Colombia - Bogota Power Distribution Project

Document of FILE COP' The World Bank FOR OFFICIAL USE ONLY Report No. 2649b-CO STAFF APPRAISAL REPORT COLOMBIA BOGOTA DISTRIBUTION PROJECT February 22, 1980 Projects Department Latin America and the Caribbean Regional Office 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.  CURRENCY EQUIVALENTS Currency Unit = Colombia Peso (Col$) Col$40.00 (12-31-78) = US$1 Col$1,000 = US$25.00 (12-31-78) WEIGHTS AND MEASURES 1 meter (m) 2 = 3.281 feet (ft) 2 1 square kilometsr (km 3 = 0.386 square mile (mi3) 1 cubic meter (m ) = 35.315 cubic feet (ft ) = 264.2 U.S. gallons (gal) = 6.290 barrels (bbl) 1 kilogram (kg) = 2.206 pounds (lb) 1 ton (t; metric; 1,000 kg) = 1,100 short toni (sh. tons) 1 kilowatt (kW) = 1,000 Watts i10 W) 6 1 Megawat (MW) = 1,000 kW (10 kW = 10 W) 1 Gigawatt (GW) = 1,000 MW (10 6kW = 10 W) I Terawatt-hour = 1,000 GWh (10 kWh) 1 kilowatt-hour (kWh) = 1,000 Watt-hours (10 Wh) 830.3 kilocalorieg (kcal) 1 Gigawatt-hour (GWh) = 1,000,000 kWh (10 kWh) 1 kilocalorie = 3.968 British thermal units (Btu) 1 kilovolt (kV) = 1.000 Volts (V) 1 Megavolt-ampere (MVA) = 1000 kVA (10 VA) I Menavolt-amDere feactive fMVAr) 1 Megavolt-ampere reactive power (Cos 0 = 0 ) GLOSSARY OF ABBREVIATIONS 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 Valle del Rio Cauca EAAB = Empresa de Acueductos y Alcantarillados de Bogota EEEB = Empresa de Energia Electrica de Bogota EMCALI = Empresas Municipales de Cali EPM = Empresas Publicas de Medellin K.f.W. = Kreditanstalt fur Wiederaufbau GDP = Gross Domestic Product IDB = Inter-American Development Bank ISA = Interconexion Electrica S.A. JNT = Junta Nacional de Tarifas de Servicios Publicos NPD = National Planning Department FISCAL YEAR = CALENDAR YEAR  FOR OFFICIAL USE ONLY COLOMBIA EMPRESA DE ENERGIA ELECTRICA DE BOGOTA BOGOTA DISTRIBUTION PROJECT TABLE OF CONTENTS Page No. THE SECTOR .................................................. 1 Enrg Resources.......................................... Energy Resources..1 Sector Organization .. 3 Regulation, Planning and Coordination . . 4 World Bank Participation in the Sector . . 6 Power Market and Supply. . . 8 Sector.. ... 8 Interconnected System. 10 Interconnected System Forecasts . .10 Demand and Energy ..10 Supply . .11 Rural Electrification ..11 Sector Investment Program and Studies . .12 Finances and Tariffs ..13 Constraints on Sector Development . .15 Attachment 1.1 - IBRD Power Loans . .16 Attachment 1.2 - 1977 Sector Nominal Capacities and Power Generation . .17 Attachment 1.3 - The National Generation Development Program 1978-1985 . .18 2. THE BORROWER ................. 19 General Description ................................. 19 Prior Bank Lending .................................. 19 Organization and Administration .19 Employment .20 Accounting and Auditing .21 Billing and Collections .21 Insurance .21 3. EEEB'S MARKET .22 Historic .22 Forecast .23 Integration of Electrificadora Cundinamarca .24 Attachment 3.1 - Historical Electricity Consumption and Supply 1973-1978 .25 Attachment 3.2 - Forecast Sales and Supply .26 This report was prepared by Messrs. John Callahan and Jose L. Vietti on the basis of an appraisal conducted in Colombia in March 1979. This report has been up-dated on the basis of the findings of two missions in September and November 1979 by Mr. Jose L. Vietti. This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS (Continued) Page _o. 4. PROGRAM AND PROJECT . ......................... .. ........... 27 Background and Objectives .... 27 EEEB's Program .......... .... ...... . . ... . 27 The Project .......... ............ ........... 28 General .......... I........... 23 Description . . .. ..................... 23 Design .... 29 Engineering .... ............ 2'1) Estimated Project Cost ..... . . . .............. I , 3() Financing 31....3 Consulting Services and Training . . .. 3l Implementation Schedule ................................. 32 Procurement ............. .... 32 Disbursements ... 32 Retroactive Financing. . . 32 Environment .... 321 Project Risks ....32 Project File .... 32 Attachment 4.1 - Cost Estimate Construction Program 1979-1985 ..33 Attachment 4.2 - Project Cost Estimate ................. 3h Attachment 4.3 - Project Implementation Schedule, Key Dates. 3 Attachment 4.4 - Loan Disbursement Schedule . . 36 5. FINANCE ..37 Summary . .37 Earnings History .......................................... 37 Rate Base .............................................. 37 Tariff Structure ..38 Financial Structure ...... ... 38 Investment and Financing Plans .39 Future Finances . .. . ..... . . 41 ECONOMIC ANALYSIS ..43 Least-Cost Solutions. 43 Return on Investment .................... I ...... 43 7 . eAtREEMENTS REACHED AND RECOMMENDATION .44 During Negotiations .44 Conditions of Effectiveness .46 Recommendation ............. . .................... 46  TABLE OF CONTENTS (Continued) PaRe No. ANNEXES 1. Forecast Performance Indicators .............. .......... 47 2. EEEB's Organization Chart (IBRD 18967) .o ............... 48 3. Finance Attachment 5.1 - Financial Indicators . ....... 49 Attachment 5.2 - Actual and Forecast Income Statement 1976-1985 ........................ . ... 50 Attachment 5.3 - Sources and Applications of Funds 1979-1985 ....... .... .. ..... o ..... o ..... 51 Attachment 5.4 - Actual and Forecast Balance Sheets 1976-1985 .. o ..... .. . . .......... .. .. 52 Attachment 5.5 - Schedule of Existing and Proposed Debto. 53 Attachment 5.6 - Forecast Loans Disbursement Statement 1979-1985 ..... ................ ...... 54 Attachment 5.7 - Forecast Debt Amortization Statement 1979-1985 ....................... o ..... 55 Attachment 5.8 - Forecast Interest Charges 1979-1985 .... 56 4. Rate of Return on 1979-1985 Program . .57 5. Contents of Project File ............. 60 MAPS IBRD 14375 IBRD 3948R3   COLOMBIA EMPRESA DE ENERGIA ELECTRICA DE BOGOTA BOGOTA DISTRIBUTION PROJECT 1. THE SECTOR Energy Resources 1.01 Colombia's main indigenous commercial energy resources are hydro- power, coal, gas and oil. Potential hydropower appears to be the most promis- ing at some 100 GW of capacity and 250-300 TWh of annual energy capability, as shown by the preliminary investigations made by the Government. Colombia is also endowed with very large coal and gas deposits. Over 1970-77 crude oil output declined at an average rate of 6.5%/a. Over the same period, consumption of petroleum products increased by 5.5%/a. As a result, Colombia is now a net importer of crude oil (it was a net exporter until 1976) and prospects are for these imports to rise sharply by the early 1980s unless additional reserves are discovered and developed quickly. Measures are being taken to deal with this problem and to develop alternative energy sources. In the case of coal, there have been various obstacles to more adequate utili- zation of the existing potential: low prices rompared with those prevailing on international markets, the competition of low-priced petroleum, fragmen- tation of production among a large number of very small mines with low output and productivity levels, and lack of efficient marketing and transport infra- structure. However, the Government is currently taking action to address these problems, and large-scale development of coal reserves is planned. With respect to natural gas, a previous decline in known reserves and output has been dramatically reversed with the discovery of large deposits in the Atlantic Coast region. These reserves (estimated at over 5 x 10 12t ') will provide energy and petrochemical feedstock to this rapidly industrializil,g region. 1.02 Production of primary energy during 1965-75 (see table next page) has not kept pace with overall economic expansion. It increased only 3.6%/a during 1965-70 when it reached its peak at 690 x 1012 Btu, and declined since then to 637 x 1012 Btu in 1977, mainly due to falling crude oil output. in contrast to the declining energy output, final energy consumption has grown by 8.9%/a during 1965-70, and 8.5%/a during 1971-73, when economic growth was high and energy prices declined sharply in real terms. During 19/4-77, the economic downturn and increase in real energy prices had a dampening effect on consumption, which now has settled at a growth of about 4.5%/a compared with a GDP growth of some 6%/a in recent years.  - 2 - ----------------Primary-Energy Output /1 ------------------- 1965 1970 1977 Heat Heat Heat Equiva- Equiva- Equiva- lent /2 lent /2 lent /2 Unit Quantity o2 Btu Quantit 1 2 Btu puantity 1o02 Btu Hydro power GWh 3,649 38.3 6,212 65.2 lf),500 120.8 Crude oil 106bbl 73.2 410.0 80.1 448.3 50.2 281.1 Natural gas 109ft3 65.7 65.7 105.0 105.0 122.0 122.3 Coal 106t 2,230 64.0 2,500 71.7 3,947 113.2 Total 578.0 690.2 637.4 ------------------Final Energy Consumption /1 ----------------- 1965 1970 1977 Heat Heat Heat Equiva- Equiva- Equiva- lent /2 lent /2 lent /2 Unit Quantity o12 Btu Quantity iol2 Btu Quantity 1o12 Btu Electricity GWh 4,790 50.3 7,538 79.1 L4.900 156.5 Petroleum Products 106bbl 23.5 131.6 33.8 189.3 48.5 271.6 Natural gas 109ft3 12.1 12.1 84.8 84.8 96.1 96.1 Coal 106t 2,700 76.9 2,100 61.6 3,647 104.6 Total 270.9 415.0 628.8 /1 The difference between primary energy output and final energy consumption, expressed in heat equivalent, constitutes the approximate sum of total losses and exports. /2 Calculated at: 11,500 Btu/kWh for power, 5.6 MBtu/bbl for oil and its products, 1 MBtu/103ft3 for gas and its products and 28.69 MBtu/t for coal and coke. 1.03 The Government's development strategy is aimed at achieving a more favorable balance between domestic energy supply and use, by utilizing more fully those energy sources which are in abundant supply, i.e., hydropower, natural gas and coal. The Government is planning a large-scale development of coal deposits by state entities in association with foreign investors. For this purpose, a new enterprise, CARBOCOL, has recently been created and has emerged as the Government's chief agency in coal-related matters. The Govern- ment attaches high priority to developing the thermal coal deposits at El Cerrejon (reserves 600 Mt and production target 10 Mt/a) near Riohacha in the department of La Guajira on the Atlantic coast under CARBOCOL's responsibility  in cooperation with foreign investment. The Government also intends to step up surveys of identified coal fields in the departments of Santander and Antioquia and to study the feasibility of using low grade coal for firing large thermal plants required in the early nineties when potential hydro sites are expected to be increasingly more costly to develop (1.25). Small private firms which own coal mines are pursuing plans to expand output in order to supply fuel for heat intensive industrial processes and in-plant power generation. In order to expand potentially viable mines, a well-coordinated Government program is needed to provide a more rational price structure, improvements in mine safety, credit facilities and support for marketing and infrastructure. Such a program would need substantial technical and capital assistance from abroad and the Bank is providing guidance to the Government in the preparation of a proposed coal engineering project. 1.04 In the hydrocarbon sector, the Government has taken action to stimu- late investment in exploration and field development, which had declined after 1971 because of low prices applied to domestic sales which were below economic value. The Government is encouraging foreign participation in exploration and development on the basis of association contracts with ECOPETROL (the Government oil agency). The prices paid for oil produced by increasing yields from existing fields and from new fields have been raised, the latter now being close to world market levels, and the discriminatory exchange rate for petro- leum has been eliminated. As a result, interest among foreign petroleum companies to expand or start operations in Colombia has been intensified and an upturn in exploration has taken place. 1.05 Plans are underway to explore the country's uranium potential and the Government has concluded an exploration contract with the French Minatome group. The development of any uranium potential that might exist would provide the country with another long-term energy option. Sector Organization 1.06 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. This process has been assisted by the gradual consolidation of isolated facilities into regional systems and the interconnection of these systems to facilitate development of Colombia's low-cost hydro resources. The main systems are (see Map 3948) the Central System, covering the interior and the Pacific coast, and the Atlantic (or Northern) system covering the northern part of the country. The proposed EEEB distribution project is located in the Central System. Also located in the Central System are the Mesitas and San Carlos I and II hydro projects for which Bank loans totalling US$282 were approved in 1978 and 1979 (Attachment 1.1). By 1982 a national grid will have been established with the completion of a 500-kV line interconnect- ing the Atlantic and the Central systems, for which a Bank loan of MUS$50 (1583-CO) was approved in 1978. 1.07 Public electricity services are presently provided by: (a) municipally-owned companies, independent of the Central Government, of which the largest are Empresa de Energia Electrica de Bogota (EEEB), Empresas Publicas de Medelliti (EPM), and Empresas Municipales de Cali (EMCALI);  - 4 - (b) national enterprises such as Instituto Colombiano de Energia Electrica (ICEL), the Corporacion Autonoma Regional deL Cauca (CVC), and the Corporacion Electrica de la Costa Atlanticsa (CORELCA); (c) a large number of local subsidiaries of ICEL, CORELCA Arid CVC 1/; and (d) a generating and transmission company, Interconnexion Electrica S.A. (ISA), the shareholders of which are EEEB, EPM, CVC, ICEL and CORELCA. 1.08 Colombia has a number of public entities knownl as Regional Autonomouis Corporations with a range of functions related to development of the regions under their jurisdiction, including legal capacity to generate, transmit and distribute electricity. CVC is the largest of these entities. The tlinistry of Mines and Energy owns part of the sector directly through ICEL and CORELCA. EEEB and EPM, presently the largest utilities, are controlled by autonomous municipal governments. CVC reports to the National PlanninTg Departmnenlt as do some other regional development corporations. ISA was established in 1967 to provide a rational framework for sector development by interconnecting the systems of its shareholders, thus creating a national grid capable of sustaining large hydroelectric developments. By pooling their financial resources through ISA, its shareholders have been able to undertake miuch larger and more economical projects than would have been feasible tinder the previous arrangements for independent growth. ISA's shareholders, and their holdings as of December 31, 1978, are: Utility Shares EEEB 4,876 25.0 EPM 4,875 25.0 CVC 3,826 19.6 CHIDRAL /1 74 0.4 ICEL 2,852 14.6 CHEC /2 75 0.4 CORELCA 2,922 15.0 19,500 100.0 /1 Central Hidroelectrica del Rio Anchicaya, a CVC subsidiary. /2 Central Hidroelectrica de Caldas, an ICEL subsidiary. Regulation, Planning and Coordination 1.09 The Ministry of Mines and Energy is charged with formulating a national policy for the generation, transmission and distribution of electri- city although it shares responsibility with the NPD in defining investment 1/ In most cases, the ownership of these subsidiaries is shared with local governments.  - 5 - priorities. The Ministry discharges its functions through its Electric Energy Division and was also given the responsibility for coordinating and supervising power sector planning. This division is small and does not have the powers assigned to similar agencies in other countries (issuance of licenses, regulation of tariffs, approval of expansion programs) to enforce its policies and programs. Public utility retail tariffs (including those for electricity) are regulated by the Junta Nacional de Tarifas de Servicios Publicos in the NPD, which has customarily approved requests for rate increases. However, utilities are free to set tariffs at levels lower than those approved by the JNT and have done so in the past. EEEB (as decided by the Municipal Council) has been doing so during the past one and one half years by not applying the allowed maximum monthly rate increases to consumers using less than 300 kWh/m (5.05). Although the Government cannot enforce its policies directly on the municipally controlled power companies, a mechanism for reaching agreement on major issues affecting the sector is provided by ISA, in which the Government has a major although not controlling interest. 1.10 Sector planning and coordination have improved markedly, as illus- trated by the following: (a) In line with its recently revised bylaws, ISA defines the generation and transmission expansion program for the inter- connected system. On the basis of studies carried out by it and its shareholders, ISA executes simulation studies and ranks plant in order of economic merit. After approval by its Board and NPD, this becomes the national expansion program. As specified in these bylaws, all plants requiring a joint effort of all its shareholders are constructed, owned and operated by ISA. Plants of regional interest may be built by one or several shareholders, subject to ISA's approval of such regional plants. Under these arrangements, ISA is, in effect, responsible for an important part of sector regulation and planning; only a small number of utilities which do not participate directly in ISA and the national enterprises, other than CVC, are not covered by its decisions. Voting arrangements in ISA have been restructured to require the concurrence of Eour of its five major shareholders in all important decisions, thus protecting the interests of the municipal utilities and encouraging a positive participation in its deliberations; (b) As part of the San Carlos I loan, ISA and its shareholders agreed to prepare and present to the Government and the Bank for comments by December 31, 1979, a Power Sector Development Master Plan. This plan is to cover the period 1980-1990 in detail and 1991-2000 in general terms and consolidate the programs for generation and transmission expansion. Similarly, ISA's shareholders undertook, under the coordination of the Ministry of Mines and Energy, to prepare and present, as part of ISA's Master Plan, to the Government and the Bank for comments by December 31, 1979, a 1980-2000 Sector Development Master Plan for Distribution consolidating all existing  - 6 - and future programs for distribution and covering the period 1980-1985 in detail. 1/ Overall, the Master Plan is expected to provide a valuable framework for long-range decisions on sector- financing, pricing and rural electrification which have in the past been based on partial and uncoordinated information. With respect to generation, the Master Plan will be based partly on an ongoing sector study which is expected to be submitted to the Bank for comments by early 1980, and for which assistance was obtained from the Federal Republic of Germany. The first part of this study, which has been completed, concentrated on sector institu- tions and financing. The second part, which is being carried out with assistance from ISA, will comprise a comprehensive survey of the country's hydro resources; (c) As agreed under the San Carlos I loan, a tariff study based on marginal costing is underway covering the most important supply areas in the country. With Bank guidance, this study is being carried out through a committee in which experts from the Government, ISA and its shareholders participate; and (d) Also under the aegis of San Carlos I, a study is being executed by consultants to assess the extent and causes of losses in the main power systems down to the level of distribution with the objective of identifying and carrying out actions which would minimize such losses. World Bank Participation in the Sector 1.11 Since 1950, the Bank has made 22 loans to Colombia's power sector, totalling US$682 million (Attachment 1.1). In addition, the Bank is currently supporting rural electrification under the integrated Rural Development Project (1352-CO, 1977). A report of the Bank's Operations Evaluation Department (OED) on the "Third Power Expansion Program Loan 537-CO" (Report No. 536, June 29, 1977) concluded that the objectives of the 1968 (MUS$18) loan to EEEB for expansion of its generating capacity (by 200 MW) and trans- mission, subtransmission and distribution systems had been met, despite some delays and a 12% cost overrun. A previous OED report, "Third Medellin Power Project - Loan 369-CO" (Report No. 450, May 24, 1974) concluded that the project had been very well executed despite considerable geological difficul- ties; although EPM's tariff levels were adequate to generate sufficient funds, 1/ The completion of this study has been delayed. No Government action has been taken to coordinate the study and no information has reached the Bank from ICEL and CVC as to study progress. CORELCA and EPM expect to have their reports available for review by early 1980. EEEB will have the study executed by the same consultants to be engaged under the proposed loan and it would not be completed before mid 1980 (4.09).  -7- anticipated revenues did not fully materialize because of power losses in the distribution system, a problem which has since been rectified. The most recent projects, evaluated by OED in a single audit, pertain to ISA (Power Interconnection Project, Loan 575-CO and Chivor Hydroelectric Project, Loan 681-CO). The audit report concludes that the projects underwent engineering, physical, financial and institutional difficulties. The estimation of oper- ational and investment requirements for an institution so financially dependent as ISA, without provisions for price contingencies in an inflationary environ- ment led to severe financial difficulties. The shareholders had to redefine their role in the sector and, in the process, execution of the projects was delayed. The experience gained under these projects has had a considerable impact on the shaping of Bank policy for further lending for San Carlos I. Adequate provisions for price contingencies have been introduced; local financing is being secured through long-term financial commitments of the shareholders to ISA; improved financial planning was instituted by ISA and its shareholders as well as continuous monitoring of their financial performance. Overall bank operations in the sector have also been reviewed in two OED reports 1/ which concluded that the Bank's financing had been successful in assisting the power companies to develop hydroelectric plants at lower unit cost than they otherwise would have been able to do. This permitted greater urban coverage as well as cheaper and more reliable electricity supply to industry. OED also commended Bank efforts in the establishment of the central interconnected system which facilitated further power sector development. In addition, OED identified as important considerations for possible future loans in the Colombian power sector: the need to give greater attention to power distribution; the need for improvement of financial recording and financial planning capabilities; and the need to give more attention to public utility tariff structures. 1.12 The first OED recommendation (distribution) was addressed in Loan 874-CO (EPM, 1973) which included expansion of electricity distribution in low income areas. However, between 1973 and 1978 Bank objectives could not be pursued through lending because of institutional difficulties. The municipal utilities were reluctant to relinquish their independent role in generation and also experienced severe financial constraints (because of the Government's reluctance to press for rate increases under inflationary condi- tions) which reduced the availability of funds to ISA. Decisions on system expansion required protracted negotiations among the shareholders and the Government; those negotiations were further complicated by the original 1/ "Operations Evaluation Report: Electric Power " (Report No. Z-17, dated March 10, 1972) and "Bank Operations in Colombia - An Evaluation" (Report No. Z-18, dated May 25, 1972).  - 8 - shareholders' reluctance to allow the incorporation of CORELCA into ISA. Throughout these negotiations, the Bank continued to support the concept of centralized planning, construction and operation of the national grid and resisted proposals that would weaken ISA. Because of the time required by the shareholders to arrive at decisions on these fundamental issues, Bank consider- ation of San Carlos I, the 500-kV Interconnection and EEEB's Mesitas hydro- electric project, all of them urgently needed to avoid power rationing in Colombia, suffered considerable delays. A solution finally evolved after extensive discussions between the Bank, the Government and the shareholders, and the four loans made in 1978 and 1979 served as a vehicle for addressing again the various OED recommendations. 1.13 The developments in the sector indicate the possibility that through further lending, the Bank's objectives in the sector can be more fully realized in the medium term. They are in general: coordinated sector planning, efficient organization and operation, and sound financial management; within the general scope of these objectives specific attention in the short term should be given to: least-cost operations, rational urban and rural distribution developments, improvement in financial record- ing and financial planning capabilities and development of adequate tariff structures and levels based on common concepts throughout the country. Power Market and Supply 1.14 Sector. Electricity generation in Colombia increased by an average of 9.5%/a over the period 1960-70 and then slowed to about 9% on average until the end of 1977 1/ due to the slackening in industrial growth after 1974 (industrial consumption decreased to 7.2%/a compared with 9.5%/a during the sixties). Present annual per capita electricity generation is estimated at about 610 kWh, which is below the average for Latin America. Installed capacity at the end of 1977 was 3,765 MW, including self-production. Hydro stations accounted for 68% of total energy generation. 1.15 Colombia has about 2.2 million electricity subscribers with an average of 7 beneficiaries per subscriber in an estimated total population of 25.2 million; 88% of these subscribers are residential, and electricity service reaches 62% of the population. Studies by the Bank's Development Policy Staff indicate that Colombia has been able to provide electricity service to a very high proportion of its urban population (with the connection rate exceeding 90% in the larger cities). However, only 36% of the families in small towns (500-2,500 inhabitants) and 16% of other rural families had service in 1976. Of the electrified municipalities, about 90% have continuous service, while the remaining have service only during certain hours of the day. In many towns the quality of the service is unsatisfactory because of lack of maintenance. 1.16 Residential consumers were responsible for the largest share of electricity sales by the major utilities in 1977, followed by industry: I/ On the basis of unadjusted figures for 1977, which was a dry year causing considerable power curtailments (3.02).  -9 - Salesv Client /2 Category GWh XN. Residential 4,803 42.3 1,912,556 87.6 Industrial 3,706 32.7 27,687 1.3 Commercial 1,545 13.6 218,954 10.0 Others 1,289 11.4 24,002 1.1 Total 11,343 100.0 2,183,209 100.0 /1 Source: ISA J2 Source: ICEL 1.17 Public utilities accounted for 93% of total electricity supply; the rest was provided by self-production. EEEB generated 24%, EPM 22%, CORELCA 14%, CVC and ICEL 13% each, and ISA 7% of total supply. Self-suppliers (mainly oil refineries, petro-chemical plants, steel mills and cement works) owned 5.7% of the country's installed capacity; these plants are also connected to the public electricity service. The public-service labor force totalled 13,445 at the end of 1977, including 6,690 manual workers; this gives ratios of 262 kW/employee and 162 subscribers/employee, which compare favorably with the average for Latin America. The following table summarizes (Attachment 1.2) installed capacity and energy generated in Colombia in 1977: Public Service Self-Producers Total MW % GWh % MW 7 % GWh % MW % GWh % Hydro, Subtotal 2,715 72 10,317 68 20 1 88 - 2,735 73 10,405 68 Steam 528 2,684 17 132 3 698 5 660 17 3,382 22 Gas turbine 266 1,041 7 39 1 188 1 305 8 1,229 8 Diesel 43 167 1 22 1 96 1 65 2 263 2 Thermal, Subtotal 837 22 3,892 25 193 5 982 7 1,030 27 4,874 32 Total 3,552 94 14,209 93 213 6 1,070 7 3,765 100 15,279 100 1.18 In 1977 electricity requirements in Colombia totalled about 15,000 GWh. Of this, the Central Market system (serving the Pacific Coast and the interior), through the main utilities ISA, EEEB, EPM, EMCALI and various subsidiaries of CVC and ICEL, accounted for about 78%; the Atlantic Coast System (CORELCA and subsidiaries) about 14%; and the local producers about 8%.  - 10 - 1.19 Interconnected System. The 1972-1977 market statistics for ISA's shareholders, are summarized as follows: Average Annual Growth 1972 1977 % Gross Generation (GWh) 9,380 14,208 8.7 Maximum Demand (MW) 1,810 2,737 8.6 Total Sales (GWh) 7,600 11,343 8.3 of which consumption percentages: Residential 39% 42% 10.0 Commercial 12% 14% 10.4 Industrial 35% 33% 7.1 Others 14% 11% 4.2 Losses % /1 19.0 20.0 /1 Includes station use, transmission and distribution losses, and theft. During 1972-1977 gross production of electricity increased at an annual average rate (adjusted for about 10% rationing due to hydrological conditions in 1976-77) of about 9.6% compared with a GNP growth rate of 6%. Growth of sales, which averaged 9.5%/a, varied from 7.2%/a for the EPM system to 11% for EEEB's system. Apart from an upward trend in the share of residential consumption, the pattern of supply and demand has not changed materially: the share of each system in the market has hardly varied. Commerce and industry together had Lhe same share in 1977 as in 1972. The main change is the increase of the share of residential consumption by 3 percentage points while "Others" declined by 3 percentage points. EEEB's historical growth is shown in paragraph 3.03. Interconnected System Forecasts 1.20 Demand and Energy. Projected demand and energy requirements are based on the analysis of ISA and its shareholders of past consumption and on a study of the correlation between power sector growth and growth of GNP. Gross energy requirements in the interconnected system are expected to increase at an average annual rate of about 10.6% during the years 1977-1985.  - 11 - Coincident Year EEEB /1 EPM CVC ICEL CORELCA Total /2 Maximum Demand ---------------------(GWh)------------------------- (MW) 1977 /3 3,965 3,196 2,030 2,627 2,190 14,208 2,737 1978 4,262 3,819 2,367 3,665 2,431 16,544 3,182 1980 5,181 4,467 2,812 4,805 3,262 20,527 3,925 1983 6,924 5,733 3,600 6,167 5,010 27,434 5,182 1985 8,407 6,684 4,246- 7,337 6,222 32,896 6,246 /I Total area system, including Cundinamarca. /2 Excluding losses in ISA's system. /3 Actual; for growth rate calculations the 1977 total should be adjusted by about 5% to reflect requirements not met during the year. 1.21 Supply. In order to meet forecast requirements for the national interconnected system, an additional 4,766 MW is planned to be added by 1985 to the existing 1977 capacity of 3,552 MW. Details of the generation expansion program are shown in Attachment 1.3. The 1977-1985 balances for energy and capacity for the sector are summarized below: 1977 1980 1983 1985 Requirements Maximum demand (MW) 2,737 3,925 5,182 6,246 Gross generation (TWh) 14.2 20.8 28.2 33.8 % Hydro 73 70 72 73 % Thermal 27 30 28 27 Effective Capacities (MW) 3,522 3,803 6,873 7,994 % Hydro 76 71 77 77 % Thermal 24 29 23 23 Because of the large percentage of hydro capacity in the system, total effective capacity could be reduced by as much as 20% during dry years. Because of delays in plant construction, this could result in load shedding during times of peak demand up to 1983, should the years be extremely dry. Rural Electrification 1.22 About 36% of the population lives in areas classified as rural. Although most of the rural villages with electricity service are close to the urban centers, connection density is modest (1.15). It is estimated that the present cost of a rural electrification network, for the country as a whole, would be about US$800 per household; assuming that, over a period of six years, electricity could be brought to about 20% of the rural population presently without service (about 40,000 dwellings a year), the cost would be  - 12 - some MUS$200. The lack of comprehensive data with respect to ongoing and expected rural electrification efforts is expected to be remedied through preparation of the Master Plan (1.10). 1.23 Rural electrification programs are currently underway in a number of regions in the country. Among the most important are: (a) the electrification subproject of the 1977-79 Integrated Rural Development Program supported by IDB, Canadian International Development Agency and Bank financing (Loan 1352-CO); (b) the electrification program in the department of Choco financed by the Netherlands Government; and (c) the electrification program in the coffee-growing areas, financed by coffee sector resources. Sector Investment Program and Studies 1.24 The total 1978-1985 investment program of ISA and its shareholders (except for ICEL's subsidiaries for which reliable information is not available), excluding interest during construction, amounts to about Col$340 billion in current prices (about US$4.2 billion in mid-1979 prices), with a foreign compon- ent of about 60%. Of the total, 65% pertains to ISA, 1/ 16% to EEEB, 9% to CORELCA, 7% to EPM and 3% to CVC. Taking into account that the shareholders' portion of the program also includes considerable investments in generation and transmission, some 70-75% of total investments would pertain to generation, which is extremely high (a range of some 40-60% would be the norm). Because the new generating capacity would be of little use without a network path to the consumers, upward adjustments in investments for subtransmission and distribution can be expected and it is therefore probable that the estimated cost of Col$340 billion is understated. The master plan for power develop- ment to be prepared by ISA and its shareholders (1.10) is expected to provide a basis for firmer total investment estimates. ISA is now regularly updating its study of economic ranking of projects which indicates that the 1984-88 portion of this program, on which decisions still have to be taken (the program up to 1984 is being executed), would be the least-cost alternative for system expansion. 1/ EEEB has informed the Bank that it requested ISA's Board to allow the entity to construct the Guavio hydro plant (first phase 1,000 MW). ICEL similarly has requested to construct Betania (500 MW). In view of the important sector policy issues involved, the Bank has communicated to the Government its concern that decisions on ownership, construction responsibilities, and operational responsibilities in the interconnected system be taken in the national interest. This matter is currently under discussion between the Bank and the government.  - 13 - 1.25 The introduction of large thermal plant later in the century is ex- pected to play an important role in ISA's planning for the sector in the next few years (lead time for mine development and power station construction may aggregate some 10 years). Even the large hydro potential of some 100 GW (1.01) would be completely utilized by about year 2020 and the use of the country's large coal reserves for firing of thermal plant may become more economic than hydro well before that time. The Government is aware of this problem 1/ and the Bank (through preparation of proposed coal development) together with the Government agencies involved, is addressing it. It is expected that the Government, without abandoning the-objective of appraising all of the country's potential coal fields will focus on surveying and studying two areas: Tasajero in North Santander and Bolombolo in Antioquia. The use of coal for thermal plant firing and the substitution of coal for oil would be the primary objec- tives. It is anticipated that preliminary surveys and project preparation for a full study will warrant financial assistance in about a year. 1.26 The generation investment program will impose a heavy financial burden on ISA and its shareholders. To ensure that only sound projects are undertaken, assurances have been obtained under the San Carlos loans that ISA and its shareholders would not undertake construction of any generating plant or combination of plants of more than 200 MW (ISA) and 100 MW (shareholders) capacity prior to completion of San Carlos unless satisfactory evidence has been presented to the Bank that it is economically justified and that adequate financing is available to carry it out without jeopardizing the project. Finances and Tariffs 1.27 Except for EEEB and EPM, which have histories of adequate cash generation, the power sector has relied heavily on borrowings and budgetary contributions to finance its investments. EEEB and EPM operate low-cost systems and cover the most affluent markets in the country; they have, therefore, been able to finance their investments with an appropriate balance of borrowings and cash generation while charging relatively low rates. Because there has been no mechanism to obtain financial transfers within the sector from the more affluent areas to the less affluent, CVC, ICEL and CORELCA, which operate high- cost systems in lower income areas than EEEB and EPM, have had to rely on budgetary contributions from the Government and subsidies. In recent years, however, the opportunity of sharing in relatively low-cost investments through ISA has provided an indirect transfer mechanism. 1/ Disponibilidad de capacidad hidroelectrica y su influencia en la generacion termica en el futuro (Departamento Nacional de Planeacion, Noviembre 1978).  - 14 - 1.28 Over most of 1971-1976 rate adjustments have lagged considerably behind yearly inflation; for 1971-1977 the developments were the following: Average rates Average Average rates at 1970 at current prices infla Yon constant prices Year Col$/kWh %change x_-__ Col$/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 0.153 1974 0.277 14.2 25.0 0.143 1975 0.355 28.2 23.6 0.148 1976 0.423 19.2 20.0 0.147 1977 0.665 57.2 29.0 0.179 /1 On the basis of the consumer price index. The positive trend in rate setting which began in 1977 is expected to continue as a result of the agreements reached under the Mesitas and San Carlos I and II loans. In view of the importance to economic growth of adequate electricity service, the Government has adopted a policy calling for adequate rates in order to ensure that the sector generates internally a reasonable portion of the funds required. 1.29 In view of the considerable imbalances that exist in the structure of tariffs and rates in the power sector (5.05) the Government and ISA's shareholders are executing under San Carlos I (Loan 1582-CO) a country-wide tariff study with a view toward assessing the cost of supply to each consumer category. EEEB had agreed under the Mesitas Loan to prepare a program by October 1, 1979, and to introduce gradually revised tariff structures and rates in accordance with the above objective (with the exception that the revised tariff structure would take into account the government's social welfare policies with respect to the lowest- income consumers) and the tariff study findings, between April 1980 and June 1982. Since the country-wide tariff study, orginally scheduled for completion in December 1978, is delayed (ISA has recently requested a second postponement, for the completion of the study to June 30, 1980, and for receLpt in the Bank of the Government comments thereon, to September 30, 1980) the date for EEEB's preparing a program satisfactory to the Bank would also be delayed. The program, is to be prepared by April 30, 1980 and put into effect June 30, 1980. In the event that EEEB would be unable to meet the agreed schedule because of the delays related to the country-wide tariff study, an interim program of adjustments satisfactory to the Bank will be implemented by EEEB beginning June 30, 1980. The delay in completing the countrywide tariff study is due to the fact that the execution of the study has been divided among numerous entities and some have been unable to meet the previously-agreed deadlines. EEEB interim program will further the abovementioned objective, bringing the average residential tariff to parity with the average industrial tariff over a period ending no later than October 1, 1982. However, at such  - 15 - time as the above tariff study should become available, the interim program will be superseded by one conforming to the requirements and objectives set forth in Section 5.09 and related supplementary letter of the Loan Agreement. Constraints on Sector Development 1.30 In the past, the large number of entities associated with the power sector, the lack of adequate regulation, coordination and planning at the national level and low electricity rates constrained the sector's ability to make rational use of Colombia's abundant hydroelectric resources. The regionalized nature of the sector, reflecting the political and economic decentralization of Colombia, precluded technical cooperation and engendered difficulties in coordinating investment allocation; decisions were made on a local basis without due regard to overall country planning for power develop- ment. This situation, together with the lack of funds, resulted in recurring power shortages, a problem that will not be solved before well into the early eighties, and then only if the agreed development program is implemented expeditiously (the latter in turn, being largely dependent on adequate rate setting). To date, the sector's organization has precluded the usual practice of diverting resources within the sector from well-developed urban markets to support service in rural areas (1.27), except indirectly by investments of the shareholders in ISA's generating and transmission plant, which may provide supply to these areas. 1.31 The Government has recently taken a number of positive measures to address the sector's institutional constraints. In 1975, it eliminated the jurisdictional overlap between ICEL and CORELCA on the Atlantic Coast by transferring control over the electricity distribution companies in that region to CORELCA. Another positive measure was the reorientation of ICEL, which, in the future will be responsible basically for electricity development in rural and semi-rural areas, where the Government will continue to subsidize the service since ICEL cannot be financially self-supporting in those areas. In order to remedy the problems that exist between the generating and distri- buting companies in the Cauca Valley, as a consequence of the complex organi- zation of electricity service in that region, the Government has supported the establishment of a regional power company whose basic function would be to consolidate that region's electricity sector in a single enterprise. With the addition of CORELCA as an ISA shareholder, most of the sector is represented directly or indirectly in ISA's Board and coordination of power sector planning in Colombia has improved. ISA's effectiveness in maintaining this coordination, however, will depend on its ability to sustain the consensus developed over the past two years among its shareholders.  - 16 - Attachment 1.1 COLOMBIA EMPRESA DE ENERGIA ELECTRICA DE BOGOTA BOGOTA DISTRIBUTION PROJECT IBRD Power Loans Borrowers and Year of Loan Amount Loan No. Agreement Project Description (MUS$) GOVERNMENT 1583-CO 1978 500-kV Interconnection (Central System/Atlantic 50.00 System) ISA 575-CO 1968 Central System Interconnection (230 kV trans- 18.00 mission lines and substations) 681-Co 1970 Chivor I project (4 x 125 MW hydro) 52.30 1582-CO 1978 San Carlos I (4 x 155 MW hydro) 126.00 1725-CO 1979 San Carlos II (4 x 155 MW hydro) 72.00 EEEB 246-CO 1960 Laguneta unit 4 (1 x 18.0 MW hydro) 17.60 Salto II units 1 and 2 (2 x 33.0 MW hydro) Zipaquira unit 1 (I x 33.0 HW thermal) 313-CO 1962 Zipaquira unit 2 (1 x 37.5 MW thermal) 50.00 El Colegio units 1, 2, and 3 (3 x 50.0 MW hydro) 537-CO 1968 El Colegio units 4, 5, and 6 (3 x 50.0 MW hydro) 18.00 Canoas project (1 x 50.0 MW hydro) 1628-CO 1978 Mesitas Hydro (El Paraiso 3 x 90 MW; La Guaca 84.00 3 x 110 MW; pumping 3 x 10 MHP: Sesquile dam strengthening) EPM 225-CO 1959 Troneras unit 1 (1 x 18.0 MW hydro) 12.00 Guadalupe III units 1 and 2 (2 x 45.0 MW hydro) 282-CO 1961 Troneras unit 2 (1 x 18.0 MW hydro) 22.00 Guadalupe III units 3, 4, and 5 (3 X 45.0 MW hydro) 369-CO 1964 Guatape I units 1 and 2 (2 x 66.0 MW hydro)l- 45.00 874-CO 1973 Guatape II units 1, 2, 3, and 4 (4 x 70 MW hydro) 56.00 CVC/CHIDRAL 38-CO 1950 Anchicaya units 1 and 2 (2 x 12.0 MW hydro) 3.53 113-CO 1955 Anchicaya unit 3 (1 x 20.0 MW hydro) 4.50 Yumbo unit 1 (1 x 10.0 MW thermal) 215-CO 1958 Yumbo unit 2 (1 x 10.0 MW thermal) 2.80 255-CO 1960 Yumbo unit 3 (1 x 33.0 MW thermal) 25.00 Calima units 1 and 2 (2 x 30.0 MW hydro) 339-CO 1963 Calima units 3 and 4 (2 x 30.0 MW hydro) 8.80 CHEC 39-CO 1950 La Insula units 1 and 2 (2 x 10.0 MW hydro) 2.60 217-CO 1959 La Esmeralda units 1 and 2 (2 x 13.3 MW hydro) 4.60 LEBRIJA 54-Co 1951 Palmas units 1 and 2 (2 x 4.4 MW hydro) 2.40 ELECTRIBOL 347-CO 1963 Cospique units 2 and 3 (2 x 12.5 MW thermal) 5.00 Total Loan Amount 682.13 1/ Subsequently increased to 4 x 70 MW. February 11, 1980  - 17 - COLONBIA Attachment 1.2 EMPRESA DE ENERGIA ELECTRICA DE BOGOTA BOGOTA DISTRIBUTION PROJECT 1977 Sector Nominal . Capacities and Power Generation Capacity (MW) Generation (GWh) Hydro Thermal Total % Hydro Thermal Total % 1. Public Service 2,715 837 3,552 94.3 10,31? 3,892 14,209 93.0 EEEB 583 136 719 19.1 2,890 738 3,6,28 23.8 EPM 729 - 729 19.3 3,418 - 3,4i8 22.4 CVC-CHIDRAL 540 58 598 15.9 1,758 155 1,913 12.3 ICEL-CHEC 363 203 566 15.0 1,243 809 2,052 13.4 CORELCA - 440 440 11.7 - 2,190 2,190 14.3 ISA 500 - 500 13.3 1,008 - 1,008 6.6 2. Self-Producers 20 193 213 5.7 88 982 1,070 7.0 Ecopetrol - 55 55 1.5 - 289 289 1.9 Paz del Rio - 20 20 0.5 - 105 105 0.7 Monomeros - 12 12 0.3 - 63 63 0.4 Others 20 106 126 3.4 88 525 613 4.0 3. Total 2,735 1,030 3,735 100.0 10,405 4,874 15,279 100.0 Percentage 72.6 27.4 100.0 68.6 31.9 100.0 Breakdown of Thermal Capacity and Generation Capacity (MW) Generation (GWh) Public Self- Public Self- Service Producers Total % Service Producers Total % Steam 528 132 660 64.1 2,684 698 3,382 69.4 Gas turbine 266 39 305 29.6 1,041 188 1,229 25.2 Diesel 43 22 65 6.3 167 96 263 5.4 Total 837 193 1,030 100.0 3,892 982 4,874 100.0 Percentage 81.3 18.7 100.0 79.9 20.1 100.0 Source: ISA August 9, 1979  Attachment 1.3 - 18 - COLOMBIA EMPRESA DE ENERGIA ELECTRICA DE BOGOTA BOGOTA DISTRIBUTION PROJECT THE NATIONAL GENERATION DEVELOPMENT PROGRAM 1978 - 1985 Yeat of Commissioning Entity Location Type/l C,aictty_(MW) 1. Under Construction/2 1978 ICEL Barranca III S 66 CORELCA Ballenas CT 32 EPM Guatape II H 284 1979 ICEL Insula (extension) H 12 1980 CORELCA Barranquilla IIi/IV S 132 ISA Chivor II H 500 1981 CORELCA Cartagena III S 66 ISA Zipaquira (Termozipa) IV S 66 ICEL Paipa III S 66 1982 EEEB Mesitas (Loan 1628--CO) H 600 EPM Ayura H 19 ISA San Carlos i (Loza l2CO, 1983 ISA Jaguas H 170 2,633 2. New Projects/3 1982 EPM Troneras (expansion) H 26 1983 EPM Guadelupe I (renewal) H 100 CORELCA Cerrejon I S 150 ISA San Carlos II H 620 ISA Calderas H 15 1984 CVC Salvajina 1H 180 EPM Guadalupe IV H 260 1985 ICEL Tasajero S 132 CORELCA Cerrejon II S 150 ISA /4 Betania H 500 2,133 /1 Plant types: H-Hydro; CT-Gas Turbine; S-Steam. /2 Excludes several diversion works for increasing generition. /3 Feasibility study coTirpleted. fiX See footnote 1/ page 12. December 26, 1979  - 19 - 2. THE BORROWER General Description 2.01 The proposed borrower, Empresa de Energia Electrica de Bogota (EEEB), is an autonomous company owned by the Municipality of the Special District of Bogota. It was established by private Colombian interests and has operated the city's electric service for the past 79 years, since 1951 under municipal ownership. It has an installed capacity of 719 MW, 582 MW of which is hydro and the balance coal-fired thermal. It served about 500,000 subscribers at the beginning of 1979. Prior Bank Lending 2.02 The Bank has made four loans totalling MUS$169.6 to EEEB: 246-CO in January 1960, 313-CO in May 1962, 537-CO in June 1968, and 1628-CO approved by the Board in November 1978 and signed in April 1979. The first two loans helped finance hydro and thermal generating plant additions of 304 MW, includ- ing the Sesquile Dam for the Guatavita Reservoir, and transmission line and distribution system extensions. The third loan, helped finance the completion of the El Colegio hydroelectric plant of three 50-MW units and associated sub- stations, construction of the Canoas hydroelectric plant of one 50-MW unit, another expansion of the transmission and distribution systems, and engineer- ing services (see 1.11 for OED's conclusions on this loan). The fourth loan MUS$84.0 is helping finance part of the 1978-82 national power expansion program including: (a) construction of the Mesitas hydroelectric facility consisting of two surface powerhouses, each with three generating units totalling 600 MW, and tunnels and penstocks, as well as a pumpting station for an existing head pond, and three 230-kV transmission lines; (b) strengthen- ing of the Sesquile dam against possible future earthquake damage; (c) an asset valuation study; and (d) technical assistance to EEEB on financial planning and staff training. Works financed by the first three loans were completed successfully although with delays (of about one year and a half for the first two, and three years for the third) because of a variety of problems. The disbursements of the fourth loan began last September. Organization and Administration 2.03 EEEB is directed and administered by a seven-member Board of Directors and a General Manager appointed by the Board. The Board of Directors is headed by the Mayor of Bogota, and consists, in addition, of two members elected by the Municipal Council, three members chosen by the Council from lists submitted by associations representative of banks, commerce, and industry in Bogota, and one member chosen by the President of Colombia. This composition was worked out in connection with the Bank's initial loan to EEEB (246-CO) and has gen- erally proven to be satisfactory.  - 20 - 2.04 EEEB's management is entrusted to a General Manager assisted by four Deputy Managers, respectively responsible for (a) Administration; (b) Commercial and Financial; (c) Technical; and (d) Operations. There is also a Planning Division which provides support to the General Manager. The current organiza- tion chart is shown in Annex 2. Although EEEB has had a history of stable and competent management during most of its association with the Bank, turnover in its senior personnel increased during the past three years resulting in a significant reduction in the number of experienced senior officers. The new financial manager and main financial staff appear to be competent and an important first step for strengthening of financial management has been taken in January 1979, when EEEB hired Peat, Marwick, Mitchel and Co., Management Consultants, to carry out a study on managerial, budgetary and accounting systems and financial planning. Under the Mesitas loan EEEB undertook to enhance the effectiveness of its then-financial management by employing a senior financial adviser, with qualifications, experience and terms and conditions of employment satisfactory to the Bank, who could aLso carry out periodic training program for key members of its financial staff; however the entity proposed, and the Bank agreed, that certain additions to its regular staff, together with the aforementioned consultants, would be acceptable in lieu of the appointment of a senior financial advisor. Therefore, EEEB will employ by June 30, 1980 at least 2 senior financial staff whose qualifications should be acceptable to the Bank and will carry out periodic training programs for its financial staff. Employment 2.05 EEEB had 2,254 employees at the beginning of 1979, including a tech- nical staff of 152, an administrative staff of 608, and operations personnel of 1,348 and 146 construction personnel. The history of the company's staff growth over the past eleven years in relation to the number of customers served and energy sold shows a continued trend of improved efficiency: Number of Number of Customer Total Sales, MWh /1 Employees per Employee per Employee 1968 1,422 174 1,021 1971 1,520 198 1,317 1974 1,896 213 1,359 1977 2,234 216 1,587 1978 2,278 220 1,603 /_ Includes bulk sales to other utilities. The number of EEEB's employees is projected to grow at an average of about 6.0% per year. The trends of improving ratios of the numbers of customers to employees and of the annual sales of MWh per employee are also expected to continue (Annex 1).  - 21 - Accounting and Auditing 2.06 EEEB's data processing and accounting are satisfactory. Internal auditing is carried out by a separate department under a General Auditor responsible to the Board of Directors and appointed by the Mayor of Bogota. Independent auditing of EEEB was carried out by an external auditor acceptable to the Bank until 1977, at which time the function was taken over by the "Contraloria del Distrito Especial de Bogota," an auditing organization which belongs to the Municipal Government of Bogota. Although the auditors appear to perform their duties as a private auditing firm and the qualifications and competence of the staff and the auditing standards used seem to be adequate, the audit report is signed by the Controller, who is the head of the organiza- tion and usually a political appointee of the incumbent Government administra- tion, as are the General Manager of EEEB as well as most of the Board. In order to insure audits in accordance with sound banking principles, EEEB has agreed to appoint an independent auditor acceptable to the Bank (in place or in addition to the Contraloria), based on the need to obtain a greater degree of organizational independence between auditor and auditee. EEEB has informed the Bank in detail the bidding process underway to select and appoint its external auditors, who will audit the fiscal year 1979. Billing and Collections 2.07 Billing is carried out by a computerized processing system and mailed in bimonthly cycles to all customers. Payment must be made in cash at various company offices and banks located throughout the city. As of December 31, 1978, accounts receivable was 19% (about 70 days billing) of total annual sales, which was an improvement over the performance in recent years; EEEB is expected to reach 17% by 1981, as agreed under Mesitas. The relevant covenant will be repeated for the proposed loan. Insurance 2.08 EEEB's assets are not adequately insured and EEEB's new management has questioned the appropriateness of the current amounts and forms of coverage. For this reason EEEB submited to the Bank a detailed proposal for carrying out a study of its insurance requirements, form of insurance and staffing for the purpose. To this end, EEEB will engage the services of an expert or specialized consultants by not later than June 30, 1980, under terms of reference acceptable to the Bank, to carry out a study, to be financed by the loan, by February 28, 1981. EEEB's observations and recommendations for implementation will be sent to the Bank for review and comment by April 30, 1981. An agreed program will be implemented as of December 31, 1981.  - 22 - 3. EEEB's M4ARKET 3.01 EEEB's service area includes the District of Bogota, the capital of Colombia, and also extends to more than 55 municipalities within the department of Cundinamarca in the Central Zone. EEEB's estimate of the popula- tion in the service area is five million people, about 20% of the total population of Colombia; the service area accounted for about 28% of national gross electric energy requirements in 1977. Historic 3.02 EEEB 1973-1978 consumption and supply data are shown in Attach- ment 3.1, excluding supplies to other utilities to which it transfers from the Interconnected System (ISA) to such utilities at no charge. Summarized, its consumer data in 1973 and 1978 were the following: 1973 1978 Annual Growth GWh % GWh % Residential 782 36 1,392 40 12.2 Commercial 367 17 628 18 11.3 Industrial 742 34 1,104 32 8.3 Government 292 13 351 10 3.7 Total 2,183 100 3,475 100 9.7 Losses 433 16.5 /1 787 18.5 /1 Total requirements 2,616 4,262 10.3 Maximum demand (MW) 615 824 6.0 Number of consumers (1000) 384 500 5.4 /1 % of total requirements. Residential consumers increased their share in the market substantially, together with commercial consumers which advanced marginally, while industry and government consumption decreased commensurately. Residential and commer- cial consumers also showed the largest annual growth rate, which may be due, at least in part to the low average rates for these consumers (5.05). Losses, including station use (the latter is largely pumping for storage and head pond which are about 10% of total losses) are relatively high and may contain a substantial amount of thefts. This problem is presently being studied (1.10) throughout the sector and remedial action is expected to be instituted as a result of the study. Gross per capita consumption in 1978 in Bogota was in the order of 850 kWh/a.  - 23 - Forecast 3.03 EEEB's sales are expected to grow at an average of 11.0%/a, (Attachment 3.2). This forecast was prepared essentially on the basis of historical trends and recorded consumption indices from the period 1968 to 1978. Consumers were divided into four main categories, residential, commercial, industrial and Government and these categories were further subdivided according to monthly and annual consumption patterns. Trend curves were derived to project require- ments by categories for the period 1979 to 1985 which were subsequently adjusted to reflect population trends, sector economic conditions and market saturation effects. Comparing the 1982 and 1985 forecasts with the 1978 figures (3.02), the following table summarizes the results. 1978 1982 1985 Annual Growth GWh % GWh % GWh % 1978-82 1978-85 Residential 1,392 40 2,222 42 3,209 44 12.4 12.7 Commercial 628 18 1,012 19 1,354 19 12.7 11.6 Industrial 1,104 32 1,544 30 2,026 28 8.7 9.1 Government 351 10 490 9 618 9 8.7 8.4 Total 3,475 100 5,268 100 7,207 100 11.0 11.0 Losses 787 18.5 /2 1,015 16.2 /2 1,200 14.3 /2 - - Total require- ments 4,262 6,283 8,407 10.2 10.2 Maximum demand (MW) 824 1,195 1,600 9.7 9.9 Number of consumer (1000) 500 699 909 8.3 8.6 /1 Project period is 1980-1982. 7i % of total requirements. 3.04 Residential and commercial consumers are expected to continue increas- ing their share of the market at a relatively high growth rate. Growth in sales to Government (which include public lighting) would accelerate primarily due to improvements and expansion of public lighting, financing of which has been included in the project for 1980-1982. The number of consumers is expected to increase by about 8.5% due to the accelerated expansion of the distribution networks. Total energy requirements would grow less than sales in view of the expected lower losses due to the actions to be taken against thefts (1.10). The load factor is expected to remain about 60% during the period, resulting in a growth of maximum demand commensurate with the growth of energy requirements.  - 24 - Integration of Electrificadora de Cundinamarca 3.05 Electrificadora de Cundinamarca is a minor electric company that belongs to the ICEL group and serves the market of Cundinamarca department in Bogota's surroundings. It might be possible over the long-term to achieve certain economies of operation through a merger or another form of joint operation of the EEEB and Electrificadora de Cundinamarca systems. Because the agreement and cooperation of ICEL, as well as EEEB, would be required in order to carry out a study to identify such economies, the Bank intends to pursue this matter under the next proposed operation that would involve these companies as shareholders of ISA.  COLOMBIA EMPRESA DE ENERGIA ELECTRICA DE BOGOTA BOGOTA DISTRIBUTION PROJECT HISTORICAL ELECTRICITY CONSUMPTION AND SUPPLY 1973 - 1978 1973 1974 1975 1976 1977 1978 ------------- -------------GWh---- ---- -- Sales Residential 782 923 1,042 1,175 1,237 1,392 Commercial 367 411 450 513 589 628 Industrial 742 809 855 945 995 1,104 Government 292 305 316 347 353 351 Total Sales 2,183 2,448 2,663 2,980 3,174 3,475 Losses, unaccounted for and station use 433 426 695 625 836 787 Total Energy Requirements 2,616 2,874 3,358 3,605 4,010 4,262 Energy Supply EEEB hydro plant n.a. n.a. n.a. 3,392 2,842 2,028 EEEB thermal plant n.a. n.a. n.a. 408 738 800 Total EEEB Generation n.a. 3,070 3,095 3,800 3,580 2,828 Import (export) ISA n.a. (196) 263 (195) 430 1,434 Maximum demand (MW) 615 620 656 732 768 824 0 Number of customers (thousands) 384 404 432 460 483 500 rDt December 14, 1979  COLOMB IA EMPRESA DE ENERGIA ELECTRICA DE BOGOTA BOGOTA DISTRIBUTION PROJECT Forecast Sales and Supply Actual 1978 1979 1980 1981 1982 1983 1984 1985