really expressed completely the views of the Dutchbankers. Furthermore it became clear that he was not fully familiar with 9the aspects ofa joint operation. I, therefore, suggested that we could havea talk with the Dutch bankers concerned in order to explore the possibilitiesfor a joint operation, but I very much wanted Ventimiglia to be in thesediscussions. This prompted me to suggest Paris as a meeting place for apreliminary talk with the Dutch. However, after having received your tele-grame No. 1, I told Stahl that we could also held the meeting in Vienna;and this has now been arranged for Friday, March 2. I shall meet Ventimigliain Paris the day after tomorrow, Sunday, February 26 and shall acquaint himwith the proposition. I shall also ask him to come to the Vienna meetingif he can make himself free. This procedure seems to me to be appropriatein the circumstances, because Ventimiglia would certainly have to deal withthe operation if it develops into something concrete. May I assume thatyou agree with this?

h. Tariff increase. The mission stands very very firm on this request andI have taken every possible opportunity to point out in n7 talks with theGovernment and the VG that no money will flow from the Bank without asatisfactory settlement of this question. As you can well imagine theMinisters raised various political and other objections (electiowsin theAutumn 19561) none of which was convincing. They now realise that thistariff increase is simply not negociable. Minister Waldbrunner as wellas Minister Kamitz now told me that they will look into the matter andlet us know before the mission leaves to what extent and in what form theycould fall in line with the Bank's views. Indeed from the economic pointof view there can be no doubt that the VG has to put its financial structurein order and that this can only be achieved by an adjustment of the powerrates. I am hopeful that we can bring back satisfactory propositions onthis subject.

5. Projects. The mission has not yet looked at specific project . We have,first or Cl, to eliminate one or two of the projects in the li'& of theunavoidable reduction of the power program and we want to be sure that thetariff increase will be accepted in principle before we go into details.

Mr. Cope - 3 .

The selection of one or two projects will then not present any difficultiesfor the mission.

6. End-use supervision, During my absence in France and Belgium, Messrs.Spottswood and Kanters will make an end-use supervision of the Inerseeand Reisseek-Kreuzeek projects. Meanwhile the Austrian authorities and theVG will have some days during which they can do some thinking about the powerprogram and the tariff question.

7. IFC. I have already informed you in my cable No. 1 that the AustrianratTflcation of IFC is progressing satisfactorily. Immediately after myarrival here I took up the matter C,-the Ministry of Finance and they haveagreed to submit the bill of approval to the parliamentary Finance Committeewithout delay. This has been done a few days ago and Minister Kamitz hasassured me that he hopes to have the whole matter settled shortly aftermid-Mardh.

8. Visit of John Dancan Miller. I arranged with Miller that he should cometo Vienna during our stay here and pursue his 18% conversations. He arrivedyesterday and had discussions today with the Minister of Finance and otherofficials at which I was present. Things look pretty bright. We had theimpression that the Austrians will release for free disposal by the Bank theamount which they would have had to put up in the Earopean currency pool,approximately $800,000 equivalent. If all goes well we should receive anaffirmative answer in the not too distant future. John Miller will writeto the Bank directly about this.

This is all I have to say today. The problems we have to deal withare politically delicate and far-reaching, but the prospects of gettingsatisfactory answers are good.

May I add for your information that the Rassian money offer to theAustrians has been turned down by the AustriaR lGovernment a few days ago.The reasons are complex and I shall not buvk this letter with details.

Please find enclosed the first part of the Mission Running Report(a copy of which is for Dr. Rembert). -' ; "


Encls. V. Ubricht

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FoaM No. 261.50)


INCOMING WIRE

DATE OF WIRE: M 9 ROUTING

INTENATIOMA BANK FOR M&CON&0MUCT20N ggg. AND ACTION COPY TO KR C03

FROM:WIEN INFORMATION COPY TO MR RMAX

Decoded By

TEXT:

YOUR TWo. mIssiON sTAxDs vRa nIM ON TARIFF INCREASE AND

PROSMETSARR IMPROVING. SM4L LEAVI FRIDAY pMN PARIS KONDAy

FOR DRUSMSL TUESDAY RTRX TO VIERA. SPOTTSWOOD WAMERS

WILL MAXE INSPECTION LUMUMBE SAKS TIM. DISCUSSION JOINT

OPERATION WITZ ROTTeMMCE SA ARRANMD FOR FRIDAY SECOXD

KARON IN VTZNlA MBAIL ASK VTIKIGLIA TO BE PRET

NBICRTYMMBUNDII Z

MRS8. UXBRICNT HAS BEEN NOTIFIlD.

D UPLIC A TE

FR P4 0 ??A

:44

::




Vienna, February 21, 1956

Dr. . Wayne RembertDepartment of Technical OperationsInternational Bank for Reconstruction

and Development1818 H Street N.W.Washington, D.C.

Dear Wayne:

The work goes rather slowly principally because of thecomplicated nature of the problems with which we are faced. Inthe first place the construction program of the VG is much largerthan that envisaged two years ago and in addition the costs of thevarious projects have risen. For 1956 alone the VG estimates theywill need about 800 million schillings ($31 million) from somesource to cover their construction program. Peter and I have beenover their sources of funds for 1956 and they have squeezed everypossible credit from every source and still 800 million schillingsremain unfinanced. It is of course rather shocking that the VGshould launch a program costing ,985 million schillings between1956 and 1960 without knowing in advance from what sources theprogram would be financed.

It is of little use to discuss why the VG should havegotten itself into this financial difficulty or to talk about longrange solutions. The problem is an immediate one and as yet wedo not know what the solution will be. The program includes threefairly large projects, in addition to Reisseck-Kreuzeck, which arescheduled to be completed by the end of 1957. Others, such asYbbs-Persenbeug, are well under way and to delay them would, ofcourse, increase the total cost. There is one rather substantialproject, however, which might be postponed. It is my intentionto request the VG to submit revised programs based on receivingloans from the Bank of varying amounts. This will require themto make cuts in their scheduled program and thus bring out thepriorities among the various projects. Until we have answers tothese questions and can formulate with them some rational programfor the future, the amount of detailed information which we candevelop on a specific program is limited.

The VG has submitted its estimate of energy require-ments of its customers for the period 1956-60. The estimate

Dr. bembert - 2 -

envisions a growth of 11% per year compounded. This is a greater rateof growth than that estimated for Austria as a whole. The VG thereforewill be the agency which will supply almost all of the increased energyrequirements for Austria as there will be only minor increases in theother producing companies. As the capital market is extremely tightit is apparent the other companies would find it difficult also tofinance expansion programs. While 11% compounded may or may not bea proper estimate of growth it could not be very far off becausepast experience has shown that the rate of about 8% for Europe as awhole is reasonable. If VG's estimate were reduced 2 or 3% thiswould not result in much reduction in their construction program.I shall make a detailed analysis of the VG's estimate of growth butI do not expect to be able to reduce them much in the short run.This rate of growth probably would not continue beyond the next fiveyears, however.

As a result of Westinghouse and British propaganda at theGeneva atomic energy conference, the VG was thinking in terms ofconstructing atomic energy stations until they had a talk with Mr. Griswoldof the Detroit Edison company who was here when I arrived and he appar-ently convinced them that their best course of action would be to waitfor the development of reactors in the U.S. and elsewhere before placingin any orders. The V0 people apparently had not made too much studyof the problems involved and had accepted at face value the estimatesthat power from atomic reactors would be competitive with conventionalfuel plants. They now appear to have seen the light and are satisfiedto postpone any atomic power development for these five years.

I hope by the end of this week that we shall have in the handsof the VG our basic questionnaires. Peter and I are planning toleave Sunday night, February 26, for Bregenz for discussions with theViW regarding the Lunersee project. We estimate that this will takeprobably two days. We, therefore, expect to be back in Vienna onWednesday, February 29. Our trip to Klagenfurt, to look into theReisseck-Kreuaeck project, will come later.

The weather is still cold. The temperature has ralged fromabout 150 to 350 F. and it snows almost every day.

I shall keep you posted regarding further developments.

Sincerely yours,

A. D.pswood

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FORM No. 27


OUTGOING WISE

DATE: TWLUARtT 21, 1956 CLASS OF SERVICE DESIRED

TO: V ICHT NIGHT LETTER 7 CODE EDHORL SACERVIENNA, AUSTRIA DEFERRED FULL RATE

TEXT: TELETYPE

TWO

YOUR ONE PRIMO GLAD TO NOT IFC PROGIESS SECUNDO HAVE INFMED STREET

TERTIO BANK ATTACHES GREAT IMPORTANCE TO PROER POER RATE POLICIES IT

CONSIDERS AUSTRIAN RATES TOO IO AND REGARDS RECOGNITION OF THIS FACT BY

VG AND AUSTRIAN GOVERNMENT PREEQUISITE FOR NEW IOAN STOP MISSION

SHOULD T ORE EAMINE RATE QESTION WITH AUSTRIANS SO AS TO MAE

SPECIFIC RECO)OCNDATIONS IN L3M WITH GENERAL BANK POLICY STOP BANK

RECOGNIZES RATE ADJUSTMENT A DELICATE MATTER BUT WOUID REQUIRE& GEN&RAL

UNDERSTANDING ON TIMING AND SCOPE OF INCRAS BEFORE LOAN IS SIGNED

STOP YOUR TWO PRIMO AGROM THIRTY MIULION TOO MUCH AND 1956 DISBURSEMT

TOO QUICK B9CUND0 BANK TAX MEJ PROSPECT JOINT OPERATION BUT YOU SHOULD

PONT OUT THAT RAISING FUNDS FISEWHIR INEVITABLY AFFECTS SIZE OF BANK

LOAN STOP TUTIO WE WOULD HAVE THOUGHT VIENA REFERABLE TO PARIS FOR

EPLORTaOY ALK WITH VANWONDE M HOMER WE AGFM YOUR HAVING

DISCUSSIO IN PARIS I YOU FEL THIS IS EESAR AND WOUU NOT GIVE

AUSTRIANS INMESSION BANK IS SQUEEZIN THEM OUTmy!

COTS

AUTHORIZED BY: For Use by Archives Division

NAME S Checked for Dispatch

DEPT. Operations, E. A. A* ___________

JHCollierFope/pnn FILE COPY01...3 -)I...-4 .... '

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-

FORM NO. 26(1.50)


INCOMING WIRE

DATE OF WIRE: FEBRUARY 19, 1956 1930 ROUTING

TO: INTERNATIONAL BANK FOR RECONSTRUCTION ACTION COPY TO MR COPEAND DEVELOPMENT

FROM:WIEN INFORMATION COPY TO

Decoded By

TEXT:

TWO THANKS YOUR ONE. VG EXPECTED LOAN APPROXIMATELY 30

MILLION DOLLARS MOREOVER FULL DISBURSEMENT WITHIN SHORT PERIOD

PREFERABLE DURING 1956. HAVE STRESSED THAT BANKLOAN IS

THIS MAGNITUDE AND FORM UNLIKELY. IN ORDER AVOID TOO DRASTIC

REDUCTION PROGRAMM VG HAD ALREADY PREVIOUSLY CONTACTED

ROTTERDAMSCHE BANK FOR RAISING ADDITIONAL FUNDS IN HOLLAND.

PROSPECTS FOR JOINT OPERATION APPARENTLY GOOD. STAHL

URGED PRESIDENT VANDERMANDELE COME VIENNA FOR DISCUSSIONS

BUT I ADVISED AGAINST. SUBJECT YOUR INSTRUCTIONS COULD MEET

VANDERMANDELE FOR EXPLORATORY TALK IN PARIS WITH VENTIMIGLIA.

SHALL FLY BRUXELLES PARIS NEXT WEEEEND PLEASE CABLE BEFORE

THURSDAY

UMBRICHT

ORIGINAL

A&

ns8o 9~l DE

Fi8 5AMM

1 2 1

2*

FoRM NO. 26(1-50)


INCOMING WIRE

DATE OF WIRE: FEBRUARY 17, 1956 1920 ROUTING

TO: INTERNATIONAL BANK FOR RECONSTRUCTION ACTION COPY TO MR COPEAND DEMEOP14ENT MR RnLE

FROM: W INFORMATION COPY TO MR MENDELS

Decoded By

COPYTEXT:

ONE PRINO IPC BILL SUBMITTED TODAY TO FINANCIAL COMMITTEE

PARLIAMENT. COMMITTEE APPROVAL EXPEOED WITEIN 2 TO 3

WEM AND FINAL RATIFICATION BY PARLIANENT IN SECOND HALF

MARCH SECUNDO FOR STREET DISBURSEMNTRS TO VIW SHOULD TAE

PLACE ON BASIS OUR LETTER FEBRUARY 10. OUR POSITIO 8 =y

UNDERSTOOD AND CHANGE OF LIST OF 0GODS NOT ADVISABLE AT THIS

STAGE TERTIO FIRST AUSTRIAL REACTIONS TO OUR FIRM SUGGESTION

POWER RATE INCREASE NOT ENCOURAGING

UNBRICHT

DUPLICAT E

FORM 48) 7 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

OFFIC MEMORANDUMTO: Mr. S. R. Cope DATE: February 6, 1956

FROM: V. Umbricht

SUBJECT: Mission to Austria

A Working Party meeting was held on Friday, February 3, todiscuss various problems likely to be encountered by the forthcomingmission to Austria. Present were Messrs. Umbricht, Collier, Oppen-heimer, Spottswood, Kanters and Street The Working Party agreedupon the following general conclusionst

(1) Advisability of an increase in power rates..

There was no question that some increase was desirable inthe near future; this was the view of the V.G. itself. It would bethe responsibility of the mission to examine the situation and forma view as to how large the increase should be.

(2) Timing of an increase in power rates.

This was the most important question. It was agreed that thechances of obtaining any increase before the next parliamentary elec-tions, which are scheduled for this October, were almost nil. Hencethe Bank could not make such an increase the condition of a loan.Probably the best approach for the Bank would be to obtain side lettersfrom the V.G. and the Government to cover the point. Mr. Oppenheimerfelt that these letters should not contain very specific commitmentssince they did not have the force of law. A new Government, for example,might not feel bound by a statement in a letter by a previous FinanceMinister. A more general undertaking simply to consider the questionwould be more useful. Mr. Spottswood thought the letters should besufficiently detailed to make sure that there was no misunderstandingabout the Bank's position.

(3) The Danube as an international inland waterway.

A memorandum would be prepared for Mr. Garner on this subject.

(h) New power contract between Austria and France.

The opinion of the Working Party was that the Bank should notrequire specific security in the form of an assignment of revenues fromthis contract unless further examination of the position by the missionshowed it advisable..

(5) Soviet offer to lend schillings to Austria.

Mr. Umbricht explained that the position taken by the Bank onthis matter was that we had no objections from the economic point of viewto the Austrians accepting a Soviet proposal, but that difficulties mightarise if the Soviet proceeds were to find their way into a Bank financedproject.

(6) Investment Corporation.

Specific discussions on this question would not fall withinthe mission's terms of reference*

FROM ~ ~ - 1. Ofi fte rsdn

FORM No. 89(7-50) Date

TO- Room No.

2

3

FOR-Action Initialing

r oal Preparing Reply

I omment Previous Papers

Filing Noting and Returning

Full Report Recommendation

Information _ Signature

REMARKS

FOR(MNo. 57 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

F CE MEMORANDUMTO: Mr. R. L,G DATE: February 6, 1956

FROM: S. R. Cope

SUBJECT: Austria -- Ybbs-Persenbeug Electric Power Project on the Danube

1. The Austrians intend to request Bank assistance in thefinancing of the Ybbs-Persenbeug project on the Danube. TheDanube is one of the most important of European inland waterways,for it flows from West Germany through Austria, Czechoslovakia,Hungary and Yugoslavia, after which it forms the border betweenRumania and Bulgaria. The site of the project is approximatelyhalf way along the Danube from the German to the Czech border,

2, As the project is already under construction it seemslikely that any international agreements necessary for its con-struction have already been made, We have not yet discussed thisquestion with the Austrians, but we understand that the effect ofthe proposed dam on the level of the Danube will disappear longbefore either the German or the Czech border is reached and thatthe construction will improve the navigability of the river. Itdoes not, therefore, seem very probable, either that complicationshave arisen in the past, or that they lie ahead.

3. I recomwnd that the forthcoming mission explore thisproblem fully imnwdiately upon arrival in Vienna and send a reportback.

February 6, 1956

his " X(*erecy Dr. K. -trubarAmbassador of AustriaEbasay of Austria

21454 Aymoinc Avows*, k.W.WashingtYn, D.i.

Dear Mr, Aasaarin

Thank you for your letter of Jarruary 30, 1956, in whichyou reqwst the bank to send a aission to Austria to studyprojects in the elotric power field with a view to eventualBAnk financirg. 4 art arranging to send a mission Ivm1diatelylit will be headed by Rr., V. Umbricht, a Swiss eitizen, and will

include 11r. A.". Spottsw s a U.S. citizen, and Mr. P.A. Kanters,a citizen of the Noeranidso Yx. Unforicht "n Mr. Spottxwrxdexpeat to arrive in Vienman A dwsday, February 15 and mr.Kwte's will arrivs a few days later.

should be erateful if ytr would inform your Governmutof thee arrartgpnents.

Yours

R. z. arner

cc. Dr# It. Klo03

JHColliesrMFebruary 3, 56

Fbruary 1956V. UIkrTIht

Austria - rkiing -arty Mting

1. I consid4r it advi.able to hold a working party meet eng a quetionsvhieh may arise in the cours e the next nk alsuin t Austria to study

a now -oWor Ioan.

2. Thses questions arw&

(a) Advismbliity of an inerese f powr rates?

(b) 'iing ef a possible powr rate icrease?

(e) aIters r*lating to the "anbe as an interational inlndwatorwy.

(d) Ma tts relatIng to ropsad nw pow oonact bLtweenAuatria amd 'rance.

te) The aiss offer to lsm schilling Aundu to Austria.

(f) The prop Invest rporation in Austri,

3. 1 klhould a; recIate if you could kiwdly a-end a working partymsting to discuas thrse pInts n Friday, Fbruar 3, at 11 a.x. In myTio6m 403.

co t e8r. Kanters

3pottswood'treetdasIatedt

o.0ier

VUbridhts eed

C

0 Paragraph 3 of letter from Mr. Garner to Dr. Karl Gruber,

P Ambassador of Austria dated January 27, 1956, filed

Y in Austria - Third Loan request - U.S.I.A.

In the meantime, the Bank is prepared to consider a

fuirther loan for electric power. In view of the urgent

needs of this sector, the Bank will send a mission to Austria

in the course of February, if this is convenient to your Gov-

ernment, in order to study specific power projects. The

investigation would include a study of the technical aspects

of the projects and the finances of the proposed borrower or

borrowers, including the adequacy of their prospective earn-

ings in view of the prevailing price of electric power.

FROM ~ -1.Ofc 0fth rsdn

2 .Ofic of. th iePrsdn

FORM No. 89(7. 50) Date f

T0- Room No.

F .Action Initialing

Approval Preparing Reply

Comment Previous Papers

Filing Noting and Returning

Full Report Recommendation

Information _ Signature

REMARKS

Washington, January 30, 1956

Dear Mr. Garner,

This is to acknowl receipt of yourletter dated January 27, 1956, concerninginvestment loans for Austria.

In answer to that letter, the AustrianGovernment today instructed me to convey toyou its invitation to the Bank to send toAustria the mission mentioned in yourcommunication. The Austrian Federal Govern-ment is very much interested in a further loanby the International Bank for the developmentof water power and would therefore welcome theabove mentioned mission as soon as possible.

Sincerely yours,

Dr. Karl Ggtuer 4 ,

Mr. Ro t . Garner,Vice Pr ent,Internat 1 Bank forReconstr tion and Development,1818 H treet N.W.,Washington 25, D.C.

Reference number 21/res/56

Austria - Loan 0149 - P037352 / Electric Power Project

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Transcript of Austria - Loan 0149 - P037352 / Electric Power Project