Colombia - Bogota Power Project

R E S T R I C T E D Report No. P-214 FILE COPY This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESA DE ENERGIA ELECTRICA DE BOGOTA IN COLOMBIA January 12, 1960  I1T1RNPTIONAL BAINK FOR PT CONSTRUCTIONT A.N,:D DEIVELOP' IE'T PEPORLT AND REC: iTLLDPTIONS OF THE PRESIDENT TO THEE EQ CliTIVE DIECTORS ON A PROPOSED LOAN TO EMIPRESA DE EEIERGIA ELECTRICA DE BOGOTA COLCMBIA 1. I submit the following report and recommendations on a proposed loan, of an amount in various currencies equivalent to 'il7.6 million, to the Empresa de Energia Electrica de Bogota, Colombia (EEEB) to finance the foreign exchange cost of expanding the power facilities of EEEB. PART I - HISTORICAL 2. The Bank was first approached in September 1954 for a loan to finance an electric power expansion program for Bogota. In September - October, 1955, a Bank Mission, at the request of the Colombian Government, reviewed Colombiats investment priorities and external borrowing program. The MIission recommended a project for expanding power facilities in Bogota in the list of high priority projects which it regarded as suitable for Bank financing. Hoiever, in September 1956, the continued deterioration of Colombia's economic position obliged the Bank to defer active consid- eration of these projects. 3. In the summer of 1958, as a result of remedial measures taken by the Government, Colcmbia's financial prospects had improved sufficiently to enable the Bank to resume active consideration of projects in Colombia. The Bank has since made loans for three projects, namely, Yumbo II (Loan No. 215 0) in December 1958, La Esmeralda (Loan No. 217 CO) in January 1959 and Guadalupe (Loan No. 225 CO) in May 1959. 4. In May 1959 a Bank Mission reviewed a revised program for the expansion of EEEB's electric power facilities. Formal negotiations for a loan began in Wiashington on November 30, 1959. The Colombian Government was represented by Dr. Ignacio Mesa Salazar (Charge d'Affaires ad interim) and the BorrowTer by Dr. 'Manuel Madero Paris (General Manager), Dr. Dario Valencia (Technical Director) and Dr. Ronaldo Alvarez (Auditor General). 5. The proposed loan for the Bogota power project would increase the Bank's lending to Colombia from 'l130.6 million to Mlh8.2 million, net of cancellations. The Bank has already made the following loans to Colombia:  -2- Amount of Loan net of Year Purpose Cancellations 1949 Agricultural lMlachinery Project $4 925,41l 1950 Anchicaya ydroelectric Project 3,530,000 1950 La Insula Hydroelectric Project 2,6009000 1951 Highway Project 16,500,000 1951 Lebrija Hydroelectric Project 2,400,000 1952 National Railroads Project 25,000,000 1953 Supplementary Highway Project 14,350,000 1954 Second Agricultural. Machinery Project 5,ooc,000 1955 Anchicaya and Yumbo PoTwier Project 4,500,000 1955 Railroad Extension Project 15,900,000 1956 Plan Vial I Project 16,500,000 1958 Yumbo Extension Power Project 2,800,000 1959 La Esmeralda Power Project 4,600, 000 1959 Guadalupe Hydroelectric Project 12,000,000 Total (net of cancellations) 130,605,4L41 of which has been repaid 332041,4 1h Total now outstanding 97,564,000 * Amount Sold $7,h72,800 of which has been repaid 6,868,800 60h,o000 Net amount now held by Bank 96,960000O *~ Includes $ 24,015,999 million not yet disbursed and $ 2,800,000 million not yet effective 6. A Bank mission recently visited Colombia to examine a project for a third thermaal unit at Yumbo and a hydroelectric project on the Calima River, both of w.lhich would serve the Cauca Valle. The Bank is also considering a project for the rehabilitation and expansion of the steel facilities of Acerias Paz del Rio. Loans for one or more of these projects might be made writhin the next six months.  -3- PART II - DESCRIPTION OF TKZ PRFOPOSED LOAN 7. The proposed loan would have the following characteristics: Borrower: Empresa de Energia. Electrica de Bogota, an autonomous agency which provides electric power for Bogota and the surrounding area. Guarantor: Republic of Colombia. Amount: The equivalent, in various currencies, of P17.6 million. Purpose: To finance the foreign exchange cost of new hydro power generating facilities totalling 84 MIW, the installation of 33 1N of thermal generating facilities, additions and improvements to the trans- mission and distribution systems, and studies for future development of the Bogota River complex. Amortization: 44 semi-annual instalments from )lay 15, 1963 to November 15, 198h. 'Interest Rate: 6 per annum Commitment Charge: 3/4% per annum Payment Dates May 15 and November 15 PART III - LEGAL ITSTRTHE %TTS A-ID LEGAL AUTHORITY 8. A draft Loan Agreement between the Bank and EEEB (No. 1) and a draft Guarantee Agreement between the Bank and the Republic of Colombia (No. 2) are attached. 9. The Guarantee Agreement is in the usual form. 10. The Loan Agreement closely follows the usual form of Bank Loan Agreements with public utility undertakings. Provisions of special interest are: (a) Section 5.09 which limits the incurrence of additional debt; (b) Section 5l10, the rate covenant, which is supplemented by letters (Nos. 3 and 4) in which EFEB agrees: (i) that power rates should be set at a level which would permit at least 40% of new investment in power facilities to be financed from retained earnings; and  (ii) that its average rate per kwh should be increased to a specified level by April 1, 1960. Section 7.01 provides, inter alia, as a condition of effectiveness that this increase shall have been obtained, 11. Execation of the Loan 8greement has been authorized by EEEB's Board of Directors, In December 1959 the Colombian Congress enacted a la- authorizing the Government to incur or guarantee external debt up to $250 million for economic development and related purposes. PART IV - APPRAISAL Of THE PROPOSED LOAN Justification of the Project 12. A detailed appraisal of the project (T.O. 219a) is attached (No. 5). 13. The project is the first stage of an expansion program which con- templates the addition by 1970 of more than 400 0W to the 128 NW of hyjdro- electric and thermal electric capacity presently available for the Bogota area. The new hydroelectric capacity included in the project will consist of the construction of a new 66 AN plant at a site near Bogota known as Salto II and the addition of an 18 YNW unit in the existing Laguneta plant. T'he project also includes the installation of a 33 INW thermal electric unit in a new plant near Bogota. This unit is part of a 66 HN plant purchased some time ago by the Colombian Covernment for use in a different region but whnich has not yet been delivered. 14. Bogota (population about 1,000,000) is the capital, and one of the chief industrial and commercial centers of Colombia. Industrial and commercial power consulption in 1958 accounted for 6o% of total sales. The expansion of generating capacity has not kept pace with the growth in demand so that restrictions have had to be imposed on consumption. Such restrictions will continue to be necessaxy until the project is completed at the end of 1961. Even with the restrictions in effect, electric power sales heve increased at an average rate of 12 5