CAESS/EEO/DEUSEM Distribution Companies Collectively, CAESS, EEO, and  DEUSEM (the companies) provide electricity to approximately 58 percent of El Salvador. CAESS is the largest of the three systems, serving 437,000 customers in an area of 4,281 km.  EEO serves 158,000 customers in an area of 6,212 km   2   .  With the exception of the San Miguel area, the EEO service area is much more rural than is CAESS'', and was more affected by the conflicts that occurred in El Salvador from 1980 to 1992. DEUSEM is the smallest of the three systems, providing electricity to 41,000 customers in an area of 1,129 km2. DEUSEM principally serves residential customers in the department of Usulatan.    The purpose of the project is: (a) to expand the companies'' distribution networks in order to connect new customers, which are expected to primarily be rural households; (b) to rehabilitate the companies'' existing fixed assets in order to increase reliability and reduce technical losses; (c) to improve billing, metering and internal control systems so as to increase collections and reduce non-technical losses; and (d) to provide for the companies'' working capital requirements.     Investment Requirements    The three distribution companies expect to increase their sales through expansion of their networks and through the implementation of marketing programs which, over time, will increase average consumption per customer served. The companies foresee that substantial cost reductions can be accomplished through:    (i) the installation of new meters and by implementing a meter verification/calibration program on existing installations; (ii) the upgrading of customer commercial systems; and (iii) improved working capital performance to be achieved through the increased use of automated meter reading, implementation of on-site billing programs, introduction of direct debit and credit card payment options for customers and enhancement of credit and collection practices.    In terms of network expansion, the companies plan to invest approximately US$59 million in their distribution networks in order to connect new customers, primarily rural households (60% of which currently lack access to electricity) and improve service for their existing customers.  It should be noted that 64% of rural Salvadoran households lacking access to electricity are located in EEO''s and DEUSEM''s service territories. To address issues of system reliability and loss reduction, the companies expect to invest approximately US$40 million. To improve service quality and efficiency, the companies contemplate investments of approximately US$5.5 million in computers and information systems.     Developmental Impact    IFC''s proposed investment will enable CAESS, EEO and DEUSEM to replace antiquated distribution infrastructure, to improve service quality and to expand their networks into underserved rural areas, some of which are recovering from the recent devastating earthquakes. Expanding the grid to rural areas will be a major step forward in the socio-economic development of El Salvador, enabling increased industrial development and employment. Electricity from the grid will also replace the current use of wood as fuel for many rural domestic uses and for small-scale industries. The almost universal use of wood as a fuel in many unelectrified rural areas in El Salvador has left the country one of the most deforested countries in the western hemisphere.