Document of The World Bank FOR OFFICIAL USE ONLY Report No. 27 20 PROJECT PERFORMANCE AUDIT REPORT COLOMBIA: POWER INTERCONNECTION (LOAN 575-CO) AND CHIVOR HYDROELECTRIC PROJECTS (LOAN 681-CO) October 29, 1979 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY ACRONYMS ISA - Interconexion Electrica S. A. EEEB = Empresa de Energia Electrica de Bogota EKCALI = Empresas Municipales de Cali EPM = Empresas Publicas de Medellin CHEC Central Hidroelectrica de Caldas CHIDRAL = Central Hidroelectrica del Rio Anchicaya S. A. CORELCA = Corporacion Electrica de la Costa Atlantica CVC = Corporacion Autonoma Regional del Cauca ICEL I Instituto Colombiano de Energia Electrica This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT PERFORMANCE AUDIT REPORT COLOMBIA: POWER INTERCONNECTION (LOAN 575-CO) AND CHIVOR HYDROELECTRIC PROJECTS (LOAN 681-CO) Table of Contents Page No. Preface (i) Project Performance Basic Data Sheets (ii) Highlights (v) Project Performance Audit Memorandum I. Project Summary 1 II. Supplementary Comments 3 (a) The Sector 3 (b) The Role of the Bank in the Sector 5 (c) Project Concept, Design and Implementation 6 (d) Financial Performance 9 (e) Institutional Development 12 (f) Bank Performance 13 III. Conclusions 14 Appendices 1. Telex from Ministry of Mines and Energy 15 2. Telex from Department of National Planning 16 3. Letter from ISA 17 Attachment: Project Completion Report I. Introduction 24 II. Project Descriptions 26 III. Objectives and Justification of the Projects 28 IV. Project Implementation 30 V. Project Cost Estimates 32 Table V-1 34 VI. Consultants and Contractors 35 VII. Financial Performance 36 Table VII-1 40 VIII. Institutional Performance 41 IX. Bank Performance 42 X. Conclusions and Lessons to be Learned 43 PROJECT PERFORMANCE AUDIT REPORT COLOMBIA: POWER INTERCONNECTION (LOAN 575-CO) AND CHIVOR HYDROELECTRIC PROJECTS (LOAN 681-CO) Table of Contents (cont'd) Page No. Annexes 1. Interconnection Project Cost 45 Expressed in Current Values 2. Chivor Project Cost 46 3. List of Studies for the Organizational 47 and Future Development of ISA 4. Main Covenants 48 5. Allocation of Loan Proceeds 52 6. Accumulated Disbursement in Thousand 53 of US Dollars Equivalent (Loan 575-CO) 7. Accumulated Disbursement in Thousand 54 of US Dollars Equivalent (Loan 681-CO) 8. Appraisal Estimate of Shareholder's 55 Fixed Expense Payments and Investment 9. Actual Summary of "Shareholders' Fixed 56 Expense Payments and Investments" 10 Joint Financing 57 11. Price Deflator Indexes for Project Costs 58 12. Energy Interchange and Chivor Generation (GWh) 59 - Appraisal Estimate and Actual 13. Appraisal Income Statement 60 14. Actual Income Statement 61 15. Appraisal Sources and Applications of Funds 62 16. Actual Sources and Applications of Funds 63 17 Appraisal Balance Sheets 64 18. Actual Balance Sheets 65 19 Summary of Accounts Receivable from Shareholders 66 20. Consultants and Contractors, Interconnection Project 67 21. Consultants and Contractors, Chivor Project 68 (1) PROJECT PERFORMANCE AUDIT REPORT COLOMBIA: POWER INTERCONNECTION (LOAN 575-CO) AND CHIVOR HYDROELECTRIC PROJECTS (LOAN 681-CO) Preface This report presents a performance audit of the Colombia Power Interconnection Project and the Chivor Hydroelectric Project, for which loans of US$18 million and US$52.3 million have been disbursed. The audit is based on the Project Completion Report (PCR), a review of project files and loan documents, and discussions with Bank staff and with officials of Interconexion Electrica (ISA) and Empresas Publicas de Medellin (EPM) during a brief OED mission to Colombia in March 1979. The generous help given by ISA and EPM officials in the preparation of this report is gratefully acknowledged. The two projects covered by the audit are -especially interesting for the way in which they enabled the Bank to participate, in a constructive way, in Colombia's efforts to evolve a stronger and more efficient power sector organization. The results were impressive and represented an important step forward in greater regional cooperation. The Project Performance Audit Memorandum (PPAM) is generally in agreement with the views and data presented in the PCR.. However, because of the significance and wider interest of events surrounding the implementation of the Interconnection and Chivor Projects, the PPAM comments upon certain aspects of the project experience which merit special emphasis, notably: the major steps towards a more coordinated development of the power sector, viewed in the context of the institutional and financial difficulties which had to be resolved; the role of the Bank in the power sector generally, and the creation of ISA in particular; the causes and effects of delays in initiating the Interconnection project and implementing the Chivor project; the financial arrangements and situation of ISA and its shareholders; and the arrangements for the pricing of energy transmitted over the interconnection system. Following normal OED procedures, a draft copy of this report was sent to the Government and the Borrower for comments. Those comments which were received were taken into account in finalizing the report and are also reproduced as Appendices to the PPAM. (ii) PROJECT PERFORMANCE BASIC DATA SHEET COLOMBIA: INTERCONEXION ELECTRICA S.A. (ISA) (LOAN 575-CO) POWER INTERCONNECTION PROJECT Key Project Data Actual or Current Estimate Item Appraisal Original Final Expectation Project Project Total project cost (US$ million) 29.6 31.4 39.8 1/ Overrun (%) - 6% 34% Loan Amount (US$ million) 18.0 18.0 Disbursed )- 18.0 Cancelled )- none Repaid to ) February 28, 1979 - 1.4 Outstanding to) - 23.0 2/ Date physical components completed 2nd half of 1971 12/71 9/76 3/ Proportion completed by December 1971 (%) 100 100 80% Proportion of time overrun (%) - none 178% 3/ Incremental Financial Rate of Return (%) - 4/ -- Financial performance satisfactory satisfactory unsatisfactory 1974-76 improving 1977/78 Institutional performance satisfactory satisfactory unsatisfactory 1974-76 improving 1977/78 Cumulative Estimated and Actual Disbursements (US$ million) FY1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 (i) Appraisal Est. 3.3 10.1 15.8 18.0 18.0 18.0 18.0 18.0 18.0 18.0 (ii) Actual .8 4.5 7.1 9.8 12.8 15.0 16.3 17.1 17.8 18.0 (ii) as % of (i) 25 45 45 54 71 84 91 95 99 100 Other Project Data Item Original Actual or Plan Revisions Est. Actual First Mention in Files or Timetable - 12/10/62 ISA's Application - 9/1/67 Negotiations - 9/16/68 Board Approval - 11/26/68 Loan/Credit Agreement Date - 12/2/68 Effectiveness Date - 2/25/69 Closing Date 2/29/72 12/74;12/75;12/76 7/31/77 Borrower ISA ISA Executing Agency ISA ISA Fiscal Year of Borrower Calendar year Calendar year Follow-on Project Name Chivor Hydroelectric Project Loan/Number 681-Co Amount (US$ million) 52.3 Loan/Credit Agreement Date 6/4/70 1/ Includes a cost of US$8.4 million equivalent, representing the cost of the Guatape- Barrancabermeja Line (GBL), which was an extension of the original project, and additional engineering studies for future plants. 2/ Includes exchange adjustment of US$6.4 million. i/ The original project was ----le-----------merzially onerational on schedule on December 1971. 4/ The appraisal report did not calculate an incremental financial or economic rate of return. The project feasibility was justified exclusively on its economic impact and least-cost features. (iii) PROJECT PERFORMANCE BASIC DATA SHEET COLUMBIA: INTERCONEXION ELECTRICA S.A. (ISA) (LOAN 681-CO) CHIVOR HYDROELECTRIC PROJECT Key Project Data Item Appraisal Actual or Expectation Current Estimate Total Project cost (US$ million) 126.3% 1/ 194.9 Overrun (%) - 54% 3/ Loan Amount (US$ million) 52.3 52.3 Disbursed ) - 52.1 4/ Cancelled ) - none Repaid to ) February 28, 1979 - 1.4 Outstanding to ) 51.8 58.3 5/ Date physical components completed 6/76 9/77 Proportion completed by 6/75 (%) 100 72 Proportion of time overrun (%) - 18 Incremental Financial Rate of Return (%) - 2/ - Financial Performance satisfactory unsatisfactory 1974-76 improving 1977/78 Institutional performance satisfactory unsatisfactory 1974-76 improving 1977/78 Cumulative Estimated and Actual Disbursements (US$ million) FY1971 1972 1973 1974 1975 1976 1977 1978 1979 (i) Appraisal Est. 7.1 15.0 26.5 40.7 50.3 52.3 52.3 52.3 52.3 (ii) Actual 9.8 14.5 22.0 35.2 50.3 51.5 52.0 52.1 52.1 (ii) as % of (i) 138 98 83 86 100 98 99 99.6 99.6 Other Project Data Item Original Revision Actual or Plan Est. Actual First Mention in Files or Timetable - 3/12/64 ISA's Application - 9/16/68 Negotiations - 3/16/70 Board Approval - 5/26/70 Loan/Credit Agreement Date - 6/4/70 Effectiveness Date - 9/1/70 Closing Date 6/30/77 12/77;2/79;7/79 12/31/79 Borrower ISA ISA Executing Agency ISA ISA Fiscal Year of Borrower calendar year calendar year Follow-on Project Name San Carlos I Loan/Number 1582-CO Amount (US$ million) 126 Loan/Credit Agreement Date 7/14/78 1/ This cost includes (underestimated) interest during construction (IDC) on the Bank loan, excludes IDC on other non-Bank loans, and excludes price contingencies (in line with Bank policy at the time). 2/ See footnote 4/, p. (ii). 3/ In constant prices, the overrun was only 1%. 4/ Of the undisbursed US 1//,UUU; about Us:i5,000 are expected to be disbursed before Llie closing date. 5/ Includes exchange adjustment of US$7.6 million. (iv) MISSION DATA Item Month No. of No. of Date of Year Weeks Persons Manweeks Report Loan 575-CO, Identification (support for the project begun in 1962. Bank staff Preparation participated in many meetings prior to the appraisal mission Preappraisal 9/67 1 2 2 Appraisal 3/68 1-1/2 1 1-1/2 10/21/68 Total 3-1/2 Loan 681-CO Identification (the suitability of implementing this project was suggested by the Colombian mission during negotiations of Loan 575-CO) Preparation (8/69 4 3 12 (8/69 1 1 1 5/7/70 Appraisal 4/70 1 1 1 Total 1A (Except where indicated otherwise the following missions were for the joint supervision of loans 575-CO and 681-CO). 1. Supervision (575-CO only) 6/70 1/2 2 1 7/22/70 2. Supervision (575-CO only) 9/70 1/2 1 1/2 10/8/70 3. Supervision 3/71 2 1 2 4/8/71 4. Supervision 12/71 1 1 1 1/12/72 5. Supervision (575-CO only) 3/72 1 1 1 3/29/72 6. Supervision 8/73 1 2 2 8/27/73 7. Supervision (681-CO only) 2/74 2 2 4 5/20/74 8. Supervision 9/74 1-1/2 1 1-1/2 10/14/74 9. Supervision 12/74 1 2 2 12/13/74 10. Supervision 1/75 1 2 2 2/7/75 11. Supervision 3/75 1 1 1 4/3/75 12. Supervision 11-12/75 1 1 1 12/24/75 13. Supervision 10/76 1 2 2 6/4/76 14. Supervision 2/77 2 2 4 2/24/77 Completion 4/78 1 1 1 2/28/73 Total 26 COUNTRY EXCHANGE'RATES (yearly averages) Name of Currency: Colombian Pesos (Col $) Year 1968 1969 1970 1971 1972 1973 US$1.00 = Col.$ 16.31 1/ 17.27 18.41 2/ 19.87 21.89 23.52 Year 1974 1975 1976 1977 US$1.00 = Col.$ 25.59 30.99 34.70 36.50 - 1/ Appraisal Loan 575-CO; 2/ Appraisal Loan 681-CO; 3/ Completion Loan 575-CO, September 1976; 4/ Completion Loan 681-CO, September 1977. (v) PROJECT PERFORMANCE AUDIT REPORT COLOMBIA: POWER INTERCONNECTION (LOAN 575-CO) AND CHIVOR HYDROELECTRIC PROJECTS (LOAN 681-CO) Highlights Loans 575-CO (1968) and 681-CO (1970) were the first and second Bank loans to ISA, for a total of US$70.3 million; in these pro- jects, the Bank assisted the newly-created ISA with interconnecting its 230 kV transmission facilities in the central part of the country and with constructing its first generating facility (the Chivor hydroelectric power plant) and related transmission works. The first project was completed as scheduled at lower-than-estimated cost. Remaining funds were used to con- struct an additional transmission line, which began operation in 1976. Although the first unit of Chivor I, the second project, became operational two years behind schedule, the power plant as a whole was completed in Septem- ber 1977 with a delay of 15 months. It suffered a substantial cost-overrun in current prices. Nevertheless, both projects have made valuable contributions to the power sector in Colombia. Broader sectoral issues were addressed prior to and during the appraisal of both projects. Since then, the Government and the power sector have succeeded in strengthening the institutional base and the finances of the sector and the Bank has been able to play a useful and constructive role in the process. The following points are of special interest: - problems resulting from earlier sector organization (paras. 14-15, 21); - financial performance and problems of ISA and impact on loan disbursements (paras. 8-9, 36-39); - financial arrangements for ISA (paras. 22, 27, 32-35); - project implementation delays and future power rationing (paras. 7, 30); - institutional development (paras. 40-41); - absence of price contingencies in appraisal cost estimates (para. 7); - regional cooperation of power entities and benefits of interconnection (paras. 10, 19-23); - role of the Bank (paras. 2, 11, 16-19, 42-43); - possible use of covenants on accounts receivable for monitoring purposes (paras. 8, 37). PROJECT PERFORMANCE AUDIT MEMORANDUM COLOMBIA: POWER INTERCONNECTION (LOAN 575-CO) AND CHIVOR HYDROELECTRIC PROJECTS (LOAN 681-CO) I. PROJECT SUMMARY 1. Loans 575-CO (1968) and 681-CO (1970) were the first and second loans to ISA, for a total of US$70.3 million; in these projects, the Bank assisted the newly-created ISA with interconnecting its 230 kV transmis- sion facilities in the central part of the country and with constructing its first generating facility (the 500 MW Chivor hydroelectric power plant) and related transmission works. 2. Interconnection between EEEB, EPM, CVC/CHIDRAL and ICEL/CHEC, the largest individual companies in the country and the main borrowers from the Bank up to 1968, was the central objective of the Bank in its work with the Colombian power sector in the 1960s, because the systems were approaching a size which would make an interconnected system more efficient and economic in relation to future hydroelectric developments. The establishment of ISA, which undertook the task of interconnection, followed a long period of studies and negotiations among the major power companies which were to be the shareholders of ISA. 3. Chivor I was the first hydroelectric power project jointly executed by the main municipal and regional power companies through ISA. The purpose of Loan 681-CO was to assist in financing this project., thereby increasing Colombia's installed capacity (about 2000 MW in 1970) by 500 MW in order to keep up with the rapidly growing demand for power. 4. The original Interconnection project was completed and commercially operational by the end of 1971 as scheduled. The actual cost of the original project was 6% greater than the appraisal estimate in current prices (PCR, para. 5.02). However, in constant (1968) prices there was a cost underrun of 23% (PCR, para. 5.04). Moreover, utilization of the interconnection line over the forecast period was double that anticipated at appraisal 1/. While no economic rate of return calculation was required at the time of appraisal (1969), it is reasonable to conclude that the economic benefits actually realized by the project are greater than would have resulted from such a calculation. 5. In July 1971, near completion of the original Interconnection project, the Bank agreed to the utilization of savings under the loan for the construction of a single-circuit 230 kV line of 200 km between the Guatape hydroelectric plant and Barrancabermeja. This new line linked the northeast system to the original interconnected network and thereby incor- porated a thermal component within the predominantly hydroelectric systems. 1/ In particular, the 230 kV line was used to minimize power shortages during the unusually severe drought in 1976/77. - 2 - 6. Under Loan 575-CO, funds were allocated to ISA for studies requir- ed to support the entity in its role as power development planner and co- ordinator on behalf of the interconnected system. The studies resulted in the identification of major hydroelectric projects which were includ- ed in ISA's long-term development program. 7. According to the original project schedule, the first unit of Chivor I (125 MW) was to start operation in June 1975. Actual energy genera- tion started in June 1977. The delay was due mainly to geological problems encountered during the construction of the project's dam and tunnel, financial difficulties and the replacement of one of the contractors. Chivor could not be commissioned in time to avoid country-wide energy rationing between late 1976 and early 1977, which resulted from a prolonged dry season. While the project had a large cost overrun in current prices, the actual cost in con- stant (1969) prices was only slightly (about 1%) above the appraisal estimate. Thus, it appears that the cost overrun was mainly due to the fact that, in accordance with Bank policy at the time, the appraisal estimates included no allowances for inflation (PCR, para. 5.06)1/. As in the case of the Intercon- nection project, no economic rate of return was required at appraisal; how- ever, the slight cost overrun in constant prices combined with the delay in commissioning Chivor suggest that the net economic benefits of Chivor may be lower than expected at appraisal. 8. Regarding financial performance, ISA's financial viability depen- ded crucially upon the contribution of funds by its four sponsors. The financial arrangements were, therefore, no better than the financial abil- ity of the sponsors. ISA's financial situation became critical enough to warrant an informal suspension of disbursements by the Bank in September 1974. After sufficient progress had been made, the Bank resumed loan dis- bursements in May 1975. The financial difficulties of ISA arose from the inability of the four shareholders to make timely and sufficient contribu- tions. Although the levels of ISA's accounts receivable (as a percentage of total billings) projected at appraisal were not meant to be performance targets, it might have been possible to alert the Bank earlier about the serious financial problems which developed, if related covenants had been included in the loan documents for monitoring purposes. 9. The Bank's support for the concept of creating ISA as a vehicle for channelling major investments met with understandable reservations in the sector and in the political sphere because it represented a sharp depar- ture from the sector's historical regionalized structure. The undertaking consequently met with mixed results in the early years, including financial results. The latter were significantly aggravated by higher-than-normal local 1/ Also, they did not include estimates of the total financial charges payable to the Bank and a reasonable allocation for similar charges related to other loans raised to finance the project (see Appendix 3). - 3 - inflation and severe foreign inflation during implementation of Loans 575-CO and 681-CO. In this situation, the Government and local authorities were reluctant to press for tariff increases to compensate for rising investment and operating costs; it is thus doubtful that any financial framework for the projects would have produced better results. 10. By pooling their financial resources through ISA, the shareholders have been able to undertake larger and more economic projects than would have been feasible under the previous arrangements. The development of Colombia's power sector has been. assisted by the gradual consolidation of independent facilities into regional systems and the interconnection of these systems through ISA to facilitate exploitation of low-cost hydro resources. The task of interconnection has been undertaken by ISA and by 1972 the Central System was interconnected (Loan 575-CO); by 1982 the national grid will have been established with the incorporation of the Atlantic System (Loan 1583-CO). Currently, ISA owns and operates the 500 MW Chivor I hydroelectric station (Loan 681-CO) and has an additional 1991 MW under construction, including the 1,240 MW San Carlos I and II hydroelectric projects (Loans 1582-CO and 1725-CO). 11. The Bank's overall performance should be viewed in relation to developments under a series of loans, starting with the 230 kV Interconnection Project and the Chivor I Project and continuing with the 500 kV Interconnec- tion Project and the San Carlos I and II Projects now underway. The share- holders and the Government have made considerable progress toward developing ISA into an effective national utility with an important role in planning, coordinating and executing projects for the interconnected system. By chan- nelling the efforts of the major utilities through ISA, least-cost national power expansion has been identified up to 1985 and work is underway to extend the expansion plan through the year 2000. Ongoing Bank operations in the sector are aimed at further supporting this undertaking. II. SUPPLEMENTARY COMMENTS (a) The Sector 12. Colombia's principal energy resources are hydroelectricity, coal and gas. Hydroelectricity appears to have the most promising prospects for future development, with a potential of some 100 GW of capacity and approximately 450,000 GWh of annual energy. Numerous favorable hydroelectric sites exist in the western part of Colombia, which is traversed by three major Andean mountain ranges and contains more than 90% of the country's total population. These mountains also divide the country into distinct communities with strong regional loyalties and cultural traditions. The northern (coastal) region has natural gas and coal and relies on thermal generation. Each major region contains a leading city, notably Bogota, Medellin, Cali, Barranquilla, Bucaramanga, Cartegena and Manizales. These cities (particularly the first three) have grown rapidly over the last 25 years as people have migrated from the rural areas. 13. Electricity is the fastest growing form of energy use in Colombia; its share in overall energy consumption has grown from 14% in 1960 to 25% in 1977. Over the period 1971-1977, the public sector's growth rate of electricity production was about 9.8% p.a, i e., 1.63 times the growth rate of GDP. Present per capita electricity generation is estimated at about 610 kWh, which is below average for Latin America. Hydroelectric stations account for almost 70% of total energy generation. 14. Until the mid-1960s, the organization of the power sector was institutionally complex as the numerous utilities had developed in response to the needs of geographically diverse and frequently isolated localities. When Loan 575-CO was made, there were two large and relatively strong munic- ipal companies (EEEB and EPM) enjoying good hydro-electric sites and the most profitable markets. There were also three entities (CVC, CHIDRAL and EMCALI), with overlapping responsibilities for power supply in Cali and nearby towns. Many other cities, as well as all the other main populated areas of the country, were served by subsidiaries of ICEL, the national holding company in the power field (formerly ELECTRAGUAS); the strongest subsidiary was CHEC, serving Manizales and various surrounding towns. According to an OED report of 1972, "the isolation and overly emphasized independence of the various systems, coupled with inadequate delineation between the jurisdiction of the power companies, [had] led to a proliferation of small entities serving areas of uneconomic size, and to some misallocations and inefficient use of resources. New local generating plants [had] been built in cases where power requirements could have been met much more economically by extension of transmission systems for the major centers" 1/. 15. The institutional obstacles to effective long-term planning re- flected the economic decentralization of Colombia 2/. They were further aggravated by financial difficulties, since tariffs had seldom kept pace with inflation. Due in no small part to these institutional and financial 1/ "Bank Operations in Colombia, an Evaluation" (Report No. Z-18, May 25, 1972). The Appraisal Report for Loan 681-CO also pointed out that "... the parochial attitude prevailing in the various regional electric systems sometimes has caused uneconomic development of the country's power sector. This has been more noticeable in recent years..." 2/ ISA's view is that economic decentralization should not be over- emphasized and was not a cause of the institutional obstacles to long- term planning. In this connection, ISA points out that the National Planning Department had been in existence since the 1950s and that it played a prominent role in the creation of ISA. (See Appendix 3). - 5 - problems, the sector suffered from recurring power shortages, inadequate capacity expansion and low operating efficiency. The creation of ISA in 1967 was a significant step taken by Colombia's power sector to improve the situa- tion through the consolidation of isolated facilities into regional systems and their interconnection into a national system, with the result that low- cost hydro resources could be developed more economically. (b) The Role of the Bank in the Sector 16. From 1950 to mid-1979, the Bank has made 22 loans to Colombia's power sector, totalling US$682 million. Seventeen loans assisted the ex- pansion of generating capacity and transmission and distribution facili- ties in the systems serving the cities and surrounding areas of Bogota, Medellin, Cali, Cartagena, Bucaramanga and Manizales, which presently consume around 80% of the electric power generated in the country. ISA has received five Bank loans: (i) Loan 575-CO in 1968 (230 kV Interconnection); (ii) Loan 681-CO in 1970 (Chivor Hydroelectric power project); (iii) Loan 1582-CO in 1978 (San Carlos I Hydroelectric power project); (iv) Loan 1583-CO in 1978 (500 kV Interconnection)I/; and (v) Loan 1725-CO in 1979 (San Carlos II Hydroelectric power project). The last three loans will help complete the interconnection of the country's regional power system (begun under Loan 575-CO) and add 1255 MW of hydro capacity to the national interconnected system. In addition to the 22 loans to the power sector, the Bank is cur- rently supporting rural electrification under the Integrated Rural Development Project (Loan 1352-CO of 1977). 17. Past Bank lending to Colombia's power sector has been reviewed in three previous OED reports. The audit report (Report No. 450, dated May 24, 1974) for the Third Medellin Power Project (Loan 369-CO) concluded that the project was well executed, given the serious difficulties encountered in construction and problems in the supply of certain equipment. The audit report (Report No. 1654, dated June 29, 1977) for the Third Power Expansion Program (Loan 537-CO) also concluded that the project was well executed, despite implementation delays and cost overruns. Overall Bank operations in the sector were reviewed in the 1972 report cited in para. 14 above 2/, which concluded that Bank financing,was generally successful in assisting the power companies to develop hydroelectric plants at lower unit cost than they otherwise would have been able to do. In turn, this permitted greater urban coverage as well as cheaper and more reliable electricity supply to industry. 1/ ISA is to construct, own and operate the 500 kV Interconnection Project but the Republic of Colombia is the Borrower. This project will inter- connect the Central System (covering the interior and the Pacific Coast) and the Atlantic (or Northern) system. For this reason, CORELCA has been incorporated as a new shareholder in ISA and most of the power sector is now represented on ISA's Board. A better coordination of sector planning in Colombia has thus been achieved. 2/ "Bank Operations in Colombia, an Evaluation". - 6 - The report commended Bank efforts in the field of tariffs, including the establishment of the Utility Tariff Board (JNT). According to the report, "the other important contribution of the Bank with potentially wide impact is the encouragement and advice offered in connection with the creation of the central interconnected system; this provides a more economic structure to the Colombian power system than existed before and economic reappraisal shows that it has been worthwhile for a number of years so that the Bank was quite correct to urge its development by 1967, even though events actually delayed it to 1971." (c) Project Concept, Design and Implementation (i) Interconnection Project (Loan 575-CO) 18. The concept of interconnecting the four regional power systems of Bogota (EEEB), Medellin (EPM), Cali (CVC/CHIDRAL) and Manizales (ICEL/CHEC) had been actively supported by Bank staff since 1962, by which time it was apparent that the systems were approaching a size which might make intercon- nection and integrated operation attractive. In March 1963, the Bank decided that any further major generating projects should be considered in the context of possible interconnection. The decision signalled a long period of studies and negotiations among the main power companies. 19. A study completed in late 1963 demonstrated that interconnection would be more economic than continued expansion of individual systems alone, principally by deferring investments in generation but also by permitting the development of larger hydroelectric resources in future. Consequently, during processing of Loan 369-CO to EPM for the Guatape Project in February 1964, the Bank indicated that it would not consider further lending to Colombia for electric power until serious consideration had been given to interconnection of the four principal systems (PCR, para. 1.03). 20. The Bank had originally urged completion of the interconnection project by 1967 (see para. 17), but it was not until November 1966 that the participating companies reached agreement on the principle. Another year was required to form ISA and a further few months to select a management accept- able to all parties. The Bank's loan for the interconnection network was not signed until December 1968 (PCR, paras. 1.01, 1.02 and 1.04-1.05). 21. Interconnection obviously raised complex political, regional and financial considerations and the 1972 OED report 1/ attributes the long delays in bringing it to fruition mainly to "the strongly regionalist feelings of the various companies and their cities". Opposition to interconnection came particularly from EPM and CVC. EPM, due to its abundant hydroelectric resources, was likely to be an exporter but it was reluctant to participate in a scheme which might involve subsidising other regions in which generating costs were higher. CVC faced a prospective power shortage and, given the high 1/ See para. 17. - 7 - cost of its own hydroelectric resources in the Cauca Valley, stood to benefit from interconnection; on the other hand, it might lose major new projects for its own area and it would become dependent on power supplied by intercon- nection. 22. Prior to the creation of ISA, the Bank had expressed doubts that ISA's By-laws would provide a suitable basis for achieving minimum cost operation of the systems involved because the pricing policies implicit in the By-laws failed to discriminate between the values of different classes of energy, e.g. firm, secondary, interchange and emergency energy. The technical problems of optimum dispatch of capacity and allocation of energy production would also affect significantly the financial operations of the proposed interconnected system. A mathematical model of the interconnected system indicated in 1967 that the additional cost of operating under the constraints set forth in ISA's By-laws, compared with operation aimed at minimising total system operating cost, might be as high as US$1.5 million in the first year of interconnected operation alone. The need to review and (if necessary) amend those articles of the 'Estatutos' dealing with pricing before the completion of the proposed transmission project was discussed and' agreed upon during negotiation of Loan 575-CO and part of the loan was allocated for the required studies. 23. The Appraisal Report for Loan 575-CO showed that interconnection was the least-cost method of meeting forecast demand in the four systems as measured by the present value of the capital expenditures of interconnection compared with the present value of the combined investment program of all the individual systems without interconnection. The operating costs of the two alternatives were not quantified, presumably because the difference would be relatively insignificant in the largely hydroelectric system. Peak load diversity between the systems was assumed to be 5% which the appraisal mission estimated was nearly equivalent to the largest generating unit in the pool (70 MW) in the first year of anticipated pool operation (1971). 24. The original project was completed and commercially operational by the end of 1971, as scheduled (PCR, para. 4.01). Most of the technical planning was substantially completed before appraisal and specifications for all the facilities had been prepared and reviewed by the Bank. Furthermore, bids had been invited for the ,transmission lines and principal substations and an analysis of the bids was in progress at appraisal. Only the time required to establish ISA and to develop a viable financial plan had prevented earlier consideration of the project by the Bank. 25. The Guatape-Barrancabermeja line, which was added to the project in 1971, entered commercial operation in September 1976, two years behind sched- ule (PCR, para. 4.04). The original cost estimate for the line (made in June 1971) was US$4.6 million though the final cost was US$8.4 millionl/. During the construction of the line, local and external inflation averaged 20% p.a., 1/ The final cost includes new engineering studies for future projects not taken into consideration in the original estimates. -8- and 8.4% p.a., respectively (PCR, para. 5.01). Since domestic expenditures accounted for only 25% of total cost, it is concluded that there was also a cost overrun on the line in constant prices. 26. Loan 575-CO partially financed four studies of future generating projects on the Cauca, Saldana, Sogamoso and Guavio rivers. The studies had barely started by the time of the original loan closing date (February 1972) and were not completed until early 1977 because the scope of the studies was substantially enlarged (PCR, para. 4.05 and Annex 3). Another study of projects in the Rio Sinu basin was completed by the consultants Consorcio Alto Sinu (Colombia) and Chas. T. Main (US). As a result of these studies, a project on the Guavio river (1,300 MW) and two on the Rio Sinu (Urra I, 340 MW; Urra II, 710 MW) have been identified and included in ISA's long-term development program. 27. The Bank further supported a study, to be carried out by Motor Colombus, which was to make recommendations on the operation of the intercon- nected system, modifications to ISA's Statutes and the establishment of tariffs for different classes of energy. The study was to be finished by the end of 1970. It was not in fact completed until September 1974. ISA's share- holders had agreed, in connection with Loan 575-CO, to review ISA's Statutes in accordance with the results of the Motor Colombus study and further agreed, during negotiations for Loan 681-CO, that any resulting revision of the Statutes would be effected before mid-1971, when the interconnected network was to start operating. The Bank was to be given an opportunity to approve the proposed revisions before their adoption. ISA's shareholders did not endorse the Motor Colombus recommendations at that time and consequently ISA's Statutes were not modified. However, in connection with Loan 1582-GO, the most important recommendations of Motor Colombus were reflected in ISA's Statutes and in the energy sales agreement approved by ISA's Board in April 1978, several months after Chivor had started generation (PCR, paras. 4.10 and 7.10) 1/. (ii) Chivor I Project (Loan 681-CO) 28. Chivor I was the first hydroelectric power project to be planned jointly by the major power companies through ISA (PCR, paras. 1.07-1.10). There was strong initial disagreement as to which agency (ISA or EEEB) should contract for and administer the construction of Chivor and direct the engi- neering consultants. In the end, ISA assumed full overall responsibility for the Chivor I project and agreed on a basic arrangement for project management and engineering by which it planned to use the capabilities available in EEEB. ISA delegated to EEEB the responsibility for administering several local contracts. 1/ ISA has pointed out that the modifications to its Statutes and energy sales agreement are to be considered to be independent of and unrelated to the Motor Colombus recommendations (Appendix 3). - 9 - 29. At appraisal, there were two realistic hydroelectric alternatives which could be considered for supplying the additional generating capacity needed in 1975 and later years: the proposed Chivor plant and the second stage of the Guatape Project. The Bank suggested considering also a thermal alter- native consisting of a major steam plant and a gas turbine. Computer studies confirmed that the construction of Chivor for initial operation in 1975 was the least-cost alternative. 30. While the original schedule for Chivor I anticipated initial operation of the first unit (125 MW) in June 1975 and fuLl operation (4 units totalling 500 MW) in June 1976, actual generation started in June 1977 and total project works were completed in September 1977, when all four units began full commercial operation. The delay was due mainly to geological problems encountered during construction of the dam and tunnel, financial difficulties and the replacement of a contractor. In consequence, Chivor could not be commissioned in time to avoid the country-wide energy rationing which occurred in late 1976 and early 1977, as a result of a prolonged dry season. Rationing, amounting to about 5-10% of requirements during the five-month dry season, affected principally the areas served by CVC and CHEC. The stored water of the whole interconnected system (particularly the EEEB reserves) was utilized to ameliorate the impact of the drought and, as a result, the total volume of water stored decreased by an amount equivalent to 1134 GWh or 30% of total system storage capacity (excluding Chivor). The fact that to date certain reservoirs still have not reached their normal water-levels, combined with delays in the commissioning of the Santa Rita project (Guatape II, EPM), and in securing financing for the foreign costs of the San Carlos I and Mesitas projects, may require future energy rationing if hydrological conditions become adverse. 31. The delays in commissioning the Chivor and Santa Rita projects required implementation of a contingency plan in 1976, comprising installation of 200 MW of thermal capacity 1/. To some extent, the additional cost of this thermal capacity must be attributed to Chivor's delays although the thermal capacity also has a benefit as a back-up for the hydroelectric stations. (d) Financial Performance 32. The financial arrangements for the transmission system (Loan 575-CO) determined that the local costs would be met by equity contribu- tions from CVC/CHIDRAL, EEEB, EPM and ELECTRAGUAS/CHEC. Each would con- tribute 25% of total equity and receive a commensurate amount of ISA 1/ Planning for a further 200 MW is now well advanced. - 10 - stock. The foreign exchange costs of the system would be financed by the Bank loan and joint financing, contracted by ISA and guaranteed by the four prin- cipal sponsors. Interchanges, sales and purchases of energy among the part- ners would be made at prices determined in accordance with the following rule, which applied until Chivor entered into operation: ISA was to make purchases from any sponsors who had energy available beyond their immediate requirements and supply the deficit of any other sponsor. ISA was to pay the 'exporting' sponsor a price equal to its costs and sell to the 'importing' sponsor at the weighted average of the prices paid by ISA. 33. This concept of pricing energy has presented practical difficulties, since the accounting methods of sponsors were different and, given that ISA's only source of revenues prior to operation of its own plants was the sale (at cost) of sponsors' surplus energy, ISA required contributions from the sponsors to defray its own expenses. The financing plan was, therefore, no better than the financial ability of the sponsors. Direct operation and maintenance expenses of the transmission facilities were to be obtained from the sponsors in proportion to the sales, excluding any sales to ISA. Deprecia- tion expenses were to be shared equally. 34. The Appraisal Report for Loan 575-CO stated that "there would be no point in seeking a minimum rate of return requirement [for the investment in the transmission facilities] because its application would be no more than a bookkeeping transaction" and "such a return as far as the sponsors are con- cerned would merely be returning, as dividends, funds contributed" (Appraisal Report, paras. 6.08 and 6.01). While the case for not seeking a minimum rate of return on the transmission facilities can be seen as a pragmatic way of proceeding with a project of high economic priority, this particular rational- ization was questionable. However, the Appraisal Report did go on to recog- nize that "the question of adequate earnings on the investment in transmission facilities - including any additions which may be required in the future by market growth and expansion - must be dealt with eventually" and that "this would be a suitable area for the specialized consultants" 1/. Furthermore, under Loans 575-CO and 681-CO, a 9% return on generation assets was agreed (see para. 35) and the Chivor facility is financially a far more significant asset than the 230 kV line. 35. The financial arrangements for the Chivor Project (Loan 681-CO) required that the local component be financed by issuing to the sponsors 40% in shares and 60% in bonds (91.8% of these bonds would be purchased by EEEB and 8.2% by EPM) 2/. The project's foreign exchange costs would be financed by the proposed Bank loan and bilateral credits. The financial projections at appraisal showed that ISA's operations should produce, during 1975-1978, a rate of return on average net plant in service (Chivor) in excess of the 9% minimum rate of return on net generation plant assets in 1/ See para. 27. 2/ The present distribution of bond holdings, as stated by ISA, are in Annex 3. - 11 - operation which was a covenant of Loans 575-CO and 681-CO. The Appraisal Report for Loan 681-CO was even more optimistic for later years and esti- mated that all the systems taken together would earn a considerable cash surplus. It was even foreseen that "in the future dividends could be paid to the local and national governments, or tariffs could be reduced "1/. 36. ISA's actual financial performance until 1977 is discussed in the PCR (paras. 7.02-7.11). Although the shareholders of ISA had committed themselves (under the shareholders' Agreements and By-laws of ISA) to provide ISA with all necessary funds, the financial situation of the shareholders and, thus, of ISA became critical due to lack of adequate rate increases to offset inflation and resulted in an informal suspension of disbursements by the Bank, effective September 30, 1974 (PCR, para. 7.04). After sufficient progress had been made by the shareholders in meeting their financial obligations to ISA, the Bank resumed loan disbursements in May 1975 (PCR, para. 7.08). 37. During the period 1968-1971, the shareholders were late in their payments to ISA - up to 149 days in 1970 compared with one day assumed at appraisal 2/. Shareholders' performance during the period 1972 to mid-1977 deteriorated further; for example, payments were delayed up to 244 days in 1974 compared with two days assumed at appraisal 2/ (PCR, para. 7.11 (c)). The levels of accounts receivable assumed at appraisal were not, however, intended as performance targets because of the absence of' related covenants in the Loan, Shareholders' and Guarantee Agreements. As the PCR suggests, covenants would have permitted closer monitoring of the situation and may have enabled the Bank to react to the problems which arose before they became so serious. However, in view of the circumstances at the time, it is not clear that better results would have been obtained (para. 42). 38. The financial difficulties of two of the shareholders (EEEB and EPM) were mainly due to delays in raising tariffs. In the case of CVC and ICEL the problem was one of delayed and insufficient transfers from the Government budget on which both were heavily dependent, complicated in the case of CVC by the opposition of Cali municipality to tariff increases. The lag in tariff adjustments for the power sector as a whole relative to inflation over the period 1971-1976 is shown below: 1/ Appraisal Report para. (viii). It can be noted that for 1978 ISA declared dividends of Col.$230 million (about US$ 5.3 million). The dividends were not paid in cash but were retained for investment. 2/ The appraisal assumptions were not explicit but can be inferred from the financial projections. Assumed delays of one day and two days were not realistic. - 12 - Average Tariff at Change in Average Tariff Current Prices Average Average at 1970 prices Year (Col$ per kWh) Tariff (%) Inflation (%) (Col$ per kwh) 1970 0.202 - - 0.202 1971 0.205 1.6 11.8 0.183 1972 0.220 7.1 13.8 0.173 1973 0.243 10.2 22.0 0.157 1974 0.277 14.2 25.2 0.143 1975 0.355 28.2 23.6 0.148 1976 0.423 19.2 20.0 0.147 39. ISA's problems were further compounded by EPM's refusal, since August 1974, to comply with its financial commitments on the grounds that it would be subsidizing other regions having higher generating cost. In particular, EPM refused to acquire its proportion (25 percent) of new shares of ISA (PCR, paras. 7.05-7.07). This action was considered inconsistent with the provisions of the loan documents and would have constrained the develop- ment of the power sector. EPM's refusal to buy shares affected the voting power in ISA, since EEEB could defeat any resolution requiring a 75% majority (EEEB held 29.1% of the total stocks in October 1974). With Bank encourage- ment, EPM and EEEB agreed upon the sale of EEEB's stocks in excess of 25% of the total capital to EPM. (e) Institutional Development 40. The pooling of financial resources through ISA has enabled the sector to undertake much larger and more economic projects than would have been feasible under the previous arrangements for independent growth. Sector development has also been assisted by the gradual consolidation of independent facilities into regional systems and the interconnection of these systems through ISA to facilitate development of low-cost hydro resources. By 1982, the national grid will have been established with the incorporation of the Atlantic System (Loan 1583-CO). Currently, ISA owns and operates the 500 MW Chivor plant (Loan 681-CO) and has an additional 1991 MW under construction, including the 620 MW San Carlos I plant (Loan 1582-CO) and its 620 MW exten- sion (San Carlos II, Loan 1725-CO). By the mid-1980's, the shareholders' plant ownership through ISA is expected to increase significantly as a propor- tion of the country's total installed capacity. 41. To illustrate the continuing improvements initiated under the Interconnection and Chivor I projects, it appears appropriate to indicate the present status of coordination and cooperation. Within the framework of - 13 - national energy policy, as articulated by the Ministry of Mines and Energy, ISA provides a mechanism for reaching agreement on major issues affecting the power sector through the participation of its shareholders in such decisions. Moreover, ISA functions as the planning, coordinating and project executing agency in the sector 1/. Decisions on system expansion are based on least- cost national programs prepared by ISA and approved by its Board of Directors. During the processing of Loan 1582-CO, ISA amended its By-laws so that in future it will construct and own all new plants required for the national system except for plants of regional interest, which may be undertaken by the shareholders after approval by ISA. Upon completion of the 500 kV inter- connection system in 1981, concurrent with the completion of ISA's load dispatch center, ISA will operate a national power sale and purchase pool with a view toward least-cost operation of the total system. (f) Bank Performance 42. Initial Bank support for the concept of using ISA as a channel for major investments met with understandable reservations in the sector as well as in the political sphere, because this represented a sharp departure from the sector's historical regionalized structure. In addition, during implementation of Loans 575-CO and 681-CO, Colombia experienced higher-than- normal inflation and foreign inflationary trends were severe, so that ISA's requirements for funds from its shareholders were substantially higher than foreseen and the shareholders own financial situation also took a downturn because tariffs were not adjusted to compensate for rising costs, as the Government and local authorities were then reluctant to press for tariff increases under inflationary conditions. Against such a background, it is doubtful that any financial framework for Loan 575-CO and Loan 681-CO could have produced better results. 43. The Bank's overall performance should be viewed in relation to its participation under a series of loans, with the 230 kV Interconnection Project (Loan 575-CO) and Chivor I Project (Loan 681-CO) completed and the 500 kV Interconnection Project (Loan 1583-CO) and the San Carlos I and II Projects (Loans 1582-CO and 1725-CO) underway. One of the leading object- ives of Bank assistance has been the strengthening of power sector institu- tions and finances. By channelling the efforts of the major utilities through ISA, least-cost power development has been defined through 1985 and work is underway to extend the development plan to the year 2000. Ongoing Bank operations are further supporting this undertaking. 1/ While ISA is the principal agency for the execution of projects of national importance, there are of course other agencies (ISA's share- holders) which execute projects of regional interest. - 14 - III. CONCLUSIONS 44. Notwithstanding the institutional, financial, engineering and physical difficulties encountered during execution, the Interconnection and Chivor I projects have made valuable contributions to the power sector in Colombia, as Government and ISA have emphasized (Appendices 1 - 3). The Interconnection project was finished on time with a cost underrun in real terms. Chivor I was commissioned behind schedule but its cost, in real terms, was close to the appraisal estimate 1/. At the same time, the benefits attributable to both projects have been substantial. 45. The rapid institutional progress achieved by the Government and the power sector during 1968-1979 is impressive. The clear definition of a sound overall energy policy at the national level set the stage for this progress. Through their participation in a joint effort to plan, coordinate and execute expansion of the interconnected system through ISA, the shareholders have focussed increasingly on, and become committed to, national energy development objectives. The progress, of course, has not been without cost, as the Borrower is aware. Delays in the San Carlos I and 500 kV Interconnection projects and EEEB's proposed Mesitas hydro electric project are partly attri- butable to the Bank's insistence on improvements in the sector's institutional arrangements, the time required by ISA's shareholders to arrive at decisions on basic issues and their reluctance to allow CORELCA to join ISA. These delays were serious, since the projects were needed to avoid power rationing in Colombia. 1/ In the view of the Department of National Planning (Appendix 2), the delay in commissioning was not unusual for a project of this size. - 15 - Appendix 1 TRANSLATION OF TELEX 40098 WORLBANK 4464 POLI CO (TX. NO.) Shiv S. Kapur Acting Director General Operations Evaluation Department World Bank New York Dear Mr. Kapur: The conclusions to the Project Completion Report (Part X, page A20) emphasize the physical, engineering and financial difficulties which affected development of the interconnection network and Chivor hydroelectric power station, but fail to take two important matters into account: (1) Despite the difficulties encountered, work on the interconnection system was completed within the scheduled time and without overrunning the budget, both indications of high-quality execution. (2) The difficulties associated with the Chivor project were overcome successfully, and, even though there were delays in bringing it into operation, the country now has the benefit of a first-rate hydroelectric power station, the second phase of which is now going ahead. ISA is forwarding its detailed coments on the content of the Report referred to and on certain figures it gives. Cordially Alberto Vasquez Restrepo Minister of Mines and Energy Colombia Bogota, August 31, 1979 40o98 woRLBANK 4464 POLI CO - 16 - Appendix 2 TRANSLATION OF TELEX BOGOTA, SEPTEMBER 6, 1979 MR. SHIV S. KAPUR DIRECTOR GENERAL OPERATIONS .EVALUATION WASHINGTON, USA NR. 00875 DNP - IN THE CONCLUSIONS OF THE PROJECT COMPLETION REPORT (PAGE A20) ALL INSTITUTIONAL, FINANCIAL AND PHYSICAL DIFFICULTIES AS WELL AS ENGINEERING AND CONSTRUCTION PROBLEMS, ADEQUATE STUDIES, COST OVERRUNS, ETC. ARE HIGHLIGHTED LEAVING THE IMPRESSION THAT EACH PROJECT WAS A FAILURE. THIS DOES NOT CORRESPOND TO THE REALITY, WHICH CAN IN PART BE DEDUCED FROM THE ANALYSIS OF THE SAME REPORT. THE INTERCONNECTION NETWORK, FOR EXAMPLE, IS A RATHER UNUSUAL CASE IN PROJECT IMPLEMENTATION: IT WAS COMPLETED ON TIME, WITHIN THE BUDGET, AND ITS BENEFITS ARE ESTIMATED TO BE GREATER THAN THOSE ENVISAGED AT APPRAISAL. CHIVOR I IS A POWER STATION COMPLETED WITH DELAYS AND DIFFICULTIES WHICH ARE NOT MUCH GREATER THAN WHAT IS NORMAL IN A PROJECT OF THIS MAGNITUDE AND RENDERS EXCELLENT SERVICE TO THE COUNTRY TODAY. REGARDS, EDUARDO WIESNER DURAN, CHIEF, NATIONAL PLANNING DEPARTMENT. - 17 - Appendix 3 FORM NO. 788 _Page 1 of 7 (1-74) IBRD LANGUAGE SERVICES DMIV ON CONTROL No. E-261{80 [DATE: September 12, 1979 ORIGINAL LANGUAGEt SD_.sh (Colombia) DEPT, Operations TRNsLATOR: DRJB:hb Evaluation I S A INTERCONEXION ELECTRICA S.A. Medellin Colombia August 29, 1979 Our ref: G-79/1818 IBRD Attention: Mr. Shiv S. Kapur, Washington, D.C. Director, Operations Evaluation Department Gentlemen: Subject: Our comments on the Project Performance Audit Report: Power Interconnection and Chivor Hydroelectric Projects (Loans 575-CO and 681-co) Thank you for your request for our comments on the Project Performance Audit Report, issue of which marks completion of disburiements under the first two loan agreements made by the Bank for partial financing of the 230-KV interconnection network and of the first phase of the Chivor hydroelectric power plant, Loans 575-CO and 681-CO respectively. Our comments are as follows: *CHAP- PARA- TER GRAPH COMMENTS Acronyms CVC: The correct title is Corporaci'n Aut6noma Regional del Cauca, and not Corporaci6n Aut6noma de el Valle del Rio Cauca. (ii) Key Project Data: Interconnection Comparison of a final estimate of US$39.8 million against an initial appraisal estimate of USt29.6 million cannot give a percentage overrun since the two figures quantify two differ- ent things; what in fact occurred in both cases was that *OED Note: In the final report, the chapter and paragraph reafrencas are the same as in the draft which was sent to ISA (unless otherwise noted) - 18 - Appendix 3 Page 2 of 7 project scope was extended. The figure of US$39.8 million includes the Guatape-Barrancabermeja line, as well as engi- neering studies not considered initially. In this respect, footnote 1/ concerning the difference between the figures is not sufficiently clear; instead of reading "Includes the cost of the Guatape-Barrancabermeja Line (GBL) of US$8.4 million equivalent", it should state that it includes the cost of the Guatap&-Barrancabermeja Line (GBL) and new engineering studies at a final figure of US$8.4 equivalent. (iii) Key Project Data: Chivor Comparison of the final estimate of US$194.9 million against US$126.3 million gives an unreal overrun figure of 54%. It should be not4d that the appraisal estimate allowed for partial financial costs only on the World Bank loan, whereas the actual figure covers total finance charges, including those connected with other loans. 1-3-1 Instead of "Chivor was the first hydroelectric power project jointly planned by ...", the sentence should read "...jointly executed by...", since it was initially planned by Empresa E1ctrica de Bogota prior to the foundation of ISA. I-T-3 The paragraph states that "the appraisal estimates included no allowances for inflation (PCR, paragraph 5.06)". The same sentence should go on to say that neither was any estimate made originally of total finance charges payable to the World Bank nor any reasonable allotment for similar charges connected with other loans raised to finance the project. - 19 - Appendix 3 Page 3 of 7 i-10-4 ISA has an additional 1,991 MW under construction, taking into account 15 MW from the Calderas project, being financed under Loan No. 1725-CO. 11-12-5 The paragraph states that Colombia has a hydroelectricity "potential of some 100 GW of capacity and 250,000 GWH of an- nual energy". The latter figure should read "approximately 450,000 Gw". 11-15-7 We do not consider that there was such a degree of economic and political decentralization in Colombia, or that this was the cause of the institutional obstacles to long-term planning. The successful establishment of ISA would seen to be strong evidence to the contrary. It should not be forgotten either that the National Planning Department has been in existence since the 50s, or that it took a prominent role in the creation of ISA. 11-30-15 Where it is stated that delays will have future repercussions on dam levels, instead of saying "combined with delays in the commissioning of the Santa Rita (Guatap6 II, EPM), San Carlos I and Mesitas projects, may require future energy rationing if hydrological conditions become adverse", the text ought to read "combined with delays in the commissioning of Santa Rita (Guatapf II, EPM) and in securing financing for external costs of the San Carlos I and Mesitas projects, may require ...". 11-16-8 The additional capacity of the interconnected system would be 1,255 MW, allowing for 15 MW from the Calderas project. - 20 - Appendix 3 Page 4 of 7 11-25-12 Regarding the comparison of estimates for the Guatap6- Barrancabermeja line, it should be stated that the final estimate of US$8.4 million included new studies not taken into consideration in the initial estimate of US$4.6 million for the line alone. 11-27-13 The recommendations contained in the Motor Columbus study never affected decisions taken from time to time by ISA's General Meeting of Shareholders or Board of Directors. The considerations underlying modifications to ISA's Statutes or its energy sales agreements are to be regarded as independent of and unrelated to those recommendations. 11-35-17 The original participations in bond purchases were 91.8% by EEEB and 8.2% by EPM. Subsequently, the participation was altered, and definitive holdings are now as follows: EEEB, 60.33%; EPM, 10.33%; and ICEL, 29.34%. Footnote 2/ should be updated, as dividends of Col$230 million were declared for 1979.* 11-37-18 The problem with late shareholder payments did not arise over the period 1968-71. Instead of the comparisons given, empha- sis should be placed on the unreality of using appraisal assumptions of 1 and 2 days in connection with delays in such payments. II-40-20 The figure for additional resources under construction should be altered to 1.991 MW to include the 15 MW from the Calderas project. *OED Note: Now footnote 1/, p. 11. From ISA's accounts, while the dividend would have been declared in 1979, it is understood that it was -.: - 1 - -- - - - n o 1 -Appendix 3 Page 5 of 7 II-4l-20 Drafting of the paragraph should be changed to avoid giving the impression that ISA is the only executing agency in the sector. III-44-22 Refer to comments on Annex, paragraph 10.01, page A20. The following comments relate to the annexed document: "Project Completion Report, Loans 575 and 681-co". I-1.08-A3 "Lingupa" should read "Lengupa". II-2.05-A5 (b): The maximum flow figure should be changed from 13,000 m3/sec to 10,600 m3/sec. II-2.06-A5 (c): Instead of reading "access roads were rerouted due to the unacceptability of the original plan to local communities, resulting in a longer and more difficult route," the paragraph should state that rerouting followed improved adaptation to regional needs and geological imperatives, resulting in a longer but more easily constructed route. III-3.08-AT Footnote 1/: It should be made clear that the final estimate included accounts payable to contractors in foreign currencies and that there were no claims pending. ** TV-4.o6-A8 Refer to comments on 11-27-13 of the Project Performance Audit Report. IV-4.09-A9 Refer to comments on II-2.05-A5, (c). V-5.02-AlO Regarding the cost of the original project (interconnection of 230 KV facilities), in relation to engineering studies it is not correct to speak of a 6% overrun when comparing the actual costs of US$2.9 million against the original estimate *OED Note: Para. 44 in the draft report is para. 45 in the final report, a new para. 44 having been included to take into account this comment by ISA. ** The footnote refers to the situation in 1977 when, according to the report of ISA's external auditors, claims were still pending. Appendix 3 Page 6 of 7 -22- of US$1.4 million. Nor can the figure of US$6.5 million be compared against the original estimate of US$1.5 million for the sector organization and finances studies, since the scope of the studies was different in each case. V-5.06-AlO Refer to comments on the table given on page (iii) of the Audit Report. In connection with point (f), refer back to the comment on II-2.05-A5, (c). In connection with point (g), local engineering costs are stated to have been 4.6 times the appraisal estimate, whereas in Annex 2 the ratio is given as between US$5.9 million and US$17.7 million, namely 3. Furthermore, the final figure includes such infrastructure items as camps, access facilities, etc. VI-6.04-A13 "Murrie & Roads Coneiviles" should read as "Murrle & Rodas Conciviles". VII-7.12-A18 Refer to the comment on 11-27-13 of the Audit Report. X-10.01-A20 These paragraphs present a general view which takes in only x-10.04-A21 the institutional, financial, engineering and physical diffi- culties encountered in the course of project execution. However, as may be seen from comments scattered throughout the rest of the Report, the projects, on completion, had resulted in benefits that were not initially expected to accrue, given the difficult phases through which the world economy would have to pass during the implementation period. Appendix 3 Page 7 of 7 - 23 - Annex 3 List of Studies for the Organizational and Future Development of ISA: Contrary to what is stated in point (8), the firm INTEGRAL did not take part in the revision of cost estimates for the Mesitas project. *Annex 20 "Interconexion El6ctrica S.A. (ISA)" instead of "Interconnezion E1fictrica S.A. (ISA)". *Annex 22 The list of consultants and contractors includes only those whose contracts were financed from proceeds of the Bank loans. We hope that the foregoing comments will add to the quality of a Performance Audit Report which concerns projects of great importance for the development of Colombia's electric power system. Yours truly, Is German Jaramillo Olano Manager *OED Note: Annexes 20 and 22 in the draft report are a map and Annex 21 respectively in the final report. Attachment COLUMBIA: POWER INTERCONNECTION (LOAN 575-CO) AND CHIVOR HYDROELECTRIC PROJECTS (LOAN 681-CO) PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 The Bank, before making Loan 575-CO in 1968, had been supporting the Colombian power sector for over 15 years having made 13 loans for a total of US$216 million to six independent power systems. In September of 1967 the four agencies responsible for the operation of the country's major power systems, which at that time produced two-thirds of the electricity generated in the country, joined to create ISA, a new company formed to interconnect its sponsors' power systems (Bogota, Medellin, Cali and Manizales, henceforth comprising the central interconnected system) and to plan, construct and operate major new generating plants required by the interconnected system. This would permit the realization of economies of scale in future generation expansion, reduction or deferral of overall investment requirements, and operating efficiencies. 1.02 The four agencies who became the original shareholders of ISA are: (i) Empresa de Energia Eletrica de Bogota (EEEB), an autonomous municipally-owned utility which generates, transmits and distributes electricity to the city of Bogota and its surroundings. (ii) Empresas Publicas de Medellin (EPM), an autonomous municipally- owned utility which operates an electric power system as well as providing telephone, water and sewerage services to the city of Medellin. (iii) Corporacion Autonoma Regional del Cauca (CVC), an autonomous development agency engaged in irrigation, flood control and electric power operations in the Cauca Valley. The Central Hidroelectrica del Rio Anchicaya Limitada (CHIDRAL), is a bulk power producer owned by CVC and the municipality of Cali which became a minor shareholder of ISA. (iv) Instituto de Aprovechamiento de Aguas y Fomento Electrico (ELETRAGUAS), a government institute which provides electricity to the rest of the country that in 1968 was renamed Instituto Colombiano de Energia Electrica (ICEL), and was made responsible to the Ministry of Mines and Energy. The Central Hidroelectrica de Caldas (CHEC), a subsidiary of ICEL providing electricity to the state of Caldas, also became a minor shareholder of ISA. -25- Interconnection Project 1.03 It had become apparent in the early 1960's that these systems were approaching a size which might make an interconnected and integrated system more efficient. In 1963, EEEB, CVC and EPM with encouragement from the Bank commissioned two Colombian engineering firms - Ingetec of Bogota and Integral of Medellin - to study the economic benefits of an interconnected system. The results indicated that there were substantial benefits to be obtained through project cost reductions and economies of scale as well as through coordinated planning and system operation. Consequently, during processing of Loan 369-CO to EPM for the Guatape (Nare) project in February of 1964, the Bank indicated that, in view of the possible savings to be achieved through interconnection, it would not consider further lending to Colombia for electric power until serious consideration were given to interconnecting the four principal systems. 1.04 To formulate a plan for the interconnection, EEEB, CVC and EPM formed a Comite de Interconexion, which was later joined by ELECTRAGUAS (sub- sequently ICEL) to represent the interest of the national government in general and in particular of, CHEC. In 1964, the committee contracted Merz Associates (U.K.) along with Ingetec and Integral (Colombian) to carry out the technical studies and design of the transmission system. Middle West Service Company (USA) was retained to review the institutional and commercial implications of interconnection. In mid-1965, Middle West recommended that a new jointly- owned company be created to construct, own and operate the transmission system as well as major new generation projects. Due to the complexities involved in consolidating the interests of the four independent agencies into a new interconnection company, it was not until September 1967 that a new company, ISA, was formed. 1.05 The Bank had indicated in April of 1967 that it would consider financing for the interconnection project once three fundamental conditions had been satisfied: (a) establishment of the new company, (b) appointment of a general manager, and (c) preparation of a viable financing plan. The last of these conditions was fulfilled in May 1968. ISA's bylaws defined the relations between the company and its shareholders and provided inter alia that ISA would finance the foreign component costs of its projects through foreign borrowings and that ISA's shareholders would finance ISA's local requirements through equity contributions and bond subscriptions. On September 11, the Bank invited ISA and its shareholders to Washington, D.C. to begin negotiations and on Nov ember 13, 1968 the interconnection project was presented to the Board. A loan (575-CO) of US$18 million was approved and became effective on February 25, 1969. 1.06 The Interconnectioni project was the last of three Colombian projects 1/ for which joint financing between the Bank and major in- dustralized countries was arranged in October 1967. Under the agreed 1/ Bogota water supply (Loan 536-CO), and Third Power Expansion Program (Loan 537-CO) were the first two projects financed under this plan. -26- arrangements, financing was to be provided on a 50/50 basis between the Bank and the country in which contracts were placed subject to each participating country receiving (a) contracts totalling more than the equivalent of US$1 million and (b) minimum individual contracts of US$200,000 equivalent (Annex 10). Chivor I Project 1.07 ISA's first hydroelectric power project was the first power develop- ment in Colombia joint-planned by the major power companies through ISA. With the construction of Chivor, the Bank hoped to enhance ISA's role as a vehicle for coordinated development of the Colombian power sector. 1.08 In 1955 EEEB had initiated preliminary hydroelectric studies of the Guavio, Bata, Lengupa and Upia basins. In 1961 feasibility studies for a hydroelectric power plant on the Bata river were begun. Results indicated that of the alternatives, the Chivor project would be the most feasible and the most economically justifiable development. The Departamento Nacional de Planeacion (Planeacion) and ISA, with the support of Colombian consultants, later made several studies to determine the most suitable sequence of construc- tion of generating plants concluding that a program including the Chivor I project (500 MW) would be the best alternative to meet forecast demand in the interconnected system up to 1980. 1.09 The Bank assisted ISA in the preparation of the project, as well as in the planning of its overall generation development program. After receipt of the feasibility studies and a financing plan, the Bank appraised Chivor I in late 1969. Negotiations were held in March 1970 and the project was presented to the Board on May 13, 1970. A loan (681-CO) of US$52.3 million was approved and became effective on September 1, 1970. 1.10 In February 1971, ISA applied to IDB for parallel financing of the Chivor I project. IDB's cost estimates in current terms were 16% higher than the estimates made at time of Bank's appraisal (see para. 5.07). A loan of US$34.1 million equivalent for ISA was approved by IDB in May 1971 to finance the foreign cost component of the penstock civil works; all the imported electromechanical equipment of the main plant and of the substation, except for the auxiliary equipment of the main plant; and the supplies and instal- lation of the 230-kV transmission line. II. PROJECT DESCRIPTIONS Interconnection Project 2.01 The original project consisted of the interconnection of the systems of EEEB, EPM, CVC/CHIDRAL, and CHEC with the following characteristics: 1/ (a) three double-circuit 230 kV steel tower transmission lines with total length of 541 km between: Bogota-Manizales (180 km), Manizales-Medellin (168 km), Manizales-Cali (193 km); 1/ See Map. -27- (b) four substations, with autotransformers and switching equipment at the following locations: (i) El Colegio hydroelectric plant in Bogota with two 90 Mva autotransformers. (ii) Yumbo thermal plant in Cali, with two 90 Mva auto- transformers. (iii) La Esmeralda hydroelectric plant in Manizales with two 90 Mva autotransformers. (iv) Guatape (Nare) hydroelectric plant's 230 kV substation in the Medellin system, without transformers. 2.02 Additionally, to support the development of centralized planning through ISA, the Bank allocated loan funds for tariff studies for ISA and its shareholders as well as for studies of future generation projects. A study of the accounting and pricing methods of ISA and the shareholders was to be made in order to assure the most economic use of the interconnected system and to provide a technical and financial basis for further expansions. The study was also intended to serve as a reference for further modifications to ISA's statutes. Engineering studies of future transmission and generation projects, to be agreed upon between ISA and the Bank, were also to be under- taken as part of the Interconnection project. During the implementation of the project, eight studies were agreed upon and executed at an overall cost of US$6.45 million equivalent (Annex 3) representing 16% of total project final cost. The results of these studies have been used as the basis for preparing ISA's generation expansion program whose current major investment is the San Carlos I partly financed by the Bank under Loan 1582-CO, for the amount of US$126 million. 2.03 In July 1971, near completion of the Interconnection project, US$3.7 million of the Bank funds had been unused and the project was expanded to include the engineering and construction of a single-circuit 230-kV line of about 200 km between the Guatape hydroelectric plant (EPM) and Barrancabermeja (ICEL) with the necessary substation equipment. The completion date was extended to the end of 1973. 2.04 The main changes in the project as it was actually implemented were: (a) elimination of capacitative compensation. Due to the installa- tion of the San Francisco plant near to the Esmeralda and Alto Anchicaya plants in the CVC systems, this equipment was not needed; (b) relocation of the Control Center to Manizales rather than at the Esmeralda plant; and (c) additional equipment including some radio links between La Mesa and Bogota, metering equipment and communications equipment for Guatape and Barrancabermeja. -28- Chivor Project 2.05 The original project consisted of the first phase of a hydroelectric plant on the Bata River, with 500 MW installed capacity, and a 180 km double- circuit 230-kV transmission line to ISA's 230 kV transmission network. The project was to have the following principal elements: (a) Esmeralda dam: rockfill type with central impervious core on a concrete block; (b) a spillway: open channel, gated, for maximum flow of 13,000 m 3/sec.1/; (c) a 5,750 m long pressure tunnel and a 2,000 m long surface-mounted steel penstock. Intake works, a gate shaft and 100 m of the second (future) pressure tunnel to be built at the same time; (c) a powerhouse with four units, each one consisting of a 175,000 hp Pelton type turbine, a 125 MW alternator, three single phase 13.8 kV/230 kV step-up transformers and related auxiliary electrical and mechanical equipment; (d) an outdoor switchyard including appropriate switching and control and protection equipment; (e) a 180 km 230 kV double-circuit transmission line and the necessary works and equipment to connect this line to EEEB's 115 kV system at Suba and to ISA's 230 kV network at La Mesa; and (f) about 30 km of relocated access road from Somondoco to Santa Maria, and 8 km of access roads to the works. 2.06 The main changes in the project as it was actually implemented were: (a) the dam, spillway, tunnel, and powerhouse designs required on-site modifications resulting in larger volume of works; (b) penstocks required increased underground rather than surface layout resulting in increased costs; and (c) rerouting of the access roads (for geological reasons and also in line with regional needs) resulted in a longer though easier route. III. OBJECTIVES AND JUSTIFICATION OF THE PROJECTS Interconnection Project 3.01 The Bank loan had as its objectives: (a) to realize economic benefits through the integration of the four individual power systems; 1/ A flow of 13,000 m-/sec is taken fr9m the Appraisal Report. ISA has suggested substituting the figure of 10,600 m /sec. (see Annex 3). -29 - (b) to facilitate improve, sector planning and organization through the participation of the major power companies in ISA so that in the future ISA would become the central coordinating force in the Colombian power sector; (c) to insure the reliability of supply to individual markets; and (d) to reduce and defer investment requirements through joint planning and economies of scale. 3.02 The project was justified for the following reasons: (a) it would enable the construction and utilization of larger and more economical plants in the integrated system than would be justified in the smaller independent systems; (b) it would permit a pooling of reserves, thus eliminating otherwise required duplication of reserve capacity; (c) it would result in an overall diversification of peak demand, which would also reduce total capacity requirements; (d) hydrological diversity between the individual systems could be taken advantage of, consequently allowing the most efficient use of rainfall and geographical variations in the country; (e) firming of capacity would result in increased flexibility in storing water; and (f) system integration would produce improved service reliability, and better frequency and voltage control. 3.03 At the time of appraisal the project justification was measured by calculating the capital cost of the investment program required to meet forecast demand in the four systems under the interconnection compared with the aggregated investment program of each individual system without intercon- nection. It was estimated that capital costs without the interconnection project over the 10-year period (1968-78) would be 66% higher, US$132 million in 1968 dollars. 3.04 While the interconnection project was executed with a cost overrrun of only 6% 1/ generation projects in general have had substantial cost over- runs 2/. As the investment program without the interconnection project would have required more investment in generation, it can be concluded that the economies in investment gained are substantially higher than estimated at the time of appraisal. 1/ Actual costs, expressed in constant terms were 23% under appraisal estimates (see Annex 1 and paras. 5.02 and 5.04). 2/ See para. 5.05 on overrun for the Chivor project. -30- 3.05 Additional benefits of the interconnection project were realized in reductions of the power shortages which occurred in 1976 in the CHEC system due to damages in one of its generating plants, and the power shortage which occurred as a result of the severe drought in 1976/77 which affected mainly the CVC and CHEC systems. In general, actual utilization of the system was double than anticipated at appraisal (Annex 12). Chivor Project 3.06 This Bank loan had as its objectives: (a) to supply forecast growth in demand for capacity and energy through construction of the least-cost alternative project in the country; (b) to enhance ISA's planning and coordinating role in the sector by giving it a large generation project; and (c) to initiate the process of financial independence from its share- holders by enabling ISA to charge its own tariffs. 3.07 Project justification was substantiated by demand forecasts and by studies performed by ISA, its consultants, and Planeacion which showed Chivor to be the highest priority generation project. A total cost of US$228/kW was estimated for the 500 MW to be installed in the first stage of Chivor, which would also include substantial investments required for the second stage. It was estimated that the overall cost of the total 1000 MW Chivor plant would be equivalent to about US$150 per installed kW. 3.08 The total cost of the Chivor I project, including interest during construction, was US$194.9 million equivalent, 1/ in current dollars (see Annex 2), or US$390 per kW, compared to the US$126.3 million, US$253 per kW in 1970 dollars estimated at appraisal. Adding the estimated investment of US$144.6 million for Chivor II, the final cost of the project in current dollars would be about US$340 per kW which, although higher than the appraisal estimate, nonetheless compares favorably with unitary costs of similar hydro- electric projects. Expressed in constant terms, the actual cost of the project excluding interest during construction was at US$115.8 million (Table V-I), US$232 per kW. IV. PROJECT IMPLEMENTATION Interconnection Project 4.01 The originally planned interconnection transmission lines were operational by late 1971 as scheduled. The construction was carried out on time despite problems encountered in delayed shipment of tower structures from 1/ As calculated just before the start of ooperations of Chivor I (September 1977) while there were still some US$14 million equivalent in retained payments and accounts payable in foreign currencies to contractors which, together with as yet unsettled penalty claims by foreign contractors (see 1977 report of ISA's external auditors), will alter somewhat the final project cost when they are eventually paid and settled. -31- Italy due to strikes and difficulties in acquiring land and rights-of-way from property owners. Heavy rains also complicated the completion of the last section between Esmeralda and Guatape (Annex 12). 4.02 The substations were completed by December 1971, but the Guatape substation was not ready until March 1972, principally due to delays in shipment of equipment and to damage of a transformer which required repairs in Japan. 4.03 By the end of 1971, after completion of the interconnection lines and most of the substations, only US$12.3 million of the US$18 million Bank loan had been committed. With only the engineering studies remaining to be terminated, the Bank agreed that the unused balance of the loan could be applied to financing a 230-kV transmission line between Guatape and Barrancabermeja, which would link the northeast region to the inter- connected system. 4.04 The Guatape-Barrancabermeja line 1/ was completed by April 1975, almost one and a half years behind schedule due to problems in acquiring rights of way. The line entered into commercial operation in September 1976, two years behind schedule, due to further delays in completion of the sub- stations. Late shipment of equipment and problems with the circuit breakers were the principal problems. These delays, together with those encountered in completing the engineering studies (4.05) resulted in three additional post- ponements of the loan closing date to July, 1977. 4.05 The engineering studies for future generation projects had barely been started by the time of the original loan closing date of February 1972. The four studies on future generation projects, financed in part with Loan 575-CO, were not completed until early 1977 mainly because of the additional time required to obtain background data and satisfactory terms of reference, together with desirable enlargement and modification of the studies' original scope. 4.06 The Bank also supported a study, to be carried out by Motor Columbus, covering energy rates, energy exchange and sales agreements, and operations of ISA and its shareholders. Progress on this study was delayed due to the initial reluctance of the shareholders to cooperate in its execution. It was completed in September 1974, two years behind schedule, and recommended basically that ISA's role in sector development be strengthened and that the entity operate on a commercial basis. The final report was never approved by ISA's Board because of the shareholders' disagreement with the study's recom- mendations; thus, decisions on system expansion were seriously delayed. Recently, with Bank encouragement, the most imporant of Motor Columbus' recommendations have been reflected into ISA's bylaws and energy sales agree- ment, in conjunction with the San Carlos I Hydro Power Project (Loan 1582-CO).2/ 1/ See Map. 2/ Annex 4 shows the main covenants negotiated for the Interconnection and Chivor projects. In ISA's view, the modifications to its bylaws and energy sales agreement may be considered to be unrelated to the Motor Columbus' recommendations. -32- Chivor Project 4.07 The Chivor hydroelectric plant entered into full commercial operation in September 1977, fifteen months behind appraisal estimate. The loan closing date was postponed until December 1979, to enable full disbursement. 4.08 The project underwent many on-site modifications and encountered several unexpected construction difficulties. There were several technical changes and costs were sustantially higher than estimated due to larger volumes of excavation, increased grouting, changes in design and landslides. These higher costs resulted in late payments to contractors which caused further delays and repeated claims by contractors. Chivor could not be commissioned in time to avoid country-wide energy rationing in late 1976-early 1977, as a result of a prolonged dry season. 4.09 The dam, begun in November 1971, was finished in November 1975, seven months behind schedule. Rock materials shortages and reinforcement of the canyon wall were the major problems. The completion of the spillway was delayed by difficulties encountered in maintaining clear accesses, excavation of materials, and in additional preparatory steps necessary for the concrete works. Poor rock conditions and design changes delayed completion of the tunnels. The penstocks required greater underground works than anticipated and were completed two and one-half years behind schedule. Organizational problems of the contractor responsible for the powerhouse required cancellation and rescheduling of the contract, resulting in a one-year delay. The outdoor switch-yard was finished one and one-half years behind schedule and problems in acquiring rights-of-way delayed completion of the transmission lines for more than one year. The original road plan proved unacceptable to the local communities, resulting in a longer, costlier but easier route (see para. 2.06). 4.10 Despite previous urgings by the Bank for the determination of energy sales rates before Chivor was to enter into commercial operation, the share- holders were unwilling to accept the tariff structure recommendations of the Motor Columbus study, and thus, did not enter into long-term contract agree- ments. A temporary, short-term rate structure was in effect after Chivor entered service until April 1978 when a long-term contract was agreed upon between ISA and its shareholders in conjunction with the San Carlos I project. V. PROJECT COST ESTIMATES Interconnection Project 5.01 Details of the project cost are shown in Annex 1. In comparing the final costs with the appraisal estimate it is important to note that the appraisal, in accordance with Bank policy at the time, contained no provisions for price contingencies (see para. 5.05). The local and external inflation rates were assumed to be zero and the foreign costs were estimated at a constant exchange rate. The local inflation rate over the construction period (1968-1971) of the original interconnection project actually averaged 8.5% yearly (Annex 11); external inflation on hydroelectric projects averaged 7.2% yearly and the peso de7alued at an average of 6.8% per year against the -33- dollar. During the construction of the Guatape Barrancabermeja transmission line (1971-1974) local inflation averaged 20% yearly, external inflation averaged 8.4% yearly and the peso devalued at an average of 8.8% per year. 5.02 As shown in Annex 1, the original project, including engineering studies, had a slight overall cost overun of 6% in current US dollars. Actual engineering costs of US$2.9 million were significantly higher than the US$1.4 million estimated originally, and the cost of the sector organization and finances study, and the engineering studies for future generation projects was US$6.5 million (Annex 3) rather than the US$1.5 million originally planned (Annex 1). 1/ 5.03 The Guatape-Barrancabermeja transmission line was estimated in late 1974 to cost the equivalent of US$7.2 million, of which US$4.1 million was to be in foreign currencies. The extension actually added US$8.4 million to the total overall cost, of which US$5.5 million was in foreign currencies. Higher overall interest during construction due to the 30% time overrun were partly responsible for the cost overrun. 5.04 The comparison in constant monetary values shown in Table V-1 indicates that the actual cost of the original project was 23% below that estimated at appraisal (excluding studies and interest during construction) and the cost including the Guatape-Barrancabermeja expansion was also 6% lower than anticipated. Chivor Project 5.05 As in the Interconnection Project, in accordance with prevailing Bank policy, the appraisal estimates included no provision for price contin- gencies. The initial reservations of the appraisal mission regarding the effects of said policy on projected local costs were dismissed because at that time the Colombian government, through the recently created (December 1968) Junta Nacional de Servicios Publicos (JUNTA), was follpwing a policy of prompt tariff adjustments in response to changing price conditions in the economy and there were no indications for expecting otherwise. Had it been possible for the government to continue adhering to this policy, the effects of local inflation would have been automatically compensated for. However, even if Bank policy had allowed for local and foreign price contingencies, these would have fallen considerably short of actual results because of the unpredictable 1973 - oil crisis - inflation jump. During the construction period, on an average yearly basis, internal inflation was 20%, external inflation 9.2% and devaluation of the peso 10.3%. 5.06 Details of the appraisal estimate and actual project costs are presented in Annex 2. In current dollar monetary values the project had an overall cost overrun of 54%, equivalent to US$68.6 million of which US$46.0 million was in foreign currencies. However, in terms of 1969 dollar monetary values (Table V-1) actual project cost was 1% higher than the appraisal estimate. This negligible cost overrun in constant monetary values suggests that local and external inflation were the causes of the cost overrun expressed in current dollars. It also indicates that the physical contingencies of 16.8% on net project cost estimated during appraisal were adequate: they fully covered the costs of the design modifications and numerous difficulties 1/ Annexes 5 and 6 show the allocation of proceeds and accumulated disbursement of the Bank's loan for Interconnection. ISA has pointed out (Annex 3) that the actual and estimated costs of the studies for engineering, sector organization and finances can not be compared since the scope of the studies was different. "able V-1 SUMM1ARY CO1PARISON OF PROJECT COSTS AT CONSTANT PRICES/1 (UK 'lillion TriuivFlent) APPRAISAL FINAL VARIATIONS FROM APPRAISAL (%) Estimate Original Incl.Guatape Original Incl.Guatape A. INTERCONNECTION 10/1968 Project Barranca Line Project Barranca Line Transmission Lines 12.0 11.0 14.1 (8) 17 Substations 7.4 6.1 6.6 (18) (11) Land 1.9 0.5 .6 (74) (68) Engineering 1.4 2.3 2.8 64 100 Physical Contingencies 3.0 - - (100) (100) Total Project Cost 25.7 19.9 24.1 (2?) (6) Studies/2 1.5 3.7 3.7 147 147 Interest During Construction /2 2.4 2.2 4.0 (8) 67 Total Financial Requirements 29.6 25.R 31.8 (13) 7 Bank IDB 7ina1 VARIATIONS ( Appraisal Appraisal IDB's from Final from Final from B. CHIVOR I (8L1969) (3/1971) Bank Appraisal Bank Appraisal IDB Appraisal Civil Works 66.5 67.2 76.0 1 14 13 Equipment 24.1 24.0 23.9 0 (1) 0 Land .6 0.7 1.5 17 150 114 1 Engineering 6.6 7.6 14.4 15 118 89 Physical Contingencies 16.4 13.8 - (16) - - Total Project Cost 114.2 113.3 115.8 (1) 1 2.2 Interest During Construction /3 12.1 17.1 26.2 41 117 53 Total Financial Requirements 126.3 130.4 142.0 3 12.4 9 /1 June 1968 for the Interconnection Project and .January 1969 for Chivor I. /12 Accounting, Pricing and organizational studies of ISA and Engineering studies for future generation projects. /3 Final costs of interest during construction are expressed in current values. rhruarv 1979 "able V-1 SUMM1ARY CO1PARISON OF PROJECT COSTS AT CONSTANT PRICES/1 (UK 'lillion TriuivFlent) APPRAISAL FINAL VARIATIONS FROM APPRAISAL (%) Estimate Original Incl.Guatape Original Incl.Guatape A. INTERCONNECTION 10/1968 Project Barranca Line Project Barranca Line Transmission Lines 12.0 11.0 14.1 (8) 17 Substations 7.4 6.1 6.6 (18) (11) Land 1.9 0.5 .6 (74) (68) Engineering 1.4 2.3 2.8 64 100 Physical Contingencies 3.0 - - (100) (100) Total Project Cost 25.7 19.9 24.1 (2?) (6) Studies/2 1.5 3.7 3.7 147 147 Interest During Construction /2 2.4 2.2 4.0 (8) 67 Total Financial Requirements 29.6 25.R 31.8 (13) 7 Bank IDB 7ina1 VARIATIONS ( Appraisal Appraisal IDB's from Final from Final from B. CHIVOR I (8L1969) (3/1971) Bank Appraisal Bank Appraisal IDB Appraisal Civil Works 66.5 67.2 76.0 1 14 13 Equipment 24.1 24.0 23.9 0 (1) 0 Land .6 0.7 1.5 17 150 114 1 Engineering 6.6 7.6 14.4 15 118 89 Physical Contingencies 16.4 13.8 - (16) - - Total Project Cost 114.2 113.3 115.8 (1) 1 2.2 Interest During Construction /3 12.1 17.1 26.2 41 117 53 Total Financial Requirements 126.3 130.4 142.0 3 12.4 9 /1 June 1968 for the Interconnection Project and .January 1969 for Chivor I. /12 Accounting, Pricing and organizational studies of ISA and Engineering studies for future generation projects. /3 Final costs of interest during construction are expressed in current values. rhruarv 1979 -36- Chivor Project 6.03 A list of consultants and contractors is presented in Annex 21. The engineering of the project was delegated to EEEB who used Ingetec as a tech- nical consultant. Several specialists were consulted in turn by Ingetec. The engineering design required many modifications and the absence of price contingencies resulted in a significant underestimation of costs. ISA, however, is satisfied with the performance of all consultants. 6.04 Impregilo of Italy, which had the largest share of the works, was the biggest contractor, responsible for dam and tunnel civil works. Due to the numerous difficulties and changes encountered (paras. 4.07-4.09), there were several claims made by this contractor totalling over US$12 million. Because of its financial difficulties (para. 7.04), ISA was continually in arrears in making payments to Impregilo. Due to organizational problems and delays of the powerhouse civil works being performed by Ingenieria y Construcciones, the contract with this firm was cancelled and later relet to Murrlie & Roads Conciviles. 6.05 As part of the IDB Agreement, ISA contracted a team of senior experts in hydroelectric projects to assist in solving technical problems, mainly geological, which occurred during the execution of the civil works. This arrangement was very helpful to ISA and was extended to the construction of Chivor II and San Carlos I. VII. FINANCIAL PERFORMANCE 7.01 Due to the time required for the shareholders to redefine their roles in the sector, ISA initially functioned after its creation in 1967 (para. 1.04) as an interchange agency without powers to charge its own rates or derive revenue through sales.1/ Until ISA's first generation project, Chivor 1, was to come into operation, ISA's shareholders were to cover through contributions all of ISA's operating costs, including depreciation, and debt service. The appraisal reasoning was that "since the shareholders were the sole owners, they would share in the disposition of ISA's net income; but by the same token, ISA's initial income was to be uniquely the result of the shareholders contributions; on this basis ISA would not earn a specific minimum return because such a return, as far as the sponsors were concerned, would merely be returning, as dividends, funds contributed." At the time the Bank considered this position acceptable because ISA's statutes already included a rate of return criterion to be calculated on average net generating plant in service, and the question of adequate earnings on the investment in transmission facilities, particularly and including any new future additions, was left to be dealt with at another occasion and preferably as a result of recommendations from specialized consultants (para. 7.05). Presently, result- ing from negotiations of the San Carlos I loan, ISA's statutes provide for the obtention of an equal and adequate rate of return on its transmission and generation assets. ISA's bylaws provided for ISA to finance its project investment costs by covering the foreign portion with foreign borrowings and 1/ Annexes 12, 13 and 14. -37- local needs through investments by shareholders: 40% in stock and 60% in bonds. ISA's financial viability before commissioning of Chivor therefore totally depended on the ability and willingness of the shareholders to cover ISA's operating and financing costs opportunely. 7.02 As previously discussed, the Chivor hydroelectric project suffered unexpected delays and important cost overruns. ISA's projected operational and investment costs over 1969-77 were underestimated by half (Annexes 8 and 9). Thus, the large Chivor project cost overruns caught the shareholders unprepared. Consequently, shareholders had great difficulties in covering ISA's operational and investment requirements. (A summary of the shareholders' debts to ISA is presented in Annex 19.) 7.03 At the same time that ISA's operational and investment require- ments were double than expected, ISA's shareholders were having financial difficulties of their own; restrained tariff rates together with high rates of inflation had eroded their financial capabilities preventing them from covering ISA's operational and investment needs on time, which resulted in project delays and late payment charges. 7.04 ISA's financial situation became so critical as to warrant an informal suspension of disbursements by the Bank on both Loans 575-CO and 681-CO to ISA, as well as on Loan 874-CO to EPM. By December 1973, the shareholders were in arrears by over US$11 million in payments to ISA. By August 1974, ISA was over US$4 million behind in payments to Impregilo, and debt service payments to the Bank on Loan 575-CO were being received late. Late payments by shareholders to cover ISA's operating and investment require- ments constituted a default on the Bank loans and, effective September 30, 1974, the Bank decided to withhold approval of withdrawal applications and of contracts until the problem were resolved. 7.05 In view of these developments, ISA's total dependence on its share- holders for financial solvency until ISA would have generation assets in operation, was recognized in the Bank as being a weakness over the medium term in the design of ISA. Although the Motor Columbus study (para 4.06), completed in September of 1974, had recommended putting ISA's transmission operations on a more commercial basis by allowing ISA to charge profitable rates, there were several factors which delayed implementation of this recom- mendation until 1978; among them were: (a) the shareholders were reluctant to relinquish their control and resisted efforts to strengthen ISA; (b) the provisional purchase and sales agreement for interchanged energy was causing friction because of inequities in prices and costs among shareholders at different times of the year, different accounting methods among shareholders, and different values of the various classes of energy (peak, base, emergency, dump, etc.); (c) the inequities prompted local governments to complain about subsidizing other regions. EPM at one point in late 1974, refused to make further payments to ISA until ISA's future were decided. 7.06 In December 1974, ISA's shareholders owed ISA US$13.8 million and ISA owed contractors and banks over US$8.6 million. EE9B was behind in buying its shares from ISA by US$2.0 million and EPM was refusing to continue -38- with its obligations to ISA until ISA's bylaws were revised. I/ The Government finally agreed to make available its contributions and investments (through ICEL) and to approve tariff rate increases. Subsequently, the Bank conditioned the resumption of loan disbursements upon the following require- ments: (a) that ISA's shareholders pay all past due payments to ISA; (b) that ISA's equity distribution among shareholders be restored according to the by-laws (in particular EPM's failure to acquire ISA stock); and (c) that ISA's shareholders approve and agree to make available to ISA its budgeted 1975 operational requirements. 7.07 Although ISA, in a letter in December of 1974, had indicated its intent to comply with the above-described conditions by March of 1975, the progress made was unsatisfactory. Payments by shareholders were still in arrears, EPM continued to refuse to acquire its shares in ISA, and there was reluctance on behalf of the regional interests to finance developments in other regions. Informal suspension of loan disbursements continued to the end of March 1975. 7.08 By May 1975, monthly tariff increases had been instituted through- out the country, and the government made funds available to the shareholders to enable them to fulfill their obligations to ISA, thus bringing all share- holders but EPM up to date on payments to ISA. After obtaining EPM's agreement to make its payments due to ISA, the Bank considered that sufficient progress had been made in the sector and in May of 1975 decided to resume loan disburse- ments. 7.09 Despite the progress made as a result of pressures by the Bank, ISA's shareholders continued to fall behind in their payments to ISA. In December 1975, ISA's shareholders owed ISA US$16.9 million and ISA owed over US$25 million to contractors. ISA's shareholders had not made any payments for depreciation expenses of the interconnection line since it entered into operation in late 1971 (para. 7.12). Ongoing difficulties and cost overruns in construction continued to require much heavier financial contributions than anticipated by ISA's shareholders, and ISA was trying to borrow more in order to decrease payments by shareholders. 7.10 Although ISA's financial situation improved somewhat before the Chivor project entered into operation, ISA's shareholders had not been able to agree on long-term sales contracts for Chivor energy to be generated and sold. Consequently, Chivor entered into commercial operation with provisional short-term contracts despite rate recommendations in the Motor Columbus study and repeated Bank urgings to establish long-term contractual agreements. A satisfactory long-term contract for the sale of the Chivor energy was a condition for completing the processing of the San Carlos loan (1582-CO). 1/ In particular EPM was requiring that future power generation projects be owned and operated by new satellite companies and that future contributions to ISA be contingent upon an equal contribution by the government. -39- Such a contract was approved by ISA's shareholders in April 1978 and provides for (a) energy capacity contracted by the shareholders; (b) provision for rate increases to comply with the covenanted rate of return; and (c) basic oper- ational criterion. 7.11 Annexes 13 to 18 show ISA's financial statements estimated at the time of the appraisal of the Interconnection and Chivor I projects 1/ and the actual statements for the same period. Since ISA was not supposed to operate commercially until the start of operations of Chivor I scheduled for 1976, a conventional comparison of ISA's financial indicators during the construction period of Chivor I is not applicable. However, the relevant differences between projected and real results for the period 1968-71 (Interconnection) and 1972-1977 (Chivor I) are summarized in Table VII-1. Bearing in mind that appraisal values are in constant Colombian pesos of 1968 and actual values are current, it can be inferred that: (a) the relatively low rates of inflation during 1968-1971 (Annex 11) had practically no effect on the orders of magnitude of forecast and actual results. Thus, the assumptions made for the construction period of the Interconnection project were well advised. (b) The effects of the high rates of inflation during the period 1972-1977 is clearly seen to have caused distortions in the finances of ISA whose actual orders of magnitude were far greater than could have been anticipated: shareholders' investment require- ments had to increase by nearly fourfold and borrowings over sixfold in order to meet the fivefold increase in fixed asset investments. (c) Annexes 8 and 9 show that while the effects of inflation would have caused inevitably financial strains on ISA and its shareholders, the performance of the latter would have been unsatisfactory even in the absence of inflation as shown by the fact: that during the period 1968-1971 they were considerably late in their payments to ISA: up to 149 days in 1970 vs two days estimated at appraisal despite lower actual contribution requirements (Col$ 196.3 million) than anticipated (Col$ 218.1 million). Shareholders' performance during 1972-1977 is shown to deteriorate further by delaying payments up to 244 days in 1974 as compared to two days anticipated at appraisal. These levels of up to 5 days (Annex 8 - 1972) of account receivables from shareholders assumed during appraisal were not meant to be performance targets because of the absence of related covenants in the loan,-shareholders' and guarantee agreements (Annex 4). Their importance as covenants so as to monitor them periodically became evident from the unsatisfactory performance of ISA's shareholders during the construction of these two projects. Thus, the absence of price contingencies in the appraisal forecasts and lack of realistic targets for monitoring a maximum permissible level of accounts receivables from shareholders were two major tools which could not be used to timely anticipate and further reduce the difficulties experienced during the implementation of the Interconnection and Chivor I projects. I/ Interconnection project estimates for 1967 and 1968. Chivor I estimates for the period 1969-1977. TABLE VII - 1 1/ COL !ILLION -1968-1971---------------------- ---------------------1972-1977-------------------- Actual Appraisal Difference Actual Appraisal Difference A. Income Statements En.Interchanged(GWH) - 200 (200) 4521 1197 3324 277% En.Generated(GWH) - - 953 1573 (620) 39% Revenues 33.3 100.0 64.1 100.0 ( 30.8) ( 48.0) 1885.2 100.0 1122.7 100.0 762.5 68. Transmission Costs 33.3 100.0 52.2 81.0 ( 18.9) ( 64.0) 1265.6 67.1 294.9 26.2 970.7 329. Generation Costs - - - - - - 104.0 5.5 203.0 18.1 ( 99.0) (49) Financial Costs - - 11.9 19.0 ( 11.9) (100.0) 501.6 26.6 525.9 46.9 ( 24.3) ( 5) Other Income 0.5 1.5 - - 0.5 - 26.8 1.4 - - 26.8 - Net Income 0.5 1.5 0.0 0.0 0.5 - 40.8 2.2 98.9 (8.8) ( 58.1) (59) B. Sources and Applications of Funds GroaL Carh Genera.tion 1,9 .2 18,6 2.0 (16.7) (89) 832.6 8.1 806.0 40.2 26.6 3.3 Debt Serviee 3.3 . 17.2 1.8 (8.9) (51.7) 802.8 7.8 76'.6 38.2 36.2 .T Net.Tnt.Cash.Gn. ( 6.4) ( .7) 1.4 .1 ( 7.8) (557 ) 29.8 .3 39.4 1.8 ( 9.6) (24) Shareholders Investments 256.0 26.0 313.6 34.0 ( 57.6) 18.4 3643.5 34.9 994.3 46.5 2649.2 266, Borrowings 734.5 74.7 607.9 65.9 126.6 20.8 6766.9 64.8 1104.5 51.7 5662.4 912 Total Sources 984.1 100.0 922.9 100.0 612.0 6.6 10440.2 100.0 2138.2 100.0 8302.0 388 Transmission Projects 474.8 48. 510.9 55.3 ( 36.1) ( 7.1) 1429.0 13.7 - - 1429.0 - Chivcr Project 229.9 23. 341.5 37.0 (111.6) ( 32.7) 5834.6 55.9 1634.1 76.4 4200.5 257 Interest during Const. 69.3 7.0 67.4 7.3 1.9 2.8. 791.4 7.6 370.5 17.3 420.9 114 Other fi%ed assets 2/ 7.7 .8 - - 7.7 - 1962.5 18.8 - - 1962.5 - Other assets 3/ 196.5 19.9 - - 196.5 - 256.3 2.4 - - 256.3 - Total Assets 978.2 99.4 919.8 99.6 58.4 6.3 10273.8 98.4 2004.6 93.7 8269,2 412 Varittions in W.C. 5.9 o.6 3.1 .h 2.8 90.3 166.4 1.6 133.6 6.3 32.8 24 Total Applications 984.1 100.0 922.9 100.0 61.2 6.6 10440.2 (00.0) 2138.2 100.0 8302.0 388 1/ Sources: Annexes 13 through 16. 2/ Include San Carlos I plus Chivor II projects plus office equipment. 3/ lcude deferrea investments in studies and advanced payments to contractors. FEbrury 179 -41- 7.12 Recently, in connection with the San Carlos I generation project, the Bank obtained the agreement from ISA's shareholders to make past-due depreciation payments to ISA, to incorporate the major Atlantic Coast power company as a major shareholder, to adopt important recommendations in the Motor Columbus Study 1/, including establishment and maintenance of adequate rates of return for both transmission and generation operations, and a limit of a maximum of 60 days in accounts receivable from the shareholders on all amounts owed to ISA including interest charges if this limit is exceeded. To alleviate ISA's requirement for funds, it was also agreed to issue ISA bonds without maturity. ISA's future financial well-being, however, will continue to depend on its shareholders ability and willingness to make timely payments and contributions. VIII. INSTITUTIONAL PERFORMANCE 8.01 ISA's major problems were due to the weak financial situation of its shareholders and their reluctance to relinquish their independent roles in the sector, or their tight control of ISA. ISA's dependence on funds from shareholders for operation and investment seriously handicapped ISA's ability to take a leadership role in the sector. Shareholder dissension arising from the municipal utilities concerning subsidizing of other regions further detracted from ISA support, as this issue received intense political attention nationally for a while. Shareholder unwillingness to allow ISA to assume a strong role in the sector, or even day-to-day operational autonomy, was strongly evidenced in EPM's proposal that new satellite companies be formed apart from ISA to own and operate future generation projects. 2/ The inability or unwillingness of shareholders to fulfill investment obligations caused an imbalance in voting rights which led to delays in making decisions and in coming to agreements. The Bank's expectation of making ISA the predominant entity in the sector by the time the Chivor project entered into service had fallen short due to ISA's financial difficulties and shareholder resistance. Nonetheless, progress toward this objective has been tremendous since September 1977. The probability of further progress would depend crucially upon the shareholders' ability to maintain their current consensus on basic issues and upon their present view that long-term demand growth in their individual power systems can be met more economically through ISA. Compliance with Covenants 8.02 Annex 24 sets forth the major covenants of the loans, guarantee and shareholders agreements for Loan 575-CO and 681-CO, plus an assessment of Government, ISA and shareholder compliance with those covenants. 1/ See footnote 2/, para. 4.06. 2/ This proposal was opposed by the Bank and was later dropped as the Bank insisted on ISA ownership and operation of major generation developments and on ISA's being responsible for planning and coordinating national power expansion program as a requisite for consideration of financing of the San Carlos I generation project. -42- 8.03 In connection with consideration of financing for the San Carlos I generation project (620 MW), the Bank has been successful in getting ISA's shareholders to make stronger commitments to ISA's role. CORELCA, the gener- ation and transmission company for the Atlantic Coast, joined ISA as a share- holder thus including all the major power companies in the sector under ISA's aegis. Future major generation projects will be planned, constructed, owned and operated by ISA; moreover, significant generation expansions in individual shareholder systems must be approved by ISA as part of the national power expansion programs. Although subject to its Board's approval, ISA now sets its own rates so as to cover operational costs and earn an adequate rate of return on transmission as well as generation assets. (ISA's original bylaws provided for the commercial operation of its generation assets only.) Further- more, the financial situation of ISA and its shareholders has improved and is expected to continue to do so as a result of approved programs of tariff increases and commitments by the Government to take all action necessary to enable the shareholders to fullfill timely their financial obligations to ISA. Also, the government has agreed to allocate specific amounts to cover ICEL, CORELCA and CVC's investment obligations to ISA. IX. BANK PERFORMANCE 9.01 In retrospect, the current cost of the Chivor project was seriously underestimated and hence, so were the financing requirements from the share- holders. Bank policy at the time, of not allowing for price contingencies on appraisal forecasts, combined with the unpredictably large 20% average yearly local inflation and worldwide inflation experienced during construction were mainly responsible for the substantial cost and time overruns. This, together with the fact that electricity tariff increases lagged excessively behind inflation, led to a serious erosion of the shareholders' financial capabilities. Because the (former) Bank policy did not allow for the adequate forecast of local financing, tariffs were not secured in real terms and no specific pro- vision was made for local debt financing by ISA's shareholders in case of inadequate internal cash generation. 9.02 ISA's financial difficulties were compounded by an institutional structure which facilitated both excessive interference and non-compliance with financial obligations. Had the shareholders supported ISA, the original institutional set-up would nonetheless have been viable. Given the dissension and lack of initial support, even the present strengthened institutional arrangement could likely have been circumvented by determined shareholders. 9.03 Because of the many difficult problems encountered after the initia- tion of the Chivor project, supervision by the Bank was frequent and thorough. The Bank followed closely the payments and receipts difficulties that ISA experienced during construction. The shareholders, in not making timely con- tributions, investment and payments to ISA and in not maintaining the equity proportions agreed in the bylaws, effectively defaulted on the agreements made with the Bank on Loan 575-CO. Nonetheless, the Bank tried to get ISA and its -43- shareholders to correct this situation through consultation before resorting to informal suspension of loan disbursements. Although ISA's shareholders did not satisfactorily comply with Bank requests that they solve their finan- cial problems and in spite of recommendations within the Bank to suspend formally disbursements and to invoke the government guarantee, in the end it was deemed by the Bank that formal suspension of disbursements would be counterproductive. The Bank held out for initiation of an agreed program of tariff increases and increased government support for ISA and the sector before disbursements were resumed. X. CONCLUSIONS AND LESSONS TO BE LEARNED Conclusion 10.01 The Interconnection and Chivor projects underwent engineering, physical, financial and institutional difficulties. Engineering problems were due to inadequate studies and cost estimates which resulted in technical changes, delays and cost overruns. The estimation of operational and invest- ment requirements for an institution so financialy dependent, without provi- sions for price contingencies in an inflationary environment led to severe financial difficulties for ISA and its shareholders. Institutional difficul- ties were basically due to shareholders reluctance to accept ISA and to their unwillingness to accept substantial redefinition of their roles in the sector. However, mention should be made that local conditions beEore and during the implementation of the interconnection concept in Colombia were characterized by deep-rooted regional rivalries and also by a frank mistrust of federal government intervention. For example, at the time Empresas Publicas de Medellin (EPM) was apolitically well managed, financially sound, and having the country's lowest cost hydroelectric resources; thus EPM saw no benefits in interconnection. On the other hand, the agencies of the then Valle del Cauca (now CVC) were on the brink of bankruptcy, depended heavily on unsuffi- cient and usually late funds from the national budget and had their tariffs frozen by Empresas Municipales de Cali (EMCALI). While it was the Cauca agencies that appeared to stand most in need of interconnection by virtue of their perennial power shortages their members believed their own best inte- rests would be served by building up local capacity rather than importing power. 10.02 The institutional difficulties have since been substantially over- come in principle as the shareholders have reached agreement on pricing and investment policies and as the shareholders become more comfortable with subordinating their previous independence in planning and executing generation expansion to ISA, this development has been complemented by recent increased support by the government. Asmentioned earlier, the success of this venture in coordinated power sector development depends ultimately upon the ability of ISA, its shareholders and the government to maintain the current consensus on basic objectives. -/44- 10.03 ISA's financial situation is expected to improve in the future due to its recent mandate to charge tariffs sufficient to cover operating costs and earn an adequate rate of return to meet a reasonable part of its future expansion needs. Tariff increases initiated and programmed, combined with commitments, to maintain adequate annual rates of return on fully revalued assets by the shareholders are expected to provide them with adequate capa- bility of paying accrued debts and making future payments to ISA in a timely fashion. Lessons Learned 10.04 In regard to lessons learned from these projects, the Bank already allows for price contingencies provision in appraisal forecasts and also takes more care in adequately reviewing the engineering studies proposed by consul- tants as well as their project cost estimates before approving loans. The need to take the securing of local financing requirements directly into account has been recognized by the Bank and has been specifically provided under the San Carlos I project. Future projects to be undertaken by ISA and its shareholders are now based upon longer-range detailed planning and provide a sounder basis for financial plans. The Bank has also succeeded in institution strengthening in terms of financial arrangements which render ISA less vulnerable both to undue shareholder interference in short-term financial management and to undue delays (over 60 days) in shareholders' payments to ISA because of the periodic monitoring of the financial performance (rates of return on revalued assets, accounts receivable) of ISA and its shareholders. Thus, the experience gained under the first two ISA projects has had a considerable impact on the shaping of Bank policy under the subsequent operation. Latin America and the Caribbean Regional Office February, 1979 45 ANNEX I COLOMBIA INTERCONEXION ELECTRICA S.A. INTERCONNECTION PROJECT COST EXPRESSED IN CURRENT VALUES ----Col$ (millions------ ----US$ (millions)---- Local Foreign Total Local Foreign Total % A. Appraisal Estimate /a Transmission lines 40.8 154.9 195.7 2.5 9.5 12.0 40.5 Substations 32.6 88.0 120.6 2.0 5.4 7.4 25.0 Land 31.0 - 31.0 1.9 - 1.9 6.4 Engineering 11.4 11.4 28.8 0.7 0.7 1.4 4.7 Subtotal 115.8 254.3 370.1 7.1 15.6 22.7 76.6 Studies /b - 24.5 24.5 0.7 1.5 1.5 5.1 Contingencies 11.4 37.5 48.9 0.7 2.3 3.0 10.2 Interest during construction - 39.1 39.1 - 2.4 2.4 8.1 TOTAL 127.2 355.4 482.6 7.8 21.8 29.6 100.0 B. Actual - Original Project /c Transmission Lines 43.0 175.0 218.0 2.3 9.8 12.1 38.5 Substations 41.7 93.8 135.5 2.1 5.1 7.2 22.9 Land 10.3 - 10.3 0.6 - 0.6 1.9 Engineering 35.6 35.6 71.2 1.4 1.4 2.8 8.9 Subtotal 130.6 304.4 435.0 6.4 16.3 22.7 72.2 Studies lb 138.0 27.4 165.4 5.5 1.0 6.5 /c 20.7 Interest during construction - 46.5 46.5 - 2.2 2.2 7.1 TOTAL 268.6 378.3 646.9 11.9 19.5 31.4 100.0 C. Actual - Including Guatape /c Barrancabermeja Line Transmission Lines 81.8 254.8 336.6 3.7 13.0 16.7 42.0 Substations 43.3 116.7 160.0 2.2 5.9 8.1 20.3 Land 15.0 - 15.0 0.8 - 0.8 2.0 Engineering 48.9 46.3 95.2 1.9 1.8 3.7 9.3 Subtotal 189.0 417.8 606.8 8.6 20.7 29.3 73.6 Studies /b 138.4 28.9 27.7 5.5 1.0 6.5/c 16.3 Interest during construction 20.8 77.6 98.4 0.7 3.3 4.0 10.1 TOTAL 348.2 524.3 872.5 14.8 25.0 39.8 100.0 a/ Currencies coverted at constant exchange rate of 16.30 Col$/IUS$. b/ Studies for the accounting, pricing and organizational aspects of ISA plus engineering studies of future generation projects. c/ Currencies converted at average yearly exchange rates. -j/ The breakdown of this item is US$0.96 million for Accounting, Pricing and organizational studies and US$5.49 million for the engineering of future generation projects (see Annex 3). bruary 1979 -46 - COLOMBIA ANNEX 2 INTERCONEXION ELECTRICA S.A. CHIVOR PROJECT COST Col$ (Millions) US$ (Millions) % Total Local Foreign Total Local Foreign Total A. Appraisal Estimate a/ 1. Civil Works: Main contract 422.3 498.7 921.0 24.4 28.8 53.2 46.6 Minor contracts 107.3 62.3 169.6 6.2 3.6 9.8 8.6 Penstock works 36.4 24.3 60.7 2.1 1.4 3.5 3.1 Contingencies 105.9 123.3 229.2 6.1 7.2 13.3 11.6 Subtotal 671.9 708.6 1380.5 38.8 41.0 79.8 69.9 2. Equipment: Main equipment orders 40.0 282.1 322.1 2.3 16.3 18.6 16.3 230 kV transmission line 3.6 43.3 46.9 0.2 2.5 2.7 2.4 Minor equipment orders 7.1 41.5 48.6 0.4 2.4 2.8 2.4 Contingencies 5.0 48.1 53.1 0.3 2.8 3.1 2.7 Subtotal 55.7 415.0 470.7 3.2 24.0 27.2 23.8 3. Land Acquisition 10.7 - 10.7 0.6 - 0.6 0.5 4. Enpineering 100.7 13.0 113.7 5.9 0.7 6.6 5.0 Total Project Cost 839.0 1136.6 1975.6 48.5 65.7 114.2 100.0, 5. Interest during construction 208.8 208.8 12.1 12.1 10.6 TOTAL 1345.4 2184.4 77.8 126.3 110.6 B. Actual b/ 1. Civil Works: Main contract 726.4 1630.6 2357.0 26.8 60.1 86.9 51.5 Minor contracts 420.9 61.4 482.3 13.3 2.2 15.5 1.2 Penstock works 55.6 117.8 173.4 2.2 4.9 7.1 4.2 DuotoLd 1ZUZ.9 10U9.8 3012.7 42.3 67.2 109.5 64.9 2. Equipment: Main equipment 118.4 691.8 810.2 3.6 23.0 26.6 15 .8 230 kV transmission line 5.5 131.4 V. u.2 4.6 4.t 2.6 inor equipment 97.6 130.8 228.4 3.3 4.2 7.5 4.5 q10tni 221.5 954.0l 1175.5 7.1 31.8 38.9 23.1 3. Land Acquisition 55.5 - 55.5 2.0 - 2.0 1.2 4. Engineering 464.6 14.1 478.7 17.7 0.6 18.3 10 8 Total Project Cost 1944.7 2777.9 4722.4 69.1 99.6 168.7 100.0 5. Interests during construction 51.0 711.3 762.3 2.0 24.2 26.2 15.5 TOTAL 1995.7 3489.2 5484.7 71.1 123.8 194.9 115.5 I/ Projections made at appraisal assumed no internal inflation and no changes in exchange rates (paragraph 5.01) of Chivor Appraisal Report). Col$/US$=17.30. Current yearly costs converted at average exchange rate. 'ebruary 1979 ANNEX 3 - 47 - COLOMBIA INTERCONEXION ELECTRICA,S.A. (ISA) LOAN 575-CO LIST OF STUDIES FOR THE ORGANIZATIONAL AND FUTURE DEVELOPMENT OF ISA Study Description Consulting Costs - (US$W00) Firm _ _I 1. Advising on rates, pricing, statutory MOTOR COLUMBUS 621 agreements and operation of the inter- connected system 2. Expansion and development of ISA's tele- MOTOR COLUMBUS 185 communication system. 3. Design and implementation of accounting, ARTHUR ANDERSEN 158 inventory, budgeting and financial & CO. methods and procedures 4. Evaluation of the hydroelectric potential INTEGRAL 725 of the CAUCA river and engineering assistance to complete the SAN CARLOS Hydroelectric project. 5. Evaluation of the various hydroelectric INGETEC 633 development alternatives of the GUAVIO river and of its affluents. 6. Evaluation of the hydroelectric potent- CEI 506 ial of the SALDARA river. 7. Feasibility of the hydroelectric develop- HIDRO ESTUDIOS 660 ment of the SOGAMOSO river. HARZA 8. Technical Assistance for the. revision of JACOBS the cost estimates of MESITAS, LA' GUACA ASSOCIATES and and SAN CARLOS hydroelectric projects INTEGRAL 2/ 1,963 Total 6,451 1/ Current US$ equivalent 2/ INTEGRAL did not participate in the revision of the cost estimates for the MESITAS project. July 1978 -48 - ANNEX 4 Page 1 o-f-4 COLOMB3IA LOANS 575-CO AND 681-CO MAIN COVENANTS Loan 575-CO 1. The Loan Agreement provided that: Section 2.07. The amortization schedule may be adjusted to avoid, insofar as practical, irregularities in the principal repyaments of the loan and other loans resulting from joint financing. The amortization schedule was changed when the project description was modified, resulting in lower amortization payments during the early years corresponding to the amount used for the original project. Section 2.08. Parts of the loan can be cancelled if the joint financing exceeds the amount anticipated and needed for the project. The joint financing exceeded the requirements of the original project and the Bank agreed to finance the cost of the Guatape-Barrancabermeja line as part of the project instead of cancelling the unused amount of the loan. Section 5.02. Auditors satisfactory to the Bank must be engaged. In 1976, a Government disposition established that ISA's external auditing would be performed by the Contralor'a de la Rep,5blica. It was agreed with ISA that, in addition to the Contralor'a, they would maintain an independent auditor. Section 5.07. Bank approval of a financing plan is required before under- taking major capital expenditures other than the project. To date, the additional major investments not financed by the Bank which required Bank approval and are still under construction were Chivor II and Jaguas. Section 5.08. ISA shall charge and collect from the shareholders, in accordance with its Estatutos, the administrative and operating costs of its transmission facilities (including adequate maintenance and provision for depreciation) and interest on, and amortization of, its debt incurred for the purpose of financing such facilities, to the extent that such amortization exceeds the provision for depreciation. ISA's shareholders have never payed the depreciation charges and only recently these payments have been secured as part of the San Carlos I Loan Agreement (1582-CO). Starting in 1978, ISA shall be operated as a profit-making commercial enterprise. (See Section 5.09.) Section 5.09. ISA will establish and maintain tariffs for the supply of electricity generated by its own generating plants which will provide an annual rate of return of 9% on the average net value of its generating assets. ISA started operations of its first generating plant (Chivor I) in the second half of 1977 and the tariff applied will provide a rate of return calculated on the average net revalued generation and transmission assets, as agreed in the San Carlos agreement as follows: 5.5% in 1978, 8% in 1979, 9% in 1980, 11% in 1981 and 9% thereafter. ANNEX 4 - 49 - Page 2 of 4 Section 5.12. ISA shall attempt to secure other joint financing. ISA has obtained joint financing for a sum greater than envisaged at appraisal time. Section 6.02. Causes for suspension additional to those of Section 5.02 of the loan Regulation include: a) amendment of the Estatutos without Bank's agreement; b) a default by any of the shareholders of its undertakings under the shareholders' agreement; c) a default by ISA of its obligations under any joint financing agreements. The Estatutos underwent many modifications with the Bank's agreement. Major changes were agreed to at the time of the San Carlos I appraisal and negotiations. Loan disbursements were unofficially suspended due to the failure of the share- holders, mainly EPM, to comply with their contractual obligations to the Bank. Schedule 4 defines the method of calculating the rate of return. This was changed as part of the San Carlos I agreement including the concept of full revaluation of ISA's assets. 2. The Guarantee Agreement provided that: Section 3.05. The Guarantor will cause ISA's generating tariffs to be set as provided in the Loan Agreement. Section 3.06. The Guarantor will attempt to enable ISA to obtain joint financing. 3. The Shareholders' Agreement provided that: Section 2.01. Each shareholder is a primary obligor of the 25% payments of the principal an interest. Shareholders' delays in its contributions were the origin of ISA financial-problems forcing it to obtain short-term loans to comply with its payment to the Bank. I Section 2.03. Each shareholder specifically undertakes to make arrangements, satisfactory to the Bank, to provide ISA, or cause ISA to be provided, with 25% of any additional funds required to meet project expenditures. All the shareholders had delays in meeting project requirements. Section 3.01. See Section 5.08 of the Loan Agreement. Section 3.02. When ISA, in accordance with the Estatutos, undertakes new capital investments, each shareholder shall promptly make all the payments agreed to in the Estatutos. All shareholders delayed their payments for the investments in both Chivor I and II. Loan 681-CO 4. The Loan Agreement provided that: Section 5.02. See Section 5.02 Loan 575-CO. Section 5.07. See Section 5.07 Loan 575-CO ANNEX 4 - 50 -Pg3o4 Section 5.08. See Section 5.08 Loan 575-CO. Section 5.11. Upon completion of the study of accounting and pricing financed under Loan 575-CO (Motor Columbus study), ISA shall consult the Bank regarding the findings and recommendations arising from that study and shall promptly amend the Estatutos with such recommendations agreed between the Bank, ISA and the shareholders. The study was never approved by the shareholders. Its main recommendations for a profitable operation of ISA's assets have been recently included in ISA's Estatutos as a result of the San Carlos I appraisal and negotiations. Section 5.12. ISA shall obtain other loans outside Colombia on reasonable terms to meet as large a portion as possible of the foreign currency required for the project. ISA obtained a loan of US$34.1 million from IDB for civil works and suppliers' credits for the main equipment. Section 5.13. See Section 5.09 Loan 575-CO. Section 6.02. Causes for suspension additional to those of Section 7.01 of the General Conditions. a) amendment of Estatutos without Bank's agreement; b) a default by any of the shareholders of its undertaking under the shareholders' agreement; c) a default occurred of any obligation on part of ISA, the Guarantor or any of the shareholders under Loan 575-CO. See comments to Section 6.02 Loan 575-CO. 5. The Guarantee Agreement provided that: Section 2.02. The Guarantor undertakes to make arrangements, satisfactory to the Bank, to provide or cause to be provided to CVC and ICEL funds necessary to meet their obligations under the Estatutos. CVC and ICEL had significant delays in complying with their commitments to ISA due to Government delays in supplying the funds required for their contributions. Section 3.05. The Guarantor will take all reasonable steps to enable ISA to obtain foreign currency and to enable the shareholders to comply with all their obligations under the Estatutos. The Government had long delays in making its contributions to CVC and ICEL. 6. The Shareholders' Agreement provided that: Section 2.01. See Section 2.01 Loan 575-CO. Section 3.01. The shareholders shall pay all expenditures (including financial charges during the construction period) not financed by the loan or other loans in the following amounts: (a) each shareholder shall pay 10% in capital contributions; (b) EEEB shall pay 55%, and EPM 5% through bond subscriptions under conditions satisfactory to the Bank. The percentage of bonds subscription would be amended if the shareholders' participation in the use of the project would change. As indicated, EPM subscribed less shares than agreed and all the share- holders delayed their subscriptions to bonds. EEEB took EPM's share subscriptico. 5 1 - ANNEX 4 Page 4 ot 4 The purchase of shares by EPM to restore its 25% is under negotiation which is expected to end before 1979. Section 5.01. See Section 5.08 of the Loan Agreement, Loan 575-CO. Section 5.02. See Section 5.02 of Shareholders' Agreement, Loan 575-CO. February 1979 COLOMBIA INTERCONEXION ELECTRICA, S.A. Allocation of Loan Proceeds .US$ (thousands) A. Interconnection Line Project, Loan 575-CO kategory Description Appraisal Estimate Actual 1 Transmission Lines 6100 8100 2 Substations 5400 4200 3 Consulting, Lines & Substations 700 850 4 Consulting, Engineering Studies 1500 2850 5 Interests to Construction 2000 2000 6 Contingencies 2300 - TOTAL 18000 18000 B. Chivor Project, Loan 681-CO 1 Foreign Civil Works 28800 41796 2 Local Civil Works 3600 245 3 Foreign Equipment 1800 1000 4 Local Equipment 600 9 5 Engineering 700 550 6 Interest & other Financing Costs 9400 8700 7 Contingencies 7400 - TOTAL 52300 52300 May 1978 X - 53 - ANNEX .6 COLOMBIA INTERCONEXION ELECTRICA, S.A. (ISA) LOAN 575-CO ACCUMULATED DISBURSEMENTS IN THOUSAND OF US DOLLARS EQUIVALENT IBRD Fiscal year Actual Total Appraisal Actual Disbursements as and quarter Disbursement Estimate Z of appraisal estimates 1968/69 3rd 17 4th 830 3,281 25 1969/70 let 1,569 2nd 3,234 3rd 4,457 4th 4,538 10,133 45 1970/71 1st 5,866 2nd 6,165 12,991 3rd 6,872 14,420 4th 7,141 15,849 45 1971/72 1st 7,980 2nd 8,760 18,000 48 3rd 9.481 4th 9,770 54 1972/73 1st 10,690 2nd 11,020 3rd 11,832 4th 12,840 71 1973/74 1st 14,292 2nd 14,493 3rd 14,724 4th 15,040 84 1974/75 1st 15,214 2nd 15,214 3rd 15,682 4th 16,313 91 1975/76 1st 16,329 2nd 16,853 3rd 17,091 4th 17, 146 95 1976/77 1st 17,311 2nd 17,558 3rd 17,700 4th 17,800 99 1977/78 1st 18,000 100 Closinv Date 7/31/77 9/solve -54 - COLOMBIA ANNEX 7 INTERCONEXION ELECTRICA,S.A. (ISA) LOAN 681-CO ACCUMULATED DISBRUSEKENTS IN THOUSAND OF US DOLLARS EQUIVALENT IBRD Fiscal year Actual Total Appraisal Actual Disbursements as and quarter Disbursement Estimate % of appraisal estimate 1970/71 2nd 9,132 3rd 9,441 4th 9,813 7,121 138 1971/72 1st 10,785 2nd 11,920 3rd 12,809 4th 14,549 14,901 98 1972/73 1st 15,504 2nd 17,248 3rd 18,727 4th 21,995 26,536 83 1973/74 1st 25,351 2nd 28,665 3rd 30,129 4th 35,193 40,709 86 1974/75 1st 39,706 2nd 41,139 3rd 44,448 4th 50,275 50,258 100 1975/76 1st 50,987 2nd 51,226 52,300 98 3rd 51,387 4th 51,521 1976/77 1st 51,554 2nd 51,723 3rd 51,800 4th 52,000 99 1977/78 1st 52,100 2nd 52,100 3rd 52,100 4th 52,100 99.6 1978/79 let 52,110 2nd 52,120 3rd (February 28) 52,12'3 1/ 99.6 Closing Date 7/31/79 6/30/77 1/ Of the undisbursed US$177,000; about US$15,000 are expected to be disbursed before the closing date. February 1979 - 55 - ANNEX 8 COLOMBIA INTERCONEXION ELECTRICA S.A. APPRAISAL ESTIMATE OF SHAREHOLDER's FIXED EXPENSE PAYMENTS AND INVESTMENTS a/ (Col$ millions - constant values of 1968 for 1968 and- of 1969 for the following years) Total Actual (1967- 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1977) A. Fixed Payments and Investments 1. Fixed Expense Payments a. Operation & Maintenance - 1.5 4.0 8.9 10.0 12.0 13.2 14.3 26.2 59.8 66.0 215.9 b. Depreciation & Amortization - - - - 6.7 13.4 13.4 33.5 52.9 66.8 72.9 259.6 c. Interests & Dividends - - - - 11.9 24.2 23.2 22.2 71.0 206.3 206.4 565.2 Subtotal - 1.5 4. 8.s9 2-f8.6 -Z49.6 49. -s _70.0 1i50.1 332.9 345.3 1,040.7 2. Investments a. Stock 4.0 8.8 72.3 79.5 54.5 89.2 120.0 133.3 67.6 18.0 15.7 662.9 b. Bonds - - - 43.1 55.4 115.7 164.3 185.1 81.7 3.7 649.0 Subtotal 4. 0 816.8 _72.3 122.6 109.9 204.9 2i8-4.:3 1 8.4 149.3 2Y1 .7 15.3 1,311.9 Total c/ 4.0 10.3 76.3 131.5 138.5 254.5 334.1 388.4 299.4 354.6 361.0 2,3>, 6 B. Distrib. Among Shareholders 1. EEEB Fixed expense payments - 0.5 1.5 3.4 8.6 14.3 14.3 27.7 73.0 176.0 176.0 Investments 1.0 2.2 18.2 59.6 64.7 128.6 180.9 203.3 92.0 8.0 4.0 Subtotal 1.0 2.7 19.7 63.0 73.3 142.( 195.2 231.0 165.0 184.0 180.0 2. EPM Fixed expense payments - 0.5 1.2 2.7 7.5 12.9 12.9 16.0 26.5 50.1 50.1 Investments 1.0 2.2 18.1 23.4 18.1 31.8 43.5 48.5 23.6 4.8 3.9 Subtotal 1.0 2.7 19.3 26.1 25.6 44.7 56.4 64.5 50.1 54.9 54.0 3. CVC/CHIDRAL Fixed expense payments - 0.4 1.0 2.0 7.0 12.3 12.5 14.1 21.0 36.8 36.9 Investments 1.0 2.2 18.0 19.8 13.5 22.3 30.0 33.3 16.9 4.5 3.9 Subtotal 1.0 2.6 19.0 21.8 20.5 34.6 42.5 47.4 37.9 41.3 40.8 4. ICEL Fixed expense payments - 0.1 0.3 0.8 5.5 10.1 10.1 12.2 18.7 34.5 34.3 Investments 1.0 2.2 18.0 19.8 13.6 22.2 29.9 33.3 16.8 4.4 3.9 Subtotal 1.0 2.3 18.3 20.6 19.1 32.3 40.0 45.5 35.5 38.9 38.2 5. Total shareholders Fixed expense payments - 1.5 4.0 8.9 28.6 49.6 49.8 70.0 139.2 297.4 297.3 Inveatments 4.0 8.8 22.3 122.8 109.9 204.9 284.3 318.4 149.3 21.7 15.7 Subtotal 4.0 -10. 3 7-6.3 13-1.5 1f38.F5 254.5 3_34.1 388.4 _288.5 3j1 9. 1 31 3. 0 2,258.2 C. Sales of Energy at Col6/kWh - - - - - - - - 10.9 35.5 48.0 94.4 Total 4.0 10.3 76.3 131.5 138.5 254.5 334.1 388.4 299.4 354.6 361.0 2,352.6 D. Total Accounts Receivable from shareholders : a) in Col$ million - - .3 .4 .3 3.8 3.8 2.0 6.8 30.5 35.0 b) as No. of dys due - - 2 1 1 5 4 2 8 36 35 a/ 1967 and 1968 appraisal estimate figures taken from Interconnection line appraisal report. 1969-1977 figures taken from Chivor appraisal report. Chivor projected to enter'into service in 1974. b/ Self Fen-rated by Chivor I system. February 1979 - 56 - ANNEX 9 COLOMBIA INTERCONEXION ELECTRICA S.A. ACTUAL SUMMARY OF "SHAREHOLDERS' FIXED EXPENSE PAYMENTS & INVESTMENTS" (SFEP&I) (Col$ million current value) 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Total A. Fixed Payments & Invest. 1. Fixed expense payments a. Operation & Maintenance - 1.0 3.8 10.0 17.1 16.6 23.8 27.8 38.9 56.4 79.0 274.4 b. Depreciation & Amortization - - 0.2 0.5 0.7 11.4 24.2 31.5 33.4 42.7 60.4 205.0 c. Interests & Finan.charges - - - - - 22.1 36.1 37.8 -42k .47 269.1 Subtotal - 1.0 4.0 10.5 17.8 50.1 84.1 97-1 114.9 146.1 222.9 2/ 748.5 2. Investments a. Stock 4.0 20.0 40.0 100.0 40.0 200.0 200.0 193.9 413.6 292.5 176.1 1680.1 b. Bonds - - 20.8 35. 139.6 350.0 238.5 436.3 263.4 770.5 2054.3 Subtotal 4.0 20.0 40.0 120.8 75.2 339.6 350.0 432.4 849.9 555.9 -94 6.0 63734.4 Total 1/ 4.0 21.0 44.0 131.3 93.0 389.7 434.1 529.5 964.3 772.7 1169.5 4432.9 B. Distribution among Shareholders 1. EEEB Fixed expense payments - 0.4 1.6 4.1 6.9 14.3 23.2 26.9 32.3 40.1 60.7 Investments 1.0 5.0 10.0 44.7 43.1 69.2 156.7 207.1 373.0 221.4 408.5 Subtotal 1.0 5.4 11.6 48.8 50.0 79.5 178.7 232.0 405.3 266.5 Z4975 2. EPm Fixed expense payments 0.3 1.3 3.5 5.8 13.5 22.4 25.8 30. 30.8 57.5 Investments 1.0 5.0 10.0 26.2 12.3 60.5 65.5 24.8 155.3 114.1 176.4 Subtotal 1.0 5.3 11.3 29.7 18.1 30.1 86.6 48.7 186.2 156.8 379 3. CVC/CHIDRAL Fixed expense payments - 0.2 0.9 2.3 4.0 11.7 19.8 22.8 27.1 32.8 50.4 Investments 1.0 5.0 10.0 25.0 10.0 40.4 66.2 41.2 97.1 92.1 102.8 Subtotal 1.0 5.2 10.9 27.3 14.0 11.7 84.9 62.0 124.2 129.9 -153 2 4. ICEL /CHEC Fixed expense payments - 0.1 0.2 0.6 1.1 10.6 18.7 21.6 24.7 35.5 54.3 Investments 1.0 5.0 10.0 24.9 9.8 169.6 61.6 159.3 224.5 128.3 258.6 Subtotal 1.0 5.1 10.2 25.6 11.1 67.2 79.3 179.0 249.3 168.7 5. Total SFEP&I Fixed expense payments - 1.0 4.0 10.5 17.8 50.1 84.1 97.1 114.9 146 1 222 9 Investments 4.0 20.0 40.0 120.8 75.2 339.6 350.0 432.4 849.9 555.9 946.6 Total 4.0 21.0 44.0 131.3 93.0 389.7 434.1 529.5 964.8 702.0 1169.5 4482.9 6. Sales of Energy (Net) 2/ - - - - - - - - - - 14.0 14.0 C. Overall Accounts receivable firo Shereholdro (Annev 10) - £.0 15.3 5'.' 11." 1"1.2 '63.2 353.f 523.7 350.7 . T). Arrears of shareholders expressed as No. of days due - 69 126 149 47 127 221 244 198 182 203 1/ Self-generated by ISA's Chivor I system (sale less all generation costs). L/ Lxcluues Cul$336 'allion for the 1977 fixed operational costs and financial expenses of the Chivor I operation which were self-financed by the sale of its own generated power. February 1979 - 57 - COLOMBIA ANNEX 10 INTERCONEXION ELECTRICA, S.A. Joint Financing A. Interconnection Project Joint Financing (Loan 575-CO) Country Bank US$ (thousands) % (equivalent) France Credint 2096 30.8 Italy IMI 2746 40.3 Japan Eximbank 597 8.8 Switzerland U.B.S. 1365 20.1 Total 6800 100.0 Note: Credit: Credit Industriel Et Commercial - Banque Francaise Du Commerce Exterieur de Francia IMI: Instituto Mobiliare Italiano - Banca di Creditio Finanziario de Italia Eximbank: Export Import Bank of Japan UBS: Union Bank of Switzerland B. Chivor I Project Financing (Loan 681-CO) Country Bank US$ (thousands) % (equivalent) U.S.A. IDB 37005 52.1 Mexico Aceros Ecatepec S.A. 1870 2.6 Italy IMI 803 1.1 England J. Henry Schroder Wagy Ltd. 2827 4.0 England Singer & Friedlander Ltd. 13300 18.8 Colombia Electric Development Fund, Banco-de la Republica 15177 21.4 Total 70982 2/ 100.0 1/ As of November 30, 1977 (The original loan approved in May 1971 was for US$34.4 million equivalent - US$20.46 million plus F.F. 75.76 million) 2/ As of November 30, 1977 February 1979 COLOMBIA INTERCONECCION ELECTRICA S.A. LOANS 575-CO AND 681-CO PRICE DEFLATOR INDEXES FOR PROJECT COSTS LOCAL CURRENCY FOREIGN CURRENCY Blue Collar Increase Deflator Factors for: Construction Increase Deflator Factors for: I Index /1 % Interconnection Chivor I Index /2 % Interconnection Chivor I 8 100.0 1.000/3 100.0 1.000/3 6.9 5.8 9 106.9 1.035 105.8 1.029 6.7 7.3 70 114.1 1.105 1.000/3 113.5 1.097 1.000/3 11.8 8.5 71 127.5 1.205 1.059 123.1 1.183 1.043 13.8 7.0 72 145.1 1.363 1.195 131.7 1.274 1.123 22.0 5.8 73 177.0 1.611 1.412 139.4 1.356 1.194 25.2 12.4 oa 74 221.6 1.993 1.747 156.7 1.481 1.305 23.6 16.0 75 273.9 2.477 2.171 181.7 1.692 1.491 20.0 9.0 76 328.7 3.013 2.641 198.0 1.898 1.672 34.7 5.8 77 448.8 3.887 3.408 209.5 2.038 1.795 Average yearly Index for market basket consumed by blue collar workers. USA Bureau of Reclamation. Average Yearly Index for hydroconstruction. The base year is the year of the Appraisal estimate for each project. cember, 1978 INTERCONEXION ELECTRICA S.A. Interconnected Systems Energy Interchange and Chivor Generation (GWh) - Appraisal Estimate and Actual -------------------------------Appraisal Estimate----------------------------- 1971 1972 1973 1974 1975 1976 1977 A. ISA Purchases from: EEEB 83 173 262 EPM 83 173 262 CHEC/ICEL 34 177 150 CVC/CHIDRAL Total 200 523 674 -- - - B. ISA Sales to: EEEB 181 592 783 EPM CVC/CHIDRAL 200 523 674 CHEC/ICEL 17 NORD CED/CED Subtotal 200 523 674 - 181 592 800 C. CHIVOR Generation - - 181 592 800 ----------- ------------------------------Actual A. ISA Purchases from: EEEB 186 167 143 16 335 /b 296 EPM 302 625 681 379 395 241 CHEC/ICEL 97 91 96 20 4 - CVC/CHIDRAL 2 167 154 153 Total - 585 883 922 582 888 690 B. ISA Sales to: EEEB - - 104 116 268 186 623 EPH - - - - - 17AQ CVC/CHIDRAL - 556 770 742 33 256 271 CHEC/ICEL - - 9 9 43 298 396 NORD - - 55 166 77 207 CED/CED - - 72 54 77 Subtotal - 536 /c 883 922 582 888 1643 C. CHIVOR Generation - - - 953 a/ Actual energy interchanges include interchanges between shareholders not estimated in appraisal h/ Includes purchases from NORDESTE c/ Unaccountab Le cnerpy loss of 29 C!h. May 1978 COLOMBIA INTERCONEXION ELECTRICA, S.A. Appraisal Income Statement 1/ 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Energy interchanged - GWh - - - 200 523 674 - - - - Enecgy generated - GWh - - - - - - - 181 592 800 -------------------------------Col$ millions-------------------------------------- Opecating Revenues Eaergy Sales - Interconnection - - - 21.6 54.9 70.1 - - - - Eaergy Sales - Chivor - - - - - - - 10.9 35.5 48.0 Siiareholders Operating Expense Payments 1.0 4.0 8.9 28.6 49.6 49.8 70.0 139.2 297.4 297.3 Total Operating Revenues 1.0 4.0 8.9 50.2 104.5 119.9 70.0 150.1 332.9 345.3 Op(!cating Expenses Transmission Operation, maintenance & administ. 1.0 4.0 8.9 10.0 12.0 13.2 14.3 15.4 16.6 18.0 Depreciation - - - 6.7 13.4 13.4 13.4 13.4 13.4 13.4 Purchased power - - - 21.6 54.9 70.1 - - - - Sub-total Transmission 1.0 4.0 8.9 38.3 80.3 96.7 27.7 28.8 30.0 31.4 Chivor Operation, maintenance & administ. - - - - - - - 10.8 43.2 48.0 Depreciation - - - - - - - 10.7 42.7 47.6 Sub-total Chivor - - - - - - - 21.5 85.9 95.6 Total Operating Expenses 1.0 4.0 8.9 38.3 80.3 96.7 27.7 50.3 115.9 127.0 Opeiating Income - - - 11.9 24.2 23.2 42.3 99.8 217.0 218.3 Int(rests Charged to Operations - - - 11.9 24.2 23.2 22.2 67.8 196.0 192.5 Net Income - - - - - - 20.1 32.0 21.0 25.8 1/ Interconnection (Loan 575-CO) project estimates for 1968. Chivor I (Loan 681-CO) estimates for the period 1969-1977. Febriary 1979 - 61 - COLOMBIA ANNEX 14 INTERCONEXION ELECTRICA, S.A. Actual Income Statement 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Energy interchanged - GWh 556 833 922 582 888 690 Energy generated - GWh --------------------- Current Col$ (Millions)- 953 Operating Revenues Energy Sales - Interconnection 49.7 80.5 80.3 90.2 220.4 298.4 Energy Sales - Chivor 350.5 Shareholders Operating Expense Payments 1.0 4.0 10.5 17.8 50.1 84.1 97.1 114.9 146.1 222.9 Total Operating Revenues 1.0 4.0 10.5 17.8 99.8 164.6 177.4 205.1 366.5 871.8 Operating Expenses Transmission & Office Operation, Maintenance, Administration 1.0 3.8 10.0 17.1 16.6 23.8 27.8 38.9 56.4 79.0 Depreciation & Amortization /a - 0.2 0.5 0.7 11.4 Z4.2 31.5 33.4 42.7 60.4 Purchased Power - - - - 49.7 80.5 80.3 90.2 220.4 298.4 Subtotal Transmission 1.0 4.0 10.5 17.8 77.7 128.5 139.6 162.5 319.5 TITT Chivor Operation, Maintenance, Administration 15.3 Depreciation /a _SL Subtotal Chivor 104.0 Total Operating Expenses 1.0 4.0 10.5 17.8 77.7 128.5 139.6 162.5 319.5 541.8 Operating Income - - 22.1 :16.1 37.8 42.6 47.0 30.0 Interest charged to operations 22.1 .36.1 37.8 42.6 47.0 316.0 l Other Income (Expense) 0.1 0.1 0.1 0.2 1.2 1.3 4.4 3.6 9.6 6.7 Net Income 0.1 0.1 0.1 0.2 1.2 1.3 4.4 3.6 9.6 20.7 /a Depreciation based on the value of assets adjusted for the currency exchange losses derived from the foreign currency loans used to finance them, as allowed by Colombian law. /b Col$232.5 million charged to the Chivor I operation and Col$83.5 million to the transmisEion operation. February 1979 COLOMBIA INTERCONEXION ELECTRICA, S.A. Appraisal Sources and Applications of Funds /1 (Col$ millions) SOURCES 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 TOTAL X Internal Cash Generation Operating income - - - 11.9 24.2 23.2 42.3 99.8 217.0 218.3 636.7 21 Depreciation - - - 6.7 13.4 13.4 13.4 24.1 56.1 60.8 187.9 6 Gross internal cash generation - - - 18.6 37.6 36.6 55.7 123.9 273.1 279.1 824.6 27 Interest charged to operations - - - 11.9 24.2 23.2 22.2 67.8 196.0 192.5 537.8 18 Amortizations - - - 5.3 15.7 15.7 35.8 55.2 55.2 63.1 246.0, 8 Net internal cash generation - - - 1.4 (2.3) (2.3) (2.3) 0.9 21.9 23.5 40.8 1 Shareholder Investments Shares 8.8 72.3 79.5 54.5 89.2 120.0 133.3 67.6 18.0 15.7 658.9 22 Bond subscription - - 43.1 55.4 115.7 164.3 185.1 81.7 3.7 - 649.0 21 Total Shareholder Investments 8.8 72.3 122.6 109.9 204.9 284.3 318.4 149.3 21.7 15.7 1,307.9 43 External Borrowings IBRD-Interconnection 27.7 79.5 138.0 47.5 - - - - - - 292.7 19 IBRD-Chivor I - - 75.9 94.6 174.6 228.0 262.4 67.9 1.4 - 904.8 30 o Others - 37.4 63.4 43.9 45.0 95.1 167.8 58.8 3.5 - 514.9 17 ' Total Borrowings 27.7 116.9 277.3 186.0 219.6 323.1 430.2 126.7 4.9 - 1,712.4 56 TOTAL SOURCES 36.5 189.2 399.9 297.3 422.2 605.1 746.3 276.9 48.5 39.2 31061.1 100 APPLICATIONS Construction costs Transmission 39.2 163.4 238.9 69.4 - - - - - - 510.9 17 Chivor I - 20.5 135.0 186.0 364.2 511.6 605.7 142.1 10.5 - 1,975.6 64 Total Construction Costs 39.2 183.9 373.9 255.4 364.2 511.6 605.7 142.1 10.5 - 2,486.5 81 Interests during construction 1.0 5.3 25.9 35.2 44.6 80.1 127.2 118.2 0.4 - 437.9 14 Variations in working capital (3.7) 0 0.1 6.7 13.4 13.4 13.4 16.6 37.6 39.2 136.7 5 TOTAL APPLICATIONS 36.5 189.2 399.9 297.3 422.2 605.1 746.3 276.9 48.5 39.2 3,061.1 100 1/ Interconnection (Loan 575-CO) project estimates for 1968. Chivor I (Loan 681-CO) estimates for the period 1969-1977. February 1979 - 63 - COLOMBIA ANNEX 16 INTERCONEXION ELECTRICA, S.A. ACTUAL SOURCES AND APPLICATIONS OF FUNDE Col$ millions 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Total % SOURCES Operating Income - - - - 22.1 36.1 37.8 42.6 47.0 330.0 515.6 4.5 Other Income (Expense) .1 .1 .1 .2 1.2 1.3 4.4 3.6 9.6 6.7 27 3 .2 Depreciation - .2 .5 .7 11.4 23.0 31.2 33.1 42.7 145.8 291.6 2.6 Gross Internal Cash Generation .1 .3 .6 .9 34.7 60.4 73.4 79.3 99.3 485.5 834.5 7.3 Interest charged to Operations - - - - 22.1 36.1 37.8 42.6 47.0 316.0 501.6 4.4, Amortizations 8.3 19.9 24.6 26.2 42.3 54.0 134.2 309.5 2.7 Net Internal Cash Generation .1 .3 .6 (7.4) (7.3) (.3) 9.4 (5.6) (1.7) 35.3 23.4 0.2 Shareholders Investment a/ Shares 20.0 40.0 130.0 40.0 200.0 2D0.0 193.9 413.6 292.5 176.1 1676.1 14.7 Bond Subscriptions 20.8 35.2 139.6 150.0 238.5 436.3 256.4 770.5 2047.3 17.9 Shares' Placement Premiums 176.1 176.1 1.5 Total Shareholders Investment 20.0 40.0 120.8 75.2 339.6 350.0 -32.4 849.9 548.9 1122.7 3899.5 34.1 Net Borrowings- and Amortizations Amortizations - - - 8.3 19.9 24.6 26.2 42.3 54.0 134.2 309.5 2.7 IBRD 575-CO - 57.7 62.5 71.0 70.3 129.0 104.0 91.2 91.0 111.7 788.4 6.9 IBRD 681-CO 174.3 76.6 144.2 321.4 496.4 687.4 202.5 173.4 2076.2 18.2 Other loans c/ 2.4 64.9 142.3 55.4 146.7 482.2 98.9 1205.7 1259.2 3757.7 32.9 Other liabilities d/ 10.4 1.5 27.4 6.0 61.7 12.8 172.6) 12.1 31.0 90.3 0.8 Variation in current portion of term debt - - 4.9 30.3 (5.6) 3.5 16.3 10.1 7.0 332.8 479.3 .2 Total Borrowings - 70.5 308.1 355.9 290.2 686.9 1137.9 957.3 L652.3 2042.3 7501.4 65.7 Total Sources 20.1 110.8 429.5 423.7 622.5 1036.6 1579.7 1801.6 2199.5 3200.3 11424.3 100.0 APPLICATIONS Construction Program Transmission 17.5 85.8 227.7 143.8 36.0 159.7 132.5 78.4 37.4 985.0 1903.8 16.7 Chivor I 26.5 203.4 341.3 812.6 1592.2 1953.3 1083.2 52.0 6064.5 53.1 Total Construction Program 17.5 85.8 254.2 347.2 377.3 972.3 1724.7 2031.7 1120.6 1037.0 7968.3 69.8 Interest During Construction Transmission 1.8 9.8 19.2 4.0 6.4 9.8 21.1 26.3 - 98.4 0.9 Chivor I 5.0 33.5 57.2 89.9 145.9 Z80.4 150.4 - 762.3 6.7 Total Interest During Const. 1.8 14.8 52.7 61.2 96.3 155.7 301.5 176.7 860.7 7.6 Other Fixed Assets e/ .6 2.1 1.8 3.2 5.4 20.8 26.9 92.4 640.1 1176.9 1970.2 17.2 Total Fixed Assets 18.1 89.7 270.8 403.1 443.9 1089.4 1907.3 2425.6 1937.4 2213.9 10799.2 94.6 Deferred Assets f/ .3 193.7 2.5 77.8 (18.3) (64.5) (.8) 31.6 230.5 452.8 4.0 Variations in Working Capital 2.0 20.8 35.0 18.1 100.8 34.5 263.1 623.2 230.5 755.9 172.3 1.5 Total Applications 20.1 110.8 429.5 423.7 622.5 1036.0 1579.7 L801.6 2199.5 3200.3 11424.3 100.0 a/ Shareholder Investments are capital allocations charged to shareholders and do not reflect actual cash payments made to ISA. Differences between investments capitalized and'paid in cash are shown in shareholders Accounts Receivable detail (Annex 10), and are reflected in changes in working capital. b/ Foreign currency loans disbursement schedules have been converted at year-end exchange rates and figures shown are increment net of amortization payments. c/ Other loans are mainly from IDB and members of the Joint Financing facility (Annex 4). d/ Withholdingpayments to contractors plus Reserve for severance benefits. el Investments in other fixed assets are for office furniture and equipment plus San Carlos I and Chivor II projects. f/ Variations in investments for studies of future projects plus advances to contractors. February 1979 - 64 - ANNEX 17 COLOMBIA INTERCONEXION ELECTRICA, S.A. Appraisal Balance Sheets 1/ (Col $ millions) 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 M ASSETS Fixed Assets Transmission: Gross fixed assets in service 519.7 519.7 519.7 519.7 519.7 519.7 519.7 Less: Depreciation (6.7) (20.1) (33.5) (46.9) (60.3) (73.7) (87.1) Net fixed assets in service 513.0 499.6 486.2 472.8 459.4 446.0 432.6 Work in progress 40.2 185.0 438.5 Chivor Gross fixed assets in service 2133.4 2380.8 2380.8 Less: Depreciation (10.7) (53.4) (101.0) Net fixed assets in service 2122.7 2327.4 2279.8 Work in progress 20.5 166.8 376.2 785.0 1376.7 2109.6 236.5 Total Fixed Assets Gross fixed assets in service 519.7 519.7 519.7 519.7 2653.1 2900.5 2900.5 Less: Depreciation (6.7) (20.1) (33.5) (46.9) (71.0) (127.1) (188.1) Net fixed assets in service 513.0 499.6 486.2 472.8 2582.1 2773.4 2712.4 Work in progress 40.2 205.5 605.3 376.2 785.0 1376.7 2109.6 236.5 - - Total Net Fixed Assets 40.2 205.5 605.3 889.2 1284.6 1862.9 2582.4 2818.6 2773.4 2712.4 (95.2) Current Assets Cash 0.3 1.4 1.0 3.7 7.1 6.5 13.9 18.5 46.9 68.8 Accounts receivable 0.3 0.4 3.0 3.8 3.8 2.0 6.8 30.0 35.0 Inventories 2.0 2.4 3.8 13.0 27.0 34.8 42.0 24.8 26.8 Other current assets 1.6 2.0 2.2 2.4 2.6 3.0 4.0 5.0 6.0 Total Current Assets 0.3 5.3 5.8 12.7 26.3 30.9 53.7 71.3 106.7 136.6 (4.8) TOTAL ASSETS 40.5 210.8 611.1 901.9 1310.9 1902.8 2636.1 2889.9 2880.1 2849.0 (100) LIABILITIES Equity Common stock 12.8 92.3 171.8 226.3 315.5 435.5 568.8 636.4 654.4 670.1 Surplus & reserves - - - - - - 20.1 52.1 69.9 85.4 Total Equity 12.8 92.3 171.8 226.3 315.5 435.5 588.9 688.5 724.3 755.5 (26.5) Long-term Debt IBRD-Interconnection 27.7 79.5 217.5 261.5 258.0 254.5 251.0 247.5 244.0 240.5 IBRD-Chivor I - - 75.9 170.5 345.1 573.1 835.5 903.4 896.9 880.4 Shareholders bonds - - 43.1 98.5 214.2 378.5 563.6 645.3 649.0 649.0 Others - 37.4 95.5 127.2 160.0 222.8 338.9 346.0 297.8 246.1 Total Long-term Debt 27.7 116.9 432.0 657.7 977.3 1428.9 1989.0 2142.2 2087.7 2016.0 (70.8) Current Liabilities Current portion long-term debt - - 5.3 15.7 15.7 35.8 55.2 55.2 63.1 71.5 Accounts payable - 1.6 2.0 2.2 2.4 2.6 3.0 4.0 5.0 6.0 Total Current Liabilities - 1.6 7.3 17.9 18.1 38.4 58.2 59.2 68.1 77.5 (2.7) TOTAL LIABILITIES & EQUITY 40.5 210.8 611.1 901.9 1310.9 1902.8 2636.1 2889.9 2880.1 2849.0 (100) Debt/Equity Ratio b8/32 56/44 71/29 74/26 76/24 77/23 78/22 76/24 75/25 74/26 1/ Interconnection (Loan 575-CO) project cost estimates for 1968. Chivor I (Loan 681-CO) estimates for the period 1969-1977. February 1979 - 65 - ANNEX 18 COLOMBIA INTERCONEXION ELECTRICA, S.A. ACTUAL BALANCE SHEETS - -------------- - -----Coll (millions)-------------------------------------- 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 (%) ASSETS Fixed Assets la Transmission: Gross Fixed Assets in Service 526.7 590.4 683.5 737.1 1017.2 2002.2 Less: Depreciation 10.0 32.0 61.0 92.0 133.0 204.7 Let Fixed Assets in Service 526.7 558.4 62.2.5 645.1 884.2 1797.5 Work in Progress 17.5 105.1 342.6 505.6 18.9 121.3 175.5 216.4 - - Chivor I Work in Progress 31.5 268.4 666.9 1569.4 3307.5 5541.2 6774.8 6826.8 (73.5) h/ Other Generation Assets /b 20.2 45.3 134.3 768.6 1939.9 Work in Progress 2. 53 143 786 13. Other Fixed Assets /c Gross Fixed Assets in Service 0.6 2.7 4.5 7.7 13.1 13.7 15.5 18.9 24.7 30.3 Less: Depreciation - 0.2 0.7 1.4 2.8 3.8 6.0 8.1 9.8 13.4 Net Fixed Assets in Service 0.6 2.5 3.8 6.3 10.3 9.9 9.5 10.8 14.9 16.9 Total Fixed Assets 539.8 604.1 699.0 756.0 1041.9 8859.3 Gross Fixed Assets in Service 0.6 2.7 4.5 7. 12.8 35.1 67.0 756.0 104.9 291. Less: Depreciation - 0.2 0.7 1.4 12.8 35.8 67.0 100.1 142.8 291.6 Net Fixed Assets in Service 0.6 2.Y _T7 6.3 527.0 568.3 632.0 655.9 899.1 8567.7 Work in Progress 17.5 105.1 374.1 774.0 685.8 1710.9 3523.3 5891.9 7543.4 1939.9 Total Net Fixed Assets 18.1 107.6 377.9 780.3 1212.8 2279.2 4155.3 6547.8 8442.5 10507.6 (87.9) Current Assets /d Cash 0.7 12.0 9.1 17.9 24.6 11.0 13.2 20.0 79.7 80.6 Accounts Receivable - 13.7 53.7 11.9 151.2 267.6 363.1 540.4 372.1 695.8 Inventories - - - 4.2 15.1 18.5 22.2 25.2 42.8 57.8 Other Current Assets 1.5 1.2 8.5 76.1 93.5 90.7 111.2 60.7 115.6 157.9 Total Current Assets 2.2 26.9 71.3 110.1 284.4 387.8 509.7 646.3 610.2 992.2 (8.3) Other Assets /d - 0.3 194.0 196.5 274.3 256.0 191.2 190.7 222.3 452.8 (3.8) TOTAL ASSETS 20.3 134.8 643.2 1086.9 1771.5 2923.0 4856.5 7384.8 9275.0 11952.5 (100.0) LIABILITIES Equity Common Stock 20.0 60.0 160.0 200.0 400.0 600.0 793.9 1207.5 1500.0 1676.1 Surplus & Reserves /e 0.1 0.2 0.3 0.5 1.7 3.0 7.4 11.0 20.6 217.4 Total Eauitv 20.1 60.2 160.3 200.5 401.7 603.0 801.3 1218.5 1520.6 1893.5 (15.8) Long-Term Debt f/ IBRD 575-CO - 57.7 120.2 191.2 261.5 390.5 494.5 585.7 676.7 788.4 IBRD 681-CO - - 174.3 250.9 395.1 716.5 1212.9 1700.3 1902.8 2076.2 Shareholders' Bonds - - 20.8 56.0 195.6 345.6 584.1 1020.4 1276.8 2047.3 Others - 2.4 67.3 209.6 265.0 411.7 893.9 1292.8 2498.5 3757.7 Total Long-Term Debt - 60.1 382.6 07.7 1117.2 6184.3 3185.6 4599.2 6354.8 8669.6 (72.5) Current Liabilities Current Portion Long-Term Debt - - 4.9 35.2 29.6 33.1 49.4 59.5 146.5 479.3 Accounts Payable 0.2 4.1 83.5 104.2 177.7 315.6 700.6 1460.4 1193.8 819.9 Total Current Liabilities 0.2 4.1 3^.4 139.5 207.3 T4 750.0 1519.9 1340.3 1299.2 (10.9) Other Liabilities Y/ - 10.4 11.9 39.3 45.3 107.0 119.8 47.2 59.3 90.3 (0.8) TOTAL LIABILITIES 20.3 134.8 643.2 1086.9 1771.5 2923.0 4856.5 7384.8 C275.0 11q52.6 (100.0) A/ As allowed by Colombian law, fixed assets are partially revalued to accn,,nt for the revaluation of long-term debt. b/ Other Generation Assets are San Carlos and Chivor IT Projects. ci/ Other Fixed Assets are principally office furniture and equipment. d/ Other Assets are principally payments in advance of deferred expenses plus advances to contractors &/ Suplus . Reserves consiaL Of accumulated Vat Incomes from Income Statement olus premiums from sharps Marnent. f/ Long-Term Debt balances are net of current portions due and are converted to pesos at year-end exchange rates. F/ Other Liabilities consist of payment retentions to contractors plus reserves for severange pay. h/ Chivor, 1977: Gross in service 6826.8 Less Depreciation 78.5 Net in service 674S.1 February 1979 COLOMBIA INTERCONEXION ELECTRICA, S.A. SUMMARY OF ACCOUNTS RECEIVABLE FROM SHAREHOLDERS -------------------------------------Col$ (millions) 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Outstanding Accounts Receivable: EEEB Shares - 2.0 10.0 - 7.0 37.7 51.7 - - - Bonds - - - - 17.1 13.1 32.2 80.9 - 24.0 Fixed Expense Payments Ia 1.0 1.0 2.1 4.3 6.6 9.7 19.2 50.7 40.4 65.9 Energy Purchases - - - - - 0.4 2.8 13.6 2.4 83.0 Subtotal 1.0 3.0 12.1 4.3 30.7 60.9 105.9 145.2 42.8 172.9 EPM Shares - 4.0 15.3 0.8 7.0 12.5 - 58.2 - 8.4 Bonds - - - - 8.5 13.4 27.7 28.4 - 2.2 Fixed Expense Payments /a 1.0 1.3 2.3 3.3 10.2 25.0 49.7 51.8 40.9 63.1 Energy Purchases - - - - - _01 - - 2.2 2.8 Subtotal 1.0 5.3 17.6 4.1 25.7 51.0 77.4 138.4 43.1 76.5 CVC Shares - 4.0 13.3 0.2 7.0 38.6 26.4 7.3 - - Bonds - - - - - Fixed Expense Payments /a 0.9 0.2 0.2 2.4 8.7 24.3 44.2 38.3 37.5 58.2 Energy Purchases - - - - - 20.0 18.2 - 15.2 10.6 Subtotal 0.9 4.2 13.5 2.6 15.7 82.9 88.8 45.6 52.7 68.8 ICEL Shares - 2.0 10.0 0.2 7.0 - - 11.1 47.1 - Bonds - - - - 43.9 40.6 22.5 87.9 31.6 33.3 Fixed Expense Payments /a 1.1 0.7 0.4 0.7 13.2 27.6 54.0 58.6 47.2 81.3 Energy Purchases - - - - - 0.2 5.2 36.9 86.2 218.8 Subtotal 1.1 2.7 10.4 0.9 64.1 68.4 81.7 194.5 212.1 333.4 TOTAL SHAREHOLDERS Shares - 12.0 48.6 1.2 28.0 88.8 78.1 76.6 47.1 8.4 Bonds - - - - 69.5 67.1 82.4 197.2 31.6 59.5 Fixed Expense Payments /a 4.0 3.2 5.0 10.7 38.7 86.6 167.1 199.4 166.0 268.5 Energy Purchases - - - - 20.7 26.2 50.5 106.0 315.2 Total 4.0 15.2 53.6 11.9 136.2 263.2 353.8 523.7 350.7 651.6 /a Fixed expense payments include payments for administrative, operational and maintenance expenses. Depreciation is based on partially revalued assets (see footnote a/ of Annex 18). o February 1979 - 67 - ANNEX 20 COLOMBIA INTERCONEXION ELECTRICA S.A. Consultants and Contractors Interconnection Project Principal Consultants 1. Ingetec-Integral Feasibility study and supervision of transmission lines and substations of interconnection 2. Motor Columbus Tariff and sector study, 3. Samel Ingenieros Feasibility study for Guatapg-Barrancabermeja extension. 4. Integral Ltda. Future generation project study - Rio Cauca 5. Ingetec Ltda. Future generation project study - Rio Guavio 6. C.E.I. Future generation project study - Rio SaldaEa 7. Integral & Jacobs Asoc. San Carlos studies 8. Hidroestudios Harza Future generation project study - Rio Sagamoso Principal Contractors and Suppliers 1. Sade Sadelmi Trasmission line 2. Oerlikon Engineering Equipment, switching yard 3. Mitsubishi Electric Corp. Autotransformers and transformers 4. ASEA Control & telecommunications equipment 5. Brown Boveri Manheim Substation equipment 6. Balfour Beatty & Co. Guatape-Barrancabermeja transmission line 7. G.E.C. Swichgear Co. Guatape-Barrancabermeja substation equipment February 1979 - 68 - ANNEX 21 COLOMBIA INTERCONEXION ELECTRICA S. A. Consultants & Contractors CHIVOR Project Principal Consultants 1. EEEB-Ingetec Initial engineering studies 2. Motor Columbus Equipment factory inspection 3. Kennedy & Donkin " i " 4. Lloyd's Register Industrial Services " "t 5. TAISA "" Principal Contractos & Suppliers 1. Impregilo Tunnels, dam and related works 2. Murrie & Rodas Conciviles Equipment house civil works 3. Siemens Low-voltage auxiliary equipment 4. Facomec S.A. Materials supplier 5. Ingenier'a y Construcciones Power house civil works (this contract was cancelled due to undue delays and relet to Murrie & Rodas Conciviles). February 1979 l B RD 3948RJ, or bbeon Se AUGUST 1979 i 'A - COLOMBIA i 12 ELECTRIC POWER SYSTEM INTERCONEXION ELECTRICA S.A (ISA) R-o-acha SOUTH AMERICA Santa Mor ci- Barrne morwqu - ATLAN 0/ Sob alargo F óo, ATLANTIC O C EAN valedpar C a r ib b éa nCEAR S e a Yra 9 o, 1,. 0 r, 'NOR UE"R VENEZUELA C-RD5 BA ¿DE "° INTERCETKON WITH VELA O AAN N BvIco-rmang jdo1 .3 dol.lup* .11 OltlOVANTlytO*E$UotA P t~ 0UatopcYS A N, T SM Ap V PA C lF 1dMe C P k 0Calos O C E A N Quibdo C.KE 1(.11Paipa CHOICO 1.0 CASANARE RISARAL,DA sOoo CUN AMl ,A, C, A boeToE E E B N UIND1O TOLIM 0 c010 5 çv ~M E T A Nei è E C U C A HUIA ISA'S POWER FACIUITIES V ALUJPES, papay50 kM V TRA NSMISSION LINE 230 kV TR-ASMISStON LIES o Floenc aSAN CARLUS HYDROPOWER PRO.JECT 0 loenooS)UBSTATICINS y////CENTRAL SYSTEM N A R lINO C Abt Q UV ETA-ASMISS.ON LINES NORTHEAST (CEL)(OELA - - -CORELCA I RANSMISSION SYSTEM -- DEPARTMENT HOUNDARIES Mocoö POWER PLÄNT - - INTERNATIONAL HOUNDARIES RIVERS ECUADORPUTUMAYO NAP 1 MEDELLIN SYSTEM BUCARAMANGA VENEZUELA 0.t Medre.nL PE I B0T Area coVere I c by map Sn . RAVPto. Berlo de Antioqu/a sNz IfPE MEEE, LI RE) Papo OQUIBDO TUNJAO Tunja SAa RHondoo Ec4MERAL3d8 % ~ o~ CHEC SYSTEM z-pquiroo ES La Mesoe f BOGOTA SYSTEM BAGUE - C eduaF/anes irardot - -a_n,dAG \0VILLAVICENC1O T'WPRADO CAL,«A i - 4 CVC SYSTEM / COLOMBIA tENTRAL INTERCONNECTED SYSTEM -4.To ¢ LOCATION OF PLANTS & TRANSMISSION LINES Hydro plants Thermal plants 115kV transmission lines in service 115kV transmission lines under construction NEIVA 115kV transmission lines planned NI- Local substations - b.--230kV interconnection lines under construction 230kV interconnection lines planned 230kV interconntection lines under construction(ISA) -230kV interconnection lines planned(ISA) Interconnection substations (ISA) 230kv project line .. Service areas o 25 so rs 0o KILOMETERS NOVEMBER 1969 IBRD 2729 Logo de TUNJA Tol0 COLOMBIA CHIVOR HYDROELECTRIC PROJECT GENERAL LOCATION Existing road .. Project road & Existing power plant 2 Power plant under construction 0 if Pro3ect power plant Future power plant -C HOCO0N TA Project damC ... Future dam GARAGOA Project pressure tunnel and penstock Ro0 soONGUT OE = uture pressure tunnel SESQUILE 2 10kV pro3c.et transmission linec" (double circuit) SOMONDOGO -SEAD e*# 230kV project extension ALMEID* of substationDM 0 10 20 40 60 ,CHI R KILOMETERS SAN LUIS SANTA D - R ARIA UB --...i 7 ' PROJECTRL BOGOT IA CINGAZATi LA MESA PROJECI CHUZA LAGUNETARESERVOIR foodoi R ESMERVAO1IR FLEBRUARY 1q7C09D 7O
Groupe de la Banque mondiale · Project Performance Assessment Report
Colombia - Power Interconnection and Chivor Hydroelectric Projects
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Groupe de la Banque mondiale
Type de document
Project Performance Assessment Report
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Colombie
Source
Banque mondiale