Colombia - Power Market Development & Energy (TA)

 ICRR 11412 Report Number : ICRR11412 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 03/10/2003 PROJ ID : P006887 Appraisal Actual Project Name : Power Market Project Costs $410 million $427.8 million Development & Energy US$M ) (US$M) (TA) Country : Colombia Loan /Credit (US$M) Loan/ US$M ) $249.3 million $249.3 million Sector (s): Board: EMT - Power Cofinancing (100%) US$M ) (US$M) L/C Number : L3954; L3955 Board Approval 95 FY ) (FY) Partners involved : Closing Date 12/31/2002 12/31/2002 Prepared by : Reviewed by : Group Manager : Group : Lourdes N. Pagaran Patrick G. Grasso Alain A. Barbu OEDST 2. Project Objectives and Components a. Objectives The project had three objectives : 1) Facilitate the operation of a competitive bulk supply market for electricity . 2) Lift transmission constraints that hinder an open access to the grid . 3) Support the National Interconnection Company (ISA) in its role as transmission network operator, system generation dispatcher, and commercial transactions coordinator . b. Components Original Components : 1) Energy Control Center (ECC) and Financial Settlement Center (FSC). . This component includes the upgrading of the data acquisition and control functions of ISA's existing ECC and the installation of an FSC . The project will finance the purchase of measurement, data acquisition, telecommunications, data processing equipment and software. 2) Strengthening and Expansion of the Interconnected Transmission System . This component includes investments to strengthen and expand the national transmission system consisting of three major elements : (i) San Carlos-San Marcos System. (a) construction of a single circuit, 384 km, 500 kV transmission line interconnecting the East Antioquia hydroelectric complex to the Valle del Cauca Department; (b) construction of a single circuit, 30 km, 230 kV transmission line interconnecting the La Virginia and La Hermosa substations; (c) expansion of the San Marcos 500/230 kV substation; (d) construction of the La Virginia 500/230 kV substation; and (e) construction of the San Carlos 500/230 kV substation. (ii) Atlantic Coast System: (a) reactive compensation for the Chinu substation; (b) expansion of the Cerromatoso 500/230 kV substation; (c) construction of the Uraba 230/115 kV substation; (d) construction of the double circuit, 80 km, 230 kV La Loma-El Copey transmission line; (e) expansion of the 500/115 kV Chinu station; and f) expansion of the 500/230 kV Sabanalarga substation. (iii) Other Transmission Components: (a) reactive compensation for the Cano Limon substation; (b) construction of the single circuit, 160 km, 230 kV transmission line between Paipa and Bucaramanga; (c) construction of the Paipa 230 kV substation; (d) construction of the Bucaramanga 230 kV substation; and (e) construction of a link between the San Felipe substation and the 230 kV Esmeralda-La Mesa transmission line. 3) Technical Assistance. This component includes the provision of consulting services and training programs to assist ISA in the strengthening of its capabilities to assume its roles of : (i) transmission network operator, (ii) power dispatch coordinator, and (iii) bulk electricity transaction clearing house all in the areas of power market, planning and engineering, systems operations and dispatch, management of financial matters and environmental issues and other areas agreed with the Bank . Revised Component : Due to terrorist activity, the La Loma -Copey transmission line was dropped and replaced by a transmission pylon recovery component. c. Comments on Project Cost, Financing and Dates Total project cost was $427.8 million, compared to the appraisal estimate of $ 410 million. The Bank loan of $249.3 million, which was fully disbursed, comprised two loans : (i) $145 million in a single currency loan, and (ii) $104.3 million equivalent to single currency loan . The government provided a counterpart financing of $ 178.5 million, compared to the appraisal figure of $ 160.7 million. Of the Bank loan, $26.5 million was reprogrammed from the ECC and TA component to the Transmission Expansion and Pylon Recovery component . The project closed on schedule in December 31, 2002. It is not clear why this project is classified as a TA project since the TA component only comprised 1.2% of the total project cost, whereas about 93% were for transmission lines construction /expansion. Also, the Bank loan was not used to fund the TA component because of the highly specialized characteristics of the TA component, and the government's decision to hire local consultants instead of international consultants, both of which made it difficult to adapt to the Bank's procurement procedures . 3. Achievement of Relevant Objectives: 1) Facilitate the operation of a competitive bulk supply market for electricity . This objective was achieved . The ECC was replaced with state of the art equipment and new software was developed and installed to conform to the new dispatch rules. The FSC was put in place and equipped with hardware and software to handle the task of managing contracts and billing agents . Since 1995, the Wholesale Power Market (MEM) has been in operation and since then, it has grown in size and complexity, reaching the level of small regulated users . In 1997, unregulated users who could access the market were limited to those with demand in excess of 2MW representing around 100 commercial borders. In 2001, market participants included those with demand of 100 kW representing over 3,000 commercial borders. Moreover, prices in the MEM have reflected the demand and supply situation for power, which, according to the ICR, is evidence of strong market competition between generators, and of a functioning power market. 2) Lift transmission constraints that hinder an open access to the grid . This objective was substantially achieved . Transmission lines commissioned through the project include : (i) a 378 km, 500 kV line (San Carlos-San Marcos); (ii) two 230 kV lines totaling 182 km (Sochagota-Guatiguara and La Virginia-La Hermosa), and (iii) the construction/expansion of 13 substations at 230/500 kV. Further, ISA had recovered over 500 pylons which had collapsed due to sabotage . The number of transmission lines commissioned, as indicated in the ICR, is short of 14 kms. compared to the figures indicated in the SAR . (The ICR did not provide the same level of details as the SAR on the project components which makes it difficult to compare the two ). 3) Support ISA in its role as transmission network operator, system generation dispatcher, and commercial transactions coordinator . This objective was achieved . ISA executed a training program to support its transmission network operation, dispatching and settlement function in coordination with the Bank through its annual plan . In addition, ISA provided instruction and education in power systems technology, telecommunications, management, finance, human resource development, information technology, and social and environmental management . The project was classified in Environmental Category B . ISA conducted a Sector Environmental Assessment of the Colombian power sector which included the overall impact of new transmission lines included in its Third Plan . 4. Significant Outcomes/Impacts: 1) Key market players have accepted the rules and procedures of the wholesale power market and the incentive structure for which the economic agents operate is no longer centrally determined but are dependent on their strategy and decisions. 2) The project contributed to the consolidation of various institutions that include the National Dispatch Center (CND) and the Account Settlement Organization (LAC) that enabled the wholesale power market to function . 5. Significant Shortcomings (including non-compliance with safeguard policies): None. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: High High Sustainability : Highly Likely Highly Likely Bank Performance : Satisfactory Satisfactory  Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: 1) TA projects are likely to achieve sector level objectives when they are grounded on timely and relevant ESW /AAA, complemented with other lending operations, buttressed with government policies and strong government involvement during project preparation and implementation, and set within the overall framework of supporting sectoral reforms. 2) Introducing competition under a centrally -oriented environment is likely to succeed when there is strong government commitment and ownership, with the Bank providing a facilitating and supporting role . 3) Extensive missions during project preparation and continuity of Bank staff during project preparation and supervision contribute to successful outcomes of TA projects . 4) In countries with unstable and volatile political situation, risks assessment should take into account the potential impact of terrorist activities on the project's operations and identify measures to mitigate them, if necessary . 5) To avoid unnecessary delays during implementation, the Bank should ensure that the Borrower is familiar with the Bank's procurement requirements at the early stage of project preparation . 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: The quality of the ICR is satisfactory . It would have been helpful if the ICR had provided more details on the components that were dropped in order to allow ease of comparison between the ICR and the SAR . It is noted that the description of project components in the ICR is different from that in the SAR; this Evaluation Summary used the description included in the SAR.