Colombia - Cospique Thermal Power Project

RESTRICTED FILE CGPY Report No. P-330 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUC7ION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO ELECTRIFICADORA DE BOLIVAR, S. A. IN COLOMBIA July 1, 1963  DJTERWATIONAL &\HtnK FOR RLCONESTRUCT:IO AND DEVELOPIEMIT REPORT ArD RECOIIENIDAT1OW1S OF THE IRLSI3I!T ?O THE EXECUTIVE DTIRCTORS ON7 A PiOFOSSE LOAN TO ELECTRIFICADORA D_ BOLrJAR, S.A. !Ix] COLOHTIIA 1. I submit the following report and recommendations on a proposed loan, of an amiount in various currencies equivalent to $5 million, to Electrificadora de Bolivar, S.A. (ELECTRIBOL), to assist in financing the foreign exchange cost of a 25 megawatt expansion of the Cospique thermal plant in Cartagena and of the expansion of the associated transmission and distribution system. i-APT I: HISTORICAL 2. Engineering and marketing studies prepared by the Instituto de Aprovechamiento de Aguas y Fomrento Electrico (INSTITUTO), the principal shareholder of ELECTRIBOL, and its consultants, and presented to the Bank in late 1960, indicated that the addition of two 12.5 mr thermal generating units at the existing Cospique Thermal Plant would provide the most economi- cal means of increasing generating capacity to meet the expected load growth in the Cartagena area. 3. A 3ank mission visited the pro3ect in hay 1961 and found that a number of steps had to be taken in order tc make the project suitable as a basis for a Panic loan. Among other things the mission recommended that operation of the generating facilities of ELECTRIBOL and its principal customer, Empresas Publicas Ilunicipales de Cartagena (EIIPRESAS)., be placed under one management to achieve the most efficient and economical use of the comrbined facilities. The mission also recommended an increase in the tariffs of both ELECTRIBOL and EIPRESAS, A second Pank missicn visited the project in Mlarch 1962. Ey late 1962, integration of the two plants had been successfully completed by BLECTRIBOL's leasing of LEWRZSAS' generating facilities, and tariffs for both ]ELECTRIBOL and Ei'23SAS had been increased, tic Negotiations for the loan began on -Iay 20, 1963. ELECTT3BOL was represented by its General Manager, Dr. Jaime Gonzalez; the INSTITUTO by Dr. Hector Parra, member of its Board of Directors, and Dr. Carlos de Grei-ff; and E-TRESAS by its General M1anager, Sr. Jorge Benedetti. The Government ;tias represented by Dr. Ignacio Iiessa Salazar, Einister Counselor of the Colombian Embassy, 5. The proposed loan, together with three other loans signed in June (see note below), would increase the Bank's lending to Colombia from $27041 million to $3L3,.9 million net of cancellations,  As of May 31, 1963 ($ millon) Total loans net of cancellation 1/ 270.1 of which has been repaid 57.6 Total now outstanding 212.5 Amount sold 1260 of which has been repaid 8-3 3- 7 Net amount held by Bank 208.8 1/ Including $84.8 million not yet disbursed. NOTE: The following loans were signed in June and are not yet effective: A8O8 million -CVC-CHIDRAL (June 3) 430.0 million - Colombian National Railways (June 21) $30.0 million - Acerias Paz del Rio, S.A. (June 28). 6. An IDA credit of $195 million was extended to Colombia for high- way development in September 1961, of which $4.1 million was disbursed on Nay 31, 1963. 7. At present the Bank has under consideration additional projects in Colombia in the fields of electric power and telecommunications. PART II: DESCRIPTION OF THE PROPOSED LOAN 8. The main features of the proposed loan are as follows: BORROIWER: Electrificadora de Bolivar, S.A. (ELECTRIBOL),an autonomous public agency which provides electric power(principally through the EMPRESAS) for the Cartagena area. GUARANTOR: Republic of Colombia. AMOUNT: The equivalent in various currencies of $5 million. PURPOSE: To finance the foreign exchange cost of the expan- sion of ELECTRIBOLts Cospique Thermal Plant, in- cluding the installation of two 12.5 mw thermal generating units and construction and rehabilitation of the transmission and distribution system. The loan includes an amount of $460,000 to be relent to EMPRESAS for expansion of the distribution system in Cartagena.  - 3 - DJTEREST DIAT: 5 pO zer annum, CO1&iIIUZT CiARG-E: 3/n of 1% per arnum. TERNJ AN)D AKO1LRTIZA?IOPN 20 yiears, including 3 J years of grace. Seni-annual installments fron November 1, 1966 to -lay 1, 1983. PAJRT III: LEGAiL SSR^;S AND! LE'AL AUTHORITY 9, A draft Loan Agreenent between ELECTRIEOL and the Bank (No. 1) and a draft Gzuarantee Agreemeent between the RTepublic of Colombia and the Bank (ilo. 2) are attached. 10, The draft Guarantee Agreement is in the us-ual form, and includes a provision of funds covenant (Section 2.02) and a rate covenant (Section 3.07). 1Ll The draft Loan Agreement follows the usual -form for projects cf this type. The following covenants of the Loan Agresrent are of special interest: a. Section 5.09 urovides for the relending by ELECTRIBOL to E,MPRZSAS under a subsidiary loan agreeiment satisfactory to the Bank, of up to Ao3, 000 cf the proceeds of the loaa for the rehabilitation and expansion of the latterzs electric distribution systen in Cartagena. b Section 5.10 &Dligates LZZTBIBOL to tale all stens necc2Eary to obtain adequate adjustments it its rates3 as defined by that Section and by supplernentary agreements reached dujri.ag loarm negotiations (EPYRSIAS would accept similar obligations in the subsidiary loan agreement regarding the level of its power rates). c. In a suoplementary letter from the WSTITJTO to the BDn (No, 3), the INSTITUTO undertakes, anmong other thIngs, to provide management assistance to ELECTRIBOL and to give priority to the Cospique Project in the allocation of its fundo if SELSTRIBOL should need additional funds to conpleQe the Project. 12. The report of the Committee provided for irn Article ITII Section h(