Bolivia - Power Rehabilitation Project

Documen of. The World Bank FOR OFFICIAL USE ONLY Report No. P-4459-BO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF TRE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 5.3 MILLION TO THE REPUBLIC OF BOLIVIA FOR THE POWER REHABILITATION PROJECT May 22, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its cotents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1.00 = $b 1,923,000.00 (at 12/31186) US$1.00 = $b 1.923 (at 01101187) The exchange rate US Dollar/Boliviano is fixed in daily auctions -. the Central Bank. On 01101/87 the Bolivian Peso was replaced by the Boliviano at a rate of one Boliviano to one million Pesos. Conversions in rhe Staff Appraisal Report were made at the above rate. ABBREVIATIONS AND ACRONYMS COBEE-BPC = Companhia Boliviana de Energia Electrica S.A. - Bolivian Power Company DINE = Direccion Nacional de Electricidad ENDE = Empresa Nacional de Electricidad S.A. RIC = Reconstruction Import Credit FISCAL YEAR January 1 - December 31 .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  FOR OFFICIAL USE ONLY BOLIVIA POWER REHABILITATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: The Republic of Bolivia Beneficiary: Empresa Nacional de Electricidad S.A. (ENDE) Amount: SDR 5.3 million (US$6.8 million equivalent) Terms: Standard Onlending Terms: 8.5%, 20 years Including 4 years of grace. The beneficiary would bear the foreign exchange risk to the US dollar Financing Plan: ENDE US$ 3.9 million IDA US$ 6.8 million TOTAL US$10.7 million Economic rate of Return: 13.5% Staff Appraisal Report: No. 6636-BO IThis document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otheTwise be disclosed without World Bank authorizationL  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO BOLIVIA FOR THE POWER REHABILITATION PROJECT 1. The following report on a proposed development credit to Bolivia for SDR 5.3 million (US$6.8 million equivalent) is submitted for approval. The proposed credit will be on standard IDA terms and help to rehabilitate the Bolivian power system. The proceeds of the credit will be relent to Empresa Nacional de Electricidad S.A. (ENDE) by the Government of Bolivia at an interest rate of 8.51 for a ternm of 20 years including 4 years of grace. The exchange risk to the US dollar will be borne by ENDE. 2. Sectoral Background. The power sector in Bolivia faces serious difficulties arising from sector policy weaknesses and from the deterioration of the Bolivian economy between 1981-1986. As part of its recovery program, the Government recognizes that in order to minimize the constraints imposed by a weak power sector, a sound financial position will have to be restored, the investments needed for the power expansion program will have to follow a least-cost sequence and sector organization will have to be improved. Agreement to tackle the most urgent financial issues (ENDE's rate increases and capitalization of debt by enactment of Decree 21,527) was reached in the context of the Reconstruction Import Credit (RIC) approved by IDA in FY1986 and satisfactory actions on these issues were taken prior to negotiations on the proposed credit. Other important policy issues - sector expansion master plan, regulation and organization of the sector - are addressed in the proposed project. 3. ENDE Is responsible for generation and transmission while regional companies are responsible for distribution, except in the cities of La Paz and Oruro, where the Bolivian Power Company (COBEE-BPC), a private foreign owned company, operates its own generation and distribution facilities. COBEE-BPC's concession will expire in 1990 and the responsibility for electricity supply in these areas after that date has not yet been defined, resulting in lack of investments in the distribution system of La Paz. The Government has agreed to keep the Association informed about the progress and outcome of its negotiations with COBEE-BPC about responsibility for the concession after 1990. 4. Power sector regulation was deeply affected in 1985, when it was established that ENDE and the distribution companies should negotiate wholesale rates and the latter should negotiate their retail tariffs with the consumers represented by the city councils. These agreements have been very difficult to reach. The Government has now agreed that it will restore sector regulation based on sound utility principles and that tariffs will be set by Direccion Nacional de Electricidad (DINE) of the Ministry of Energy and Hydrocarbons. 5. Power sector planning is currently not based on a least cost long range expansion program. Under the proposed project, ENDE will prepare a Power Expansion Master Plan, satisfactory to IDA, taking into consideration the conclusions of an on-going energy strategy study executed by the Bank  and financed by UNDP. Based on a satisfactory expansion program, on the results of the energy exercise, and on a revaluation of assets study that ENDE will carry out, a plan of action will be presented to IDA to implement new tariff structures based on sound utility principles and to improve the level of electricity rates of all power companies. 6. Project Objectives. The objectives of the proposed project are: (i) to rehabilitate ElDE's power system by overhauling defective generation units, carrying out delayed maintenance, eliminating transmission bottlenecks, and increasing ENDE's operational efficiency; and (ii) to improve sector regulation, planning and institutional framework. 7. Project Description. The project will have the following major components: (a) Acquisition of spare parts and equipment for the 1987-1989 maintenance program of ENDE's facilities, mainly the overhaul of its generating units; (b) Construction of Alalay (Cochabamba-25 MVA) and Urbana Sur (Santa Cruz-25 MVA) new substations and modifications in Potosi and Telemayo substations changing voltage from 69 kV to 115 kV; (c) Construction of 8.5 km subtransmission line 69 kV Huaracachi - Substation Sur to close the subtransmission loop of Santa Cruz; (d) Preparation of a Power Expansion Master Plan defining the least cost expansion program for the power sector up to year 2010; (e) Technical assistance involving: (i) engineering consultants to help ENDE in the execution of the project; and (ii) management consultants to prepare a methodology for revaluation of ENDE's assets, and to develop an information system for accounting, financial management, inventories, construction and maintenance. 8. The total cost of the proposed project is estimated at US$8.74 million equivalent, including taxes and duties of US$1.11 million. Foreign exchange costs are estimated at US$6.80 million. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement are shown in Schedule B. A timetable of key project processing events and the status of Bank group operations in Bolivia are given in Schedule C and D respectively. The staff appraisal report, No. 6636-BO dated Nay 7, 1987, has been circulated separately. 9. Rationale for IDA Involvement. The most urgent needs for rehabilitation of the sector were funded through the RIC. The proposed credit completes the rehabilitation phase and initiates required policy adjustment and institutional reforms in the sector. IDA's continued involvement is expected to serve as a catalyst for the participation of other donors. 10. Agreed Actions: The Government and ENDE have agreed on the following actions: (i) to implement Decree No. 21,527, in accordance with its terms, increasing ENDE's rates by 1.5Z per month (in US dollar terms); (ii) to re-establish DINE's responsibility for setting tariffs in  accordance with the National Electricity Code; (iii) to submit to IDA, by October 1988 a plan of action to improve the structure and level of electricity rates of all power companies; (iv) to submit to IDA by September 1988 the final version of the Power Expansion Master Plan; (v) to inform the Association, on a quarterly basis, on the progress of negotiations with COBEE-BPC and before December 1988 to furnish to the Association a plan of action with respect to the provisions of future electricity supply in La Paz and Oruro; (vi) to make ENDE responsible for sector planning, and for construction and operation of all transmission facilities and generation plants over 5 MW transfering to distribution companies the operation of small generation units; (vii) to submit to the Association a satisfactory proposal for the distribution of ENDE's shares previously owned by CBD; (viii) to sign a subsidiary loan agreement satisfactory to the Association. 12. Justification. The project will allow ENDE to make better use of installed generation capacity by increasing the availability of existing units and by removing bottlenecks in the transmission system thereby making the system more efficient and responsive to demand changes. The rate of return is estimated to be around 13.52. 13. Risks. No special implementation risks are involved as ENDE has implemented similar projects in the past without major problems. The risks involved in the proposed institutional reform have been minimized by extensive consultation and detailed active planning. 14. Recommendation. I am satisfied that the proposed credit will comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attacbments Washington, D.C. May 22, 1987  Schedule A Estimated Costs Local Forei Total ----- US$ million------- Spare Parts 0.28 0.95 1.23 Substations 0.87 2.90 3.77 Transmission Lines 0.33 1.00 1.33 Consultant Services 0.20 1.10 1.30 Total Base Costli 1.68 5.95 7.63 Physical Contingencies 0.12 0.37 0.49 Subtotal 1.80 6.32 8.12 Price Contingencies 0.14 0.48 0.62 Total Project Cost 1.94 6.80 8.74 Financial Charges2l 1.96 - 1.96 Total Financing Requirements 3.90 6.80 10.70 Financing Plan IDA 6.80 6.80 ENDE 3.90 - 3.90 Total 3.90 6.80 10.70 It At December 1986 price level (US$ 1.00=Sb 1,923,000.00). The local costs include taxes and other duties estimated at US$ 1.1 million. 2f At relending terms.  Schedule B Page 1 of 2 Procurement -------------------------------___--_------_----------------_--__---------- Procurement Method Project Element ICB a/ DC bi Other el Total --------------US million-------------- 1. Spare parts 1.48 1.48 (1.14) (1.14) 2. Substation equipment 3.67 3.67 and materials (3.03) (3.03) 3. Transmission line 1.16 1.16 equipment and materials (0.96) (0.96) 4. Construction works 1.00 1.00 (0.47) (0.47) 5. Consultant services 1.43 1.43 (1.20) (1.20) Total 5.83 1.48 1.43 8.74 (4.46) (1.14) (1.20) (6.80) Note: Figures in parenthesis are items to be financed by IDA credit. s/ ICB-International Competitive Bidding b/ DC=Direct Contracting of spare parts to be purchased from original manufacturers. c/ Consultants to be engaged in accordance with IDA guidelines .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4  Schedule B Page 2 of 2 Disbursements a/ Cateaory Amount (US$ Millions) (1) Civil works 1.10 100% of foreign expenditures and 90% of local expendi- tures (2) Spare parts 1.00 100% of foreign expenditures and 9O0 of local expendi- tures (ex-factory cost). (3) Substation and 3.17 10OZ of foreign expenditure transmission line equip- (ex-factory cost). ment and material (4) Consultant Services 1.15 1002 of foreign expenditures (5) Unallocated 0.38 a/ (i) A special account of US$500,000 would be established. (ii) Disbursements for eligible expenditures for contracts under US$100,000 equivalent would be made against Statements of Expenditures. Estimated Disbursements IDA Fiscal Year 1988 1989 1990 1991 1992 1993 1994 ----USS Millions------------------ Annual 0.48 0.81 1.23 1.42 1.30 0.95 0.61 Cumulative 0.48 1.29 2.52 3.94 5.24 6.19 6.80  SCHEDULE C BOLIVIA POWER REHABILITATION PROJECT Timetable Of Key Project Processing Events (a) Time taken to prepare: Fifteen Months (b) Prepared by: ENDE (c) First IDA Mission: October 1985 (d) Departure of Appraisal Mission: December 1986 (e) Negotiations: April 1987 (f) Planned Date of Effectiveness: September 1987 (g) List of relevant PCRs and PPARs: Credit 148-BO (Second ENDE Power) PPAR of March 7, 1977 Credit 433-BO (Third ENDE Power) PPAR of November 7, 1979  Schedule D Pale 1 of 2 STATUS OF BANK GROUP OPERATIONS IN BOLIVIA A. Statement of Bank loans and IDA credits (as of March 31, 1987) Loan or Amount lese caixcellacionsa Credit FLscal 8auiL IDA Undlsbursed Number Year Borrower Purpose (En millions of U.i. dollars. * Ten loans and thirceen credlts fully disbursed 233.2 98.9 933 1979 Bolivia Omasuyoa-Loe Andes Rural * Development 3.0 1. L 940 1979 Bolivia National Hmneral Exploratlon Fund 7.5 5.5 1703 198b Bolivia KIC 61.0 11 50.8 1719 1966 Bolivia Vuelta Grande 16.0 Z1 13.9 1404 1977 Bolivia