Colombia - Second Bogota Power Expansion Project

RETURN TO REPORTS DESK RIESTRICTED WITHIN HFILE i; V Report No. -307a ONE WEEK Wl[I This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE SECOND EXPANSION PROGRAM EMPRESA DE ENERGIA ELECTRICA DE BOGOTA COLOMBIA May 15, 1962 Department of Technical Operations  CURRENCY EQUIVALENTS 1 US$ = 6. 7 Pesos (Ps) (The official rate at which the Empresa services its foreign debt is presently 6. 7:1. The free market rate in March 1962 was about 8. 75:1. Although the official rate is used herein, an assumed rate of 8:1 was used in computing future interest and debt service coverage ratios as shown in Annex 8.)  APPRAISAL OF THE SECOND EXPANSION PROGRAM EM.RFSA DE ENERGIA ET ECT?rCA DE BOGOTA COLOMBIA TABLE OF CONTENTS Page No. SUTWjARY i I. INTRODUCTION 1 II. THE BORROWER 1 Existing Facilities 2 III. THE DOWER MARKET 3 Historical 3 Forecast 3 IV. THE PROJECT 4 The Colegio Hydro Development 5 The Zipaquira Thermal Addition 5 The Second Stage of the Guatavita Dam and Reservoir 6 The Muna Pump Storage Installation 6 Transmission and Distribution Additions 7 Estimated Cost of the Project 7 Engineering and Supervision of Construction 8 Schedule of Construction 9 Rate of Expenditure and Method of Finance 9 V. FUTURE PROGRAMS 9 VI. JUSTIFICATION FOR THE PROJECT 10 VII. FINANCIAL AS'ECTS 11 Rates 11 Auditors 12 Rate of Exchange 12 Present Financial Position 12 Past Earnings Record 14 Financial Plan 14 Estimated Puture Earnings 17 Debt Service Coverage 17 Debt/Equnity Ratio 18 VIII. CONCLUSIONS 18  TABLE OF' CO1,ITENTS Page 2 ANNEXES 1. Summary of Energy and Demand Requirements 2. Load and Capacity 3. Technical Features of the System 4. Estimated Cost of the Project 5. Actual and Forecast Balance Sheets 1958-1968 6. Actual and Forecast Income Statements 1958-1968 7. Forecast of Sources and Applications of Funds 1961-1968 8. Actual and Forecast Financial Ratios 1958-1968 MAP  APPRAISAL OF THE SECOND EXPANSION PROGRAM EIAPRESA DE ENERGIA ELECTRICA DE BOGOTA COLOMBIA SUNMARY i. The 3mpresa de Energia Electrica de Bogota has asked the Bank for a loan of $50 million to cover the foreign exchange cost of a pro- ject consisting of new hydro and thermal generating facilities plus ad- ditions and improvements to Empresa's transmission and distribution sys- tems. The project is estimated to cost the equivalent of $74.1 million, including interest during construction. ii. The Bank made a loan of $17.6 million (246 CO) to the Empresa in January 1960 to assist in financing the first expansion program. Part of that project has been completed and the balance is under construction. iii. The Empresa is an autonomous organization owned by the lTunici- pality of Bogota. iv. The management is capable of carrying out the project. vs The project is necessary to meet the forecast load growth in the Bogota area. It is well planned. The proposed investment is justi- fied. vi. The financial plan proposed by the Empresa is satisfactory. vii. The project would be suitable for a Bank loan of $50 million, including interest during 3-2 years of the construction period, for a term of 25 years including a grace period of 4 years on arnortization payments.  APPRAISAL OF THE SECOND EXPANSIOM PROGRAMI EMPRESA DE ENERGIA ELEICTRICA DE BOGOTA COLOMBIA I. INTRODUCTION 1 e This report covers the appraisal of the second expansion program of the Empresa de Energia Electrica de Bogota. The Empresa has requested a Bank loan equivalent to $50 million including interest during construction of $5.7 million. The project would consist of the first stage construction of the Colegio hydro development (150 14W), the addition of a second thermal unit (33 Ng) at the Zipaquira thermal station plus expansion and improvements to the Empresa's power transmission and distribution facilities. The project would also include $3 million for the peso costs of engineering services and about $1.7 million for transmission and distribution facilities in a number of larger towns near Bogota. The total cost of the project is estimated to be equivalent to $74.1 million. 2. This would be the second loan to the Empresa. The first loan ($17.6 mil-lion) was made in January 1960 (Loan 246 CO). 3. The project for which the previous loan was made included three separate generation additions, a reservoir and transmission and distribution system improvements. The major components of the project were: a. The addition of an 18 Y1Ti unit to the three unit 54 MW Laguneta hydro plant. b, The construction of the Salto II (66 MW) hydro development. c. The construction of the Zipaquira (33 14W) thermal station. d. The first stage construction of the Guatavita reservoir and pump storage facility on the Siecha River. e. M4odernization and expansion of the Empresa's transmission and distribution facilities. 4. The Laguneta addition was completed early in 1961. The other com- ponents of the first project are still under construction. The Salto II hydro plant is now scheduled for first commercial operation in mid 1962 and the Zipaquira thermal station for the end of 1962. Both are about six months be- hind original construction schedule forecasts. The previous project is being carried out in a satisfactory manner, however. II. THE BORROWJER 5. The Borrower would be the Empresa de Energia Electrica de Bogota, an autonomous municipally owned public utility which serves the capital city of Bogota and vicinity. It is the only electric utility in the Bogota area, an area with a population of about 1.2 million.  - 2 - 6. The Empresa is a juridical entity with legal capacity to borrow from the Bank. It has, or can obtain by existing legal procedures, various rights, including the right to acquire land necessary for the execution of the project. The enterprise has a Board of Directors who choose a manager responsible for day-to-day operations. The present Board consists of seven members. Four are selected by a consortium of Bogota banks and three by the Municipal Council. 7. The banks' authority to select the Board majority is temporary, ex- piring in 1968. It is the result of a trust agreement of 1951, when a consor- tium of four local banks financed the acquisition by the Mkunicipality of the then outstanding stock (49%) of a private corporation (Empresas Unidas de Ener- gia Electrica de Bogota, S.A.) which anteceded the Empresa de Energia Electrica, 8. During negotiations for the previous loan the Municipality agreed that, after the trust agreement expires, the seven members of the Board will be: the Mayor of Bogota, two members elected by the Council, three members chosen by the Council from lists submitted by associations representative of banks, commerce and industry of Bogota and one member chosen by the President of the Republic. 9. The M1unicipality has informed the Bank that this undertaking con- tinues in effect. 10. The management and staff of the enterprise are competent and capable of carrying out the proposed project with the assistance of consultants and additional personnel as discussed later. Existing Facilities 11. The Empresa's generating facilities include 131 MW of hydro capacity and 15 MNJ of thermal capacity at present with the 66 MW Salto II hydro plant and 33 10TV Zipaquira thermal plant both scheduled for completion by the end of 1962. Hydro generating facilities consist of a series of hydro plants located along a stretch of the Bogota River a short distance downstream from Bogota. The existing steam plant is also close to 73ogota, near the upstream end of the stretch of river being developed for hydro power. 12. The Empresa also owns two important reservoirs. One, the Guatavita reservoir, is on the Siecha River, an important tributary of the Bogota River. The Guatavita is the largest storage reservoir in the Bogota River watershed. Its use will be essential to full annual regulation of the river. The first stage of the Guatavita dam will be completed in mid 1962. The dam would be brought to its final height as a part of the proposed project. The company's other reservoir (2MIurna reservoir) is used for daily and weekly regulation. It is located at the upstream end of the stretch of river being developed for hydro power. Due to the series arrangement of the hydro plants and because none have more than a few hours pondage, they are all operated as one plant. The Muna reservoir is the key factor in the operation of this hydro system  as it provides the close control of water releases necessary for proper opera- tion of the series arranged generating facilities. 13. The enterprise also owns the transmission facilities necessary to interconnect and properly deliver the power from its various generating plants as well as the complete distribution system in Bogota and vicinity. 14. The system is not interconnected with any other utility although one transmission link is being constructed betwreen the Bogota system and a relatively small thermal power installation near Paipa which serves the depart- ment of Boyaca and the Paz del Rio steel mill. This line, about 115 kilometers long, is being constructed by the Instituto de Aprovechamiento de Aguas y Fo- mento Electrico, a government agency, which in addition to its other functions, is responsible for general powrer development in Colombia. III. WhE POWER YiARKET Historical 15. The 3ipresa's kwh sales increased from 200 million in 1951 to 606 million in 1960. This threefold increase in nine years represents an average growth rate of slightly over 13% per year. The relative proportions of the three main sales categories remained remarkably constant during this period at around 26% residential, 25% commercial and 32V industrial. The balance is accounted for by street lighting, traction and other government uses and bulk power sales. Bulk power sales, which account for only a small part of total sales, are made to a few small communities in the Bogota area. Owner- ship of the distribution facilities in several of the communities is in the process of being transferred to a newly created government agency, the Cor- poracion Autonoma Regional de la Sabana de Bogota y Valles de Ulbate y Chi- guinquira (CAR). This is not expected to provide competition to the Empresa, however, since there would be no reason for CAR to install its own generating facilities as long as power were available from the Empresa's system. 16. The growth in kw demand recorded on the system increased at a slightly lower rate during the nine years, mainly because capacity was seldom sufficient to meet peak demands. Demand increased from 45,800 kw in 1951 to 129,000 kw in 1960. 17. The impressive past growth of power and energy consumption has been achieved in spite of load restrictive measures which still exist. Forecast 18. Annex I shows both the historic and forecast energy and load charac- teristics of the system and Annex II shows the relationship between expected load growth and planned capacity additions in graphical form. As forecast in the first loan appraisal report, artificial restrictions to free load growth will have to be continued until the 66 -Irl Salto II hydro plant is completed.  - 4 - The kwh sales forecast until that time consecuently reflects the system capa- bility rather than the market. After Salto II completion (to be followed shortly by completion of the first 33 MW unit at Zipaquira) it should be possible to remove all restrictions. For several years, starting in the last half of 1962 it is reasonable to expect a sharp increase in energy consumption as the deferred demand is satisfied. It is interesting to note that estimated deferred demand at the end of 1961 totalled about 112 1IN, or a little more than the combined capacity of the two plants now under construction. The estimate was based on actual requests made to the Empresa for service. It breaks down as follows: Deferred Cate,ory Demand (NW) Residential (Bogota) 33.3 Residential (Rural) 18.3 Industrial 44.6 Commercial 7.7 Other 8.0 Total 111.9 19. Sales are estimated to increase 28% in 1963, 26% in 1964 and about 15% in 1965. After 1965 the rate of growth is expected to diminish, resulting in an average annual increase of 12.8% in kwh sales for the period 1960-1970. This represents an increase of 3.3 times in the ten years. Total generation (as distinct from sales) and total kwr demand would increase more rapidly during the period because of the Em.presa's increasing requirements for water storage pumping. The present practice of limiting peak period demand would also be abolished. The forecast indicates that the growth in kw demand would increase slightly more than 4 times or at an average annual rate of 15% during the decade. 20. It will be difficult to achieve the 1963 and 1964 estimated sales without substantial improvements to Bogota distribution facilities. The market is available but the Empresa will have to expedite its efforts in the distribution field to reach it. This has been discussed with the Empresa management and during negotiations the management agreed to engage a qualified engineer to assist in expediting the distribution program and to augment its construction forces as necessary. IV. THE PROJECT 21. The proposed project would continue the development of the Bogota River's hydropower potential downstream from Bogota through construction of the Colegio plant with an initial capacity of 150 QW. The Guatavita dam and storage reservoir would be completed to its final height and a second 33 NIWi unit would be added to the thermal plant. Both were financed, in part, by the previous Bank loan. Transmission and distribution system improvements would also be continued.  - 5- The Colegio Hy7dro Development 22. The Bogota River, after traversing the T3ogota plateau at an elevation of about 2,250 meters above sea level, begins a precipitous drop toward the Miagdalena Valley from a point some 20 kilomieters west of the city of Bogota. In the first 24 kilometers after leaving the plateau the river drops 1,800 meters. In the next. 90 kilometers, it drops an additional 420 meters before joining the 11agdalena River. The situation is extremely favorable for low cost, high head hydro power development. The Colegio development would uti- lize the last 975 meter head of the first 24 kilometer stretch of the river. 23. At the tinme of the first loan this last 975 meter head was tenta- tively scheduled for development by two consecutive underground plants to be located along the right side of the river. Subsequent topographical and geological investigations indicated, however, that this would be extremely difficult and costly. The present design was therefore evolved to utilize the left side of the river. Topocraphical conditions on the left side make it impractical to utilize this head by more than one plant. 24. The power plant will be laid out for an ultimate installation of six 50 121 gienerating units. Installation of the first three units would be included in the proposed project. 25. The layout of the development follows that of other upstream hydro plants. The intake would be constructed across the river from the tailrace of the Laguneta plant, now the plant farthest downstream in the system. A small pond would be backIed up at the intake by construction of a simple diversion weir. Tater would be conveyed through an 8.2 kilometer long tunnel to a surge tank and thence tiirough valve c>acmmbers to two steel penstocks to a surface powerhouse. Only one penstock would be installed as part of the pro- posed project although grading and anchors for the second penstock would be completed as a part of the initial development. 26. The annual plant output wlien fully developed (300 'Th7) would be about 1,300 million kwh. This would represent a plant capacity factor_/of about 50% and average stream flow of 18.8 cubic meters per second. The number and rating of units is a good choice considerin!g water conditions, the character- istics of the upstream hydro plants and the characteristics of the load to be served. The Zipaquira Thermal Addition 27. The major equipment for the first unit of the Zipaquira station was bought from the Government by the C.mrresa in 1960. The equipment is being supplied by a group of French mrnufacturers who had originally held a contract with the Government to supply and erect a two unit (2 x 33 AINT) 'hermal plant located near Paipa to serve tne department of Boyaca and the Paz del Rio steel mill. The foreign exchange cost of modifying the equipment and of additional equipiment necessary to adapt the plant to single unit operation was included in the previous loan. The ratio of the energy production of the plant to its nameplate rating if orerated at full capacity.  - 6 - 28. A second 33 Ml unit would be installed as a Dart of the proposed project. This extension to the station would utilize some existing facilities. The coal handling and fuel storage system would require only minor changes. The electrical control room, turbine room crane, offices and personnel facilities would also be adeauate for the second unit. The Second Stage of the Guatavita Dan and Reservoir 29. The initial stage of the Guatavita dam and reservoir development included an earthfill dam of about 38 meters maximum height and volume of about 1 million cubic meters. This dam will impound a reservoir with usable storage capacity of about 340 million cubic meters. The dam is on the Siecha River just upstream of its confluence with the Bogota River, and about 215 river kilometers unstream from the first hydro plant. The initial develop- ment also includes a control weir on the Bogota River and a 3,000 horsepower r>umping installation which nermits storage of excess flows of the Bogota River, in addition to normal storage from the Siecha River runoff. The area controlled by the weir, pump installation and dam is about 21-1/2% of the total Bogota River watershed. There are provisions for the future instal- lation of additional Pimping units and the dam was laid out initially to facilitate increasing its heiaht, 30. The dam would be heightened 11 meters. This would increase the usable reservoir storage volume 425 million cubic meters, giving the reservoir a total volume of 7P5 million cubic meters. This is enough to operate all of the Empresa?s hydro plants at 509 capacity factor for aonroximately one year. Since this is the only large storage reservoir in the watershed, it is important to the operation of the whole system. The Muna Dump Storage Installation 31. The function of the 1una nump storage reservoir has been mentioned earlier (paragranh 12). It is relatively small, having a canacity of only 40 million cubic meters. The reservoir is Dresently supplied by a pumping installation of 4 cubic meter ner second canacity which allows part of the flow of the Rogota River to be stored for release when normal river flow is less than required by hylro plants immediately downstream. Due to distance and large intervening watershed area it is impossible to provide close river regulation from the Guatavita reservoir without substantial waste. The tIna reservoir serves the same function to the series of downstream generating facilities as would the reservoir of the normal hyHro power develoPment with generating facilities adjacent to the dam. 32. The proposed installation would include a second pumping station consisting of an intake, pump-house with an 8 clubic meter Per second elec- trically driven Pump installed, penstock and outlet structure for discharge into the reservoir. From the economic point of view it is interesting to note that the nower required for numning and storing water at the rate of 12 cubic meters ner second could be oroduced from the downstream hydro plants (after completion of Colegio) by a flow of about 0.5 cubic meter ner second. 1/ Previously called Tomine.  - 7 - Transmission and Distribution Additions 33. Modernization and expansion of the Empresats 115 kv and 57.5 kv primary voltage substations and transmission lines would be continued. This would include about 180 circuit kilometers of new lines between the generating plants and Bogota receiving substations, and between the substations, and 360 INA of new substation capacity. 34. The project would also continue the program started under the previous loan of rebuilding the existing 6.6 kv distribution network to 11.4 kv, adding secondary transformer capacity and, in general, revamp- ing and enlarging the entire secondary distribution network. The cost of meters for new customers expected between 1962 and 1964 would be in- cluded. 35. The proposed loan would include $50,000 to cover the foreign exchange cost of overhauling the existing 15 MT1 thermal station and $125,000 for new machine shop equipment. About ii500,000 would be in- cluded for equipment. This equipment would be purchased by the Empresa for use in its expanded distribution reconstruction program and possi- bly for opening new coal sources in the Zipaquira area. Any equipment purchased in connection with coal supply would be made available, by lease or other arrangement, for use by independent mining enterprises being developed to fill the fuel requiremnents of the thermal station. The loan would also include about $1.7 million to cover the cost of material needed to rebuild the distribution systems in several towns near Bogota. Certain of the distribution systems will be owned by the Empresa and some will be owned by CAR (paragraph 15). The Empresa would, in all cases, do the construction work with its own forces. Suitable arrangements would be made for repayment to Empresa by CAR of the costs incurred on its behalf. 36. The features of the system and the project are described in more detail in Annex 3. Estimated Cost of the Project 37. The project is estimated to cost the equivalent of $74.1 mil- lion, including interest during construction of about $8.0 million on foreign and local loans. It is summiarized below and shovm in more de- tail in Annex 4.  -8 - Estimated Cost (equivalent $ thousands - rounded) Feature of the Project Foreign Local Total Colegio Hydro (150 MW) 18,030 9,730 27,760 Zipaquira Thermal (33 KW) 5,530 1,420 6,950 Second Stage Guatavita Dam 730 900 1,630 M4una Pump Station 725 500 1,225 Transmission 3,930 1,920 5,850 Distribution 4,545 1,570 6,115 Provision for CAR program 1,700 - 1,700 Construction equipment 500 40 540 Miscellaneous 175 400 575 Engineering & Supervision 4,180.1/ 1,380 5,560 Sub-total - Direct Cost 40,045 17,860 57,905 Contingencies 4,285 2,635 6,920 Price Increases - 1,320 1,320 Interest during construction 5,670 2,295 7,965 Sub-total 9,955 6,250 16,205 Total Estimated Cost 50,000 24,110 74,110 38. The estimate includes contingency provisions equivalent to $6.9 mil- lion and also an allowance of approximately $1.3 million equivalent to cover possible increases in the local costs of labor and materials. The latter allow- ance was calculated from the assuxnption that local prices would increase approx- imately 5% per annum during the construction period. The amount of the proposed Bank financing would be $50 million, including $3 million for the local cost of engineering services. 39. The estimate is based on engineering work that is well advanced. Bids for construction of the Colegio tunnel were opened October 24 and the work is underway. The cost of the other project components can be estimated with a bet- ter than average degree of assurance. Bids have been received and letters of intent issued for the major equipment for the thermal addition and the second stage construction of Guatavita dam is covered by the existing first stage unit price contract. The cost of the liuna pump station can also be estimated quite closely as it represents, in large part, the cost of equipment for which good pricing data were available. Engineering and Supervision of Construction 40. The Empresa does only engineering work necessary for normal operation and maintenance and for checking on the work and recommendations of its engineer- ing consultants. This is a sound policy as long as the managemnent is adequately informed so as to evaluate the consultants' performance and recommendations. 41. The Colombian engineering firm of Ingetec, Ltda. does most of the Em- presa's engineering work including feasibility studies and recommendations fcr long range expansion planning and financing. Ingetec, Ltda. in turn engages consultants in specialized fields when necessary. j Includes local currency costs of about $3 million,  - 9 - 42. Ingetec is associated with the J. G. U;hite Engineering Corporation of New York on the Zipaquira thermal station but would have primary responsi- bility for design, bid preparation and evaluation and engineering supervision of construction on all other major features of the project. Although the scope of this general arrangement is considered satisfactory the Empresa is tending to rely too heavily on its consultant. The Empresa's technical management is capable but not adequately staffed to follow the accelerated construction program now planned. Because of this the Empresa management agreed during negotiations on satisfactory measures aimed at strengthening its technical management and staff. 43. All construction, except distribution which the Empresa does itself, would be undertaken by contractors. Construction and supply contracts would be awarded after securing international competitive bidding. This has been the Empresa's practice in the past. Schedule of Construction 44. The project is scheduled over four years with completion by the end of 1965. Some of the individual components would be completed earlier. Completion of the second 33 MW thermal unit is scheduled for December 1963 and completion of the first 50 IJ Colegio unit for early 1965. Expansion of the transmission and distribution facilities should be a continuing pro- cess. The project therefore includes the necessary work, between 1962 and 1965, to meet the growing power demand of the Bogota area. Rate of Expenditure and i[ethod of Finance 45. It is proposed that the foreign exchange cost of the project, local engineering costs during 1961-63 and interest during 32 years of the construc- tion program would be financed by a Bank loan of $50 million. The remaining local currency costs, wJhich are estimated to be Ps. 137.4 million ( $24.1 mil- lion), would be met from retained earnings of about Ps 100 million ($15 mil- lion) and local and foreign bank borrowings. 46. The estimated rate of expenditures, including interest during con- struction are shown below: Expenditures (rounded $ millions) 1962 .1/ 1963 1964 1965 Total Foreign ExchangeV 11.8 18.9 17.1 2.2 50.0 Local currency 5.6 7.1 9.0 2.4 24.T 17.4 26.0 26.1 4.6 74.1 V. FUTURE PROGRA,3 47. The proposed project would provide sufficient generating capacity to meet demands into 1967 on the basis of the market estimates discussed ir. Chapter III. The year end demand at that time is expected to be about 405 r4. This would be supplied by the system nameplate rating of 428 141 which would 1/ Includes relatively small 1961 expenditures. 2/ Including $3 million for local engineering costs.  - 10 - be available after completion of the oroject. It will thus be necessary to add further generating capacity in about mid 1967. The first olant addition is expected to be the 42 MW Canoas hydro development. The Canoas ulant would utilize a short stretch of the Bogota River immediately below the Muna reservoir. The development would be sound. 48. The Canoas development would be followed by the addition of the last three 50 MW units of the Colegio plant. These two steDs would add 192 MW to the system. Further generating canacity would have to be added about the end of 1971 and for this the comoany is looking to another river basin. Preliminary investigations are now being made on the Bata River about 120 kilometers north-west of Bogota and a promising site (Chivor project) has been selected. If the site oroves to be suitable, a project with seasonal storage and about 600 MW notential can be developed. 49. Financial orojections discussed later are based on this program of capacity additions. VI. JUSTIFICATIONM FOR THE PROJECT 50. The Droposed Droject is clearly justified by the market projections discussed in Chapter III. Bogota is Colombia's principal city and manu- facturing center. 51. The Colegio development in its initial phase would add 150 MW to the system at a total cost, including ample contingency orovisions and interest during construction, equivalent to $3