Colombia - Guavio Hydro Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15691 IMPLEMENTATION COMPLETION REPORT COLOMBIA GUAVIO HYDRO POWER REPORT (LOAN 2008-CO) May 22, 1996 Infrastructure and Operations Division Department III Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Exchange Rate effective April 1981 US$1 = Col$52.49 Exchange Rate effective 1990 USS$1 = Col$502.2 WEIGHTS AND MEASURES I Megawatt (MW) I ,OOOkW 1 Gigawatt-hour (GWh) = 1,000,000 kWh FISCAL YEAR OF BORROWER January 1 to December 31 ABBRE VIA TIONS AND ACRONYMS EEB - Empresa de Energia de Bogota - IDB - Inter-American Development Bank ISA - Interconexion Electrica S.A. The utility changed its name, effective August 1990, from Empresa de Energia Electrica de Bogota (EEEB) to Empresa de Energia de Bogota (EEB). Throughout this report, EEB will be used.  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT COLOMBIA GUAVIO HYDRO POWER PROJECT (LOAN 2008-CO) TABLE OF CONTENTS 1. PREFACE ...........................................................................; 2. EVALUATION SUMMARY ...........................................................................;; 3. PART L PROJECT IMPLEMENTATION ASSESSMENT ............................................................1 A. PROJECT OBJECTIVES ............................................................................1 B. ACHIEVEMENT OF PROJECT OBJECTIVES ............................................................................2 C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT .............................................4 D. PROJECT SUSTAINABILITY ............................................................................9 E. BANK PERFORMANCE ........................................................................... 10 F. BORROWER PERFORMANCE .......................................................................... 10 G. ASSESSMENT OF OUTCOME ........................................................................... 12 H. FUTURE OPERATION ........................................................................... 12 I. KEY LESSONS LEARNED .......................................................................... 13 4. PART II. STATISTICAL TABLES .......................................................................... s15 A. TABLE 1: SUMMARY OF ASSESSMENTS .......................................................................... 15 B. TABLE 2: RELATED BANK LOANS/CREDITS ........................................................................... 17 C. TABLE 3: PROJECT TIMETABLE .......................................................................... 17 D. TABLE 4: LOAN/CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL ................................ 18 E. TABLE 5A: KEY INDICATORS FOR PROJECT IMPLEMENTATION/ PLANNED AND ACTUAL PERFORMANCE INDICATORS .......................................................................... 19 F. TABLE 5B: KEY INDICATORS FOR PROJECT IMPLEMENTATION/ PLANNED AND ACTUAL FINANCIAL INDICATORS ........................................................................... 20 G. TABLE 6: KEY INDICATORS FOR PROJECT OPERATION .......................................................................... 21 H. TABLE 7: STUDIES INCLUDED IN PROJECT .......................................................................... 22 I. TABLE 8A: PROJECT COSTS ........................................................................... 22 J. TABLE 8B: PROJECT FINANCING .......................................................................... 23 K. TABLE 9: ECONOMIC COSTS AND BENEFITS .......................................................................... 24 L. TABLE 10: STATUS OF LEGAL COVENANTS ........................................................................... 23 M. TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS ................................................... 26 N. TABLE 12: BANK RESOURCES: STAFF INPUTS .......................................................................... 26 0. TABLE 13: BANK RESOURCES: MISSIONS .......................................................................... 27 APPENDIX: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ............................................... 28 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 wiLhout World Bank authorization.  I  i IMPLEMENTATION COMPLETION REPORT COLOMBIA GUAVIO HYDRO POWER PROJECT (LOAN NO. 2008-CO) 1. PREFACE This is the Implementation Completion Report (ICR) for the Guavio Hydro Power Project in Colombia, for which Loan No. 2008-CO in the amount of US$359.0 million equivalent was approved on May 28, 1981 and made effective on October 29, 1982. The final closing date was June 30, 1990, two years after the original closing date of May 30, 1988. The loan was fully disbursed, and the last disbursement took place on November 13, 1990. Cofinancing for the project was provided by the Inter-American Development Bank (IDB). The ICR was prepared by Ms. Sandra Joss of the Latin America and Caribbean Region and reviewed by Messrs. Jayme Porto-Carreiro, Peter Ludwig, and Robert Crown, LA3IN Task Manager, Division Chief, and LA3 Project Adviser, respectively. The ICR is based on material in the project file, interviews with Bank staff involved in project preparation and implementation, and additional information requested from the borrower to facilitate the Bank's review of the project. The borrower prepared its own evaluation of the project (Appendix) and reviewed the Bank's draft ICR (no comments received). Given the closing date of June 30, 1990 and project completion in December 1993, no supervision or ICR mission has taken place since July 1991. Therefore, an Aide-Memoire (as normally required under BP13.55 of April 1994) has not been prepared for the ICR.  I  11 IMPLEMENTATION COMPLETION REPORT COLOMBIA GUAVIO HYDRO POWER PROJECT (LOAN 2008-CO) 2. EVALUATION SUMMARY Introduction (i) To provide the electricity supply needed to support growth and employment, and to allow substitution for more costly fuels, Colombia's energy balance indicated, at the time of project preparation, that 6,600 MW would have to be added to national power capacity by 1988. The project was the least-cost investment in the National Power Expansion Program, and its primary objective was to contribute 15% of these requirements through development of renewable energy resources (para. 1). Project Objectives (ii) The project comprised: (a) a hydroelectric plant constructed on the Guavio river. The plant included river diversions, rockfill dam and spillway tunnels; intakes and diversion tunnels; pressure tunnel, underground power house and transformer, caverns with access tunnel, and tailrace tunnel; ancillary electromechanical equipment for the power house; a step-up sub-station; two double-circuit transmission lines; and infrastructure for the project of access and service roads, and five bridges; (b) a regional load-dispatch and telecommunication center at Empresa de Energia de Bogota (EEB'); (c) studies; and (d) training for EEB's technical staffl(para. 3). (iii) Project objectives were consistent with the Government's strategy for the energy sector which aimed at increasing the use of low cost domestic sources (such as hydropower) which were in abundant supply. Nevertheless, it is fair to say that the magnitude of the project was not consistent with the implementing and financial capacity of EEB, particularly in light of known financial and institutional weaknesses (para. 4). Implementation Experience and Results (iv) The project is considered partially successful in achieving its major physical objective of providing new capacity and energy needed by EEB and the rest of the National System to meet forecast demand (para. 5). The project's civil works, equipment The utility changed its name, effective August 1990, from Empresa de Energia Electrica de Bogota (EEEB) to Empresa de Energia de Bogota (EEB). Throughout this report, EEB will be used.  iii installation and associated activities were carried out as planned. The power plant, with an ultimate capacity of 1,600 MW, was completed and has been commissioned. Initial installed capacity is 1,000 MW (five 200-MW units). Environmental and socioeconomic studies were completed and have been useful for this project and follow-on activities. Staff training, in Colombia and abroad, in the operation and maintenance of the plant and its control and communications system has been successfully carried out. The partially successful rating takes into account the fact that, despite the project's relative success in reaching objectives, this has been at a high cost. The additional six years taken to complete the project has meant a deferral of anticipated revenues to EEB. It has yet to recover from this. In short, EEB is bankrupt (paras. 5, 7). (v) The project will likely maintain the achievements generated in relation to its major objective of providing new capacity and energy needed by EEB and the rest of the National System to meet forecast demand. Two key factors for sustainability stand out: first, the simple maintenance required of the plant, which is being done effectively; and second, the low operating costs necessary for the plant. EEB's financial difficulties are not expected to negatively impact sustainability in light of the recent decision to lease the plant to a private operator to help pay the debt of the Guavio plant. Therefore, it is expected that the Guavio plant will continue to generate electricity well into the 21 st century (para. 25). (vi) The total cost of the project was US$2,545 million in comparison to the appraisal estimate of US$1,303 million. Overall poor management within EEB is a key contributor to the high project cost overrun (para. 24). Delays in completing the individual components of the project put the commissioning of the plant back by approximately six years, resulting in a completion date of December 1993 (paras. 10, 19-22). (vii) The project was declared effective on October 29, 1982 and loan closing was June 30, 1990, two years after the original closing date of May 30, 1988. Potential risks were not realistically calibrated at appraisal (para. 9). Needless to say, the project did experience a number of difficulties throughout much of the implementation phase (para. 10). The resettlement of a much larger than estimated population (1,774 families versus 250 families estimated at appraisal) was a critical issue. Although the Bank was instrumental in directing the borrower's attention to the serious social and rural displacement problems caused by the project, and continued to follow-up on progress of the corrective action program (implemented under the Power Sector Adjustment Loan (PSAL), 1988-90), much of the project's problems could have been diluted with attention to the resettlement issues early on (paras. 11-14). Other contributory factors to the project's highly unsatisfactory outcome include EEB's financial difficulties (paras. 15-16); ineffective management of the project, particularly in the early phase of project implementation (para. 17); and a landslide and adverse geological conditions (para. 18). (viii) The Bank's overall performance is considered deficient. The Bank failed to appraise the project adequately. The magnitude of the project was not consistent with the implementing and financial capacity of the borrower; and there was insufficient analysis of  iv the risks (para. 26). On a more positive note, during implementation, the Bank showed a good deal of flexibility in modifying elements of the project to more effectively meet the changing needs of the borrower (para. 27). (ix) The overall performance of the borrower is considered deficient in preparing and implementing the project. In part due to limited capacity, the borrower's involvement in project preparation was passive. EEB's performance during project implementation was seriously hampered by its ongoing financial difficulties, the lack of continuity in senior management, and the overall poor management of the project which gave rise to strong public criticism. On the positive side, during implementation the borrower did respond effectively to issues such as the landslide, and the adverse geological conditions and, much later, the relocation of project affected families (para. 28). (x) Generally speaking the project's outcome has to be considered highly unsatisfactory. Notwithstanding the partial success in achieving project objectives, this has been at a high cost, particularly in terms of the non-viability (financial and economic) of the project at completion (paras. 8, 29, Table 9). Future Operations and Key Lessons Learned (xi) A technical and economic feasibility study is being conducted to determine how many units should be added to the plant, and the best timing, in order to boost its generating capacity particularly at times of peak demand. The administrative, operational and maintenance arrangement has worked fairly well to date, and will continue in place until the best operating approach for the EEB is determined (paras. 30-33). (xii) The review of this project yields four key lessons, which have already been built into follow-on projects and instituted in both Bank policy and Colombia's sector policy: * Greater attention is required early in the project cycle to resettlement issues for a project's affected population. Involuntary resettlement is an integral part of project design and should be dealt with from the earliest stages of project preparation. In this project, there is clear evidence of the limited focus early on to the issue of resettlement, which led to delays in project implementation, an excessive cost overrun, and distrust on the part of the affected families. The Bank has now institutionalized early assessments as well as broader policies for involuntary resettlement2, and the Government also has placed resettlement planning at a more prominent level in the country's dam planning. 2 The Bank's OD4.30 of June 1990 broadens the treatment of resettlement issues beyond hydropower and irrigation projects to all types of investment operations, emphasizing the need for (a) minimizing involuntary resettlement; (b) providing people displaced by a project with the means to improve, or at least restore, their former living standards, earning capacity, and production levels; (c) involving both resettlers and hosts in resettlement activities; (d) a time-bound resettlement plan (prior to appraisal start-up); and (e) valuation and compensation principles for land and other assets affected by the project.  v Quality at entry (involving country commitment through broad-based participation in project preparation and ownership through borrower's leadership of project preparation) is paramount for project success. Clearly evident in this project is the lack of quality at entry: there was passive involvement by borrower during project preparation, in part due to limited capacity, indicating limited commitment and ownership; the project's magnitude was not consistent with institutional capacities. Resettlement particularly lends itself to active participation of borrower and stakeholders but with the underestimation of the affected population, participation of the stakeholders was not actively pursued at the early stages of the project. * Rigorous analysis of project risks is required at early phases of the project cycle. The institutional framework and external environment are critical to a project's success. In this project, a greater degree of certainty has been conveyed than is warranted, hence overly optimistic objectives/targets. More rigorous analysis of risks, such as the implementing and financial capacity of borrower; and the economic, social and environmental risks associated with resettlement, should have been undertaken. T There is a need to undertake a realistic appraisal of the underlying institutional framework of the sector and the borrower, and to include institution-building components in a project only if there is a commitment and a policy to implement required reforms. In general, the poor performance of EEB is rooted in the institutional set-up which did not provide incentives for the company to improve its performance. Political interests and short-term motives have taken precedence over financial and commercial objectives. Clearly, the long-term solution for the company's problems lies in the restructuring of the legal and institutional framework of the power sector (para. 34).  IMPLEMENTATION COMPLETION REPORT COLOMBIA GUAVIO HYDRO POWER PROJECT (LOAN 2008-CO) 3. PART I. PROJECT IMPLEMENTATION ASSESSMENT A. Project Objectives I. To provide the electricity supply needed to support growth and employment, and to allow substitution for more costly fuels, Colombia's energy balance projections indicated, at the time of project preparation, that 6,600 MW would have to be added to national power capacity by 1988. The project was the least-cost investment in the National Power Expansion Program, and its primary objective was to contribute 15% of the country's requirements through development of renewable energy resources. In exchange for providing 40% of the local investment cost, the sale of 40% of the annual Guavio output was to be guaranteed to ISA for the benefit of its shareholders. The remaining 60% of the plant's output was to be retained by EEB. The project was also expected to promote measures to strengthen weaker institutions in the sector and EEB's own financial planning, management and maintenance capabilities. In addition, a program was to be prepared and carried out to ensure environmental protection of the Guavio River and reservoir. 2. The project aimed at (i) providing new capacity and energy needed by EEB and the rest of the National System to meet forecast demand; (ii) assisting EEB to participate with the other ISA partners in the least-cost operation of the National System, as well as to improve its own efficiency; (iii) assisting EEB in improving its maintenance practices through studies and a training program for its technical staff, (iv) encouraging adequate environmental protection in the project area; (v) assisting EEB in the execution of the studies required to complete the assessment of the environmental impact of the Guavio hydroelectric plant; and (vi) promoting Government efforts to improve overall sector organization and to ensure sufficient access to local financing needed for the National Power Expansion Program. 3. The project comprised: (i) a hydroelectric plant constructed on the Guavio river. The plant included river diversions, rockfill dam and spillway tunnels; intakes and diversion tunnels; pressure tunnel, underground power house and transformer, caverns with access tunnel, and tailrace tunnel; ancillary electromechanical equipment for the power house; a step-up sub-station; two double-circuit transmission lines; and infrastructure for the project of access and service roads, and five bridges; (ii) EEB's  2 regional load-dispatch and telecommunication center; (iii) studies; and (iv) training for EEB's technical staff. 4. Project objectives were consistent with the Government's strategy for the energy sector which aimed at increasing the use of low cost domestic sources (such as hydropower) which were in abundant supply. Despite the clarity of objectives, it is fair to say that the magnitude of the project3 was not consistent with the implementing and financial capacity of EEB, particularly in light of known financial and institutional weaknesses4. Delays in project preparation, while not significant, can be traced to two key factors: first, a temporary return to power sector policies in Colombia which allowed for extreme regionalism rather than promoting a combined and coordinated effort in the national interest5; and second, persistent financial difficulties in EEB (electricity sales decreasing due to rationing during dry period 1980-8 1, higher tariffs, and increase in electricity theft) which slowed down the acquisition of land and resettlement of the affected population. B. Achievement of Project Objectives 5. Overall Objectives. The project is considered partially successful in achieving its objectives, particularly that of providing new capacity and energy needed by EEB and the rest of the National System to meet forecast demand. Other objectives met have been (i) assisting EEB to participate with the other ISA partners in the least-cost operation of the National System, as well as to improve its own efficiency; (ii) assisting EEB in improving its maintenance practices through studies and a training program for its technical staff, (iii) encouraging adequate environmental protection in the project area; (iv) assisting EEB in the execution of the studies required to complete the assessment of the environmental impact of the Guavio hydroelectric plant; and (v) promoting Government efforts to improve overall sector organization and to ensure sufficient access to local financing needed for the National Power Expansion Program. This rating takes into account the fact that, despite the project's relative success in reaching objectives, this has been at a high cost. The additional six years taken to complete the project has meant a deferral of anticipated revenues to EEB. It has yet to recover from this. 6. Physical Objectives. Planned: Construction of hydroelectric plant (950 million m3 useful capacity reservoir; river diversions, rockfill dam and spillway tunnels; intakes 3 This loan was for US$359 million, the largest ever loan to be made by the Bank to a Latin American country, to assist in the construction of the largest hydroelectric facility in Colombia. 4 For Loan 1807-CO (March 1980-December 1986), EEB's performance during implementation was below expectations, and effectiveness was, in fact, delayed one year because of EEB's high level of overdue accounts. The project experienced major delays, revenue covenants were generally not met, in some years the utility was unable to cover its debt service with internally generated funds, power losses increased substantially, and there was a large accumulation of accounts payable and receivable. 5 During 1972-77, no Bank lending for power was possible because the shareholders could not reach agreement on coordinated and sound development whereby they, through ISA, would combine resources for the construction and operation of large plants.  3 and diversion tunnels (about 4km) to conduct waters of the Chivor and Batatas Rivers into the Guavio reservoir; pressure tunnel (about 15km), underground power house and transformer, caverns with access tunnel (about 2km), and tailrace tunnel (about 5km); five generating units to be located in the underground power house; ancillary electromechanical equipment for the power house; a step-up sub-station at Guavio; two double-circuit 230kv transmission lines to Bogota (about 200 circuit-km), and four 230kv line bays at the Circo and Tunal substations in the Bogota 230-kv ring; and infrastructure of access and service roads (107 km) including equipment for their maintenance, five bridges and about 37km of 115kv transmission line and terminal substation; regional load-dispatch and telecommunication center (EEB); studies based on recommendations of the Environmental Reconnaissance study for Guavio, and study and implementation of a maintenance improvement program for EEB's generating plants; training program for EEB's technical staff including training in Colombia and abroad for staff who would operate and maintain the EEB's load-dispatch and telecommunications center, and training for staff responsible for operating and maintaining EEB's generating plants. 7. Achievements: The project's civil works, equipment installation and associated activities were carried out as planned. The power plant, with an ultimate capacity of 1,600 MW, was completed and has been commissioned. Initial installed capacity is 1,000 MW (five 200-MW units). Following are the principal features of the completed project: * An earth-and-rockfill dam 250 m high with a 1.012 billion m3 capacity reservoir. Spillway consisting of a control structure and two 500-m tunnels. Auxiliary tunnel giving access to the two valve houses and undersluice. Diversion and sluiceway tunnel. Submerged intake connected to the penstock. * Two 2-km diversion tunnels to convey water from the Chivor and Batatas rivers into the Guavio reservoir. * A 17-km underground conduit between the intake and underground powerhouse, consisting of a 13-km upper penstock, 500-m-high surge tank, pressure shaft 500 m high, and lower penstock, which branches into two conduits each 1,400 m long ending in distributaries that deliver water to each of the generating units (banks of four units per distributary). * Underground powerhouse at a depth of 600 m, with two bays housing the generating plant and transformers. A 2-km access tunnel. Two cable vaults each 500 m high to transport energy to the surface. * Freeflow tailrace tunnel 5 km long to restore water to the Guavio River. * Control houses, outdoor substation and switchyard connecting to 230-kV transmission lines. Load-dispatch and communications center.  4 * Transmission system: two double-circuit 230-kV transmission lines, 80 and 150 km long, convertible to 500-kV single-circuit; 11 5-kV transmission line 40 km long with two terminal substations at Mambita and Ubala. * About 100 km of access and service roads and heavy equipment for their maintenance. Infrastructure, camps, offices, shops, general services buildings. * Environmental and socioeconomic studies. Training of staff, in Colombia and abroad, in the operation and maintenance of the plant and its control and communications system. 8. Return on Investment. The return on investment, at appraisal, was calculated as 15 percent which compared favorably with the opportunity cost of capital for Colombia, estimated to be 11 percent. According to EEB, the re-analysis of the return on investment is now estimated at 8 percent, indicating the project is not economically viable. The increased construction period (approximately six years longer than envisaged) together with changes in the variables that had been used for the appraisal are contributing factors to the decrease in rate of return (Table 9). C. Implementation Record and Major Factors Affecting the Project 9. This section analyzes factors affecting project implementation. The project was declared effective on October 29, 1982, eleven months after the original effectiveness date of November 29, 1981. Additional time was required by the borrower to ensure satisfactory arrangements were made for financing of balance of EEB's investment program for 1982-83, a condition of effectiveness. The loan was closed June 30, 1990, two years after the original closing date of May 30, 1988. At appraisal, no major risks were cited other than those normally associated with construction of large dams and underground works. The assumption was made that if the land was acquired in a timely manner, and the Project Management Unit appropriately staffed, then the project would be carried out as scheduled. In fact, potential risks were far greater and were not realistically calibrated at appraisal: (i) despite EEB's relatively sound financial standing for some years, recent years had shown a deteriorating financial trend which could jeopardize the project's success6; (ii) EEB's implementation capacity for the project, particularly in light of the ongoing implementation difficulties of Loan 1807-CO (para. 4), was not consistent with the magnitude of the project; and (iii) past experience had shown that most large hydroelectric projects lead to a large influx of foreign construction workers, creating a "boomtown" phenomenon and the associated economic, social and environmental risks7. 6 EEB's 1979-80 financial situation was unusually difficult. There was a trend, over the previous five years, for operating costs to rise at a faster pace than tariffs, despite substantial tariff adjustments in real terms. In addition, delays in obtaining authorization for timely tariff increases and lack of local financing have negatively impacted EEB's financial situation. (SAR, May 6, 1981, pg. 30) 7 In this project, such population was estimated at 3,800 at its peak in 1984. This influx of foreign workers taxed the region's limited urban housing stock, increased its dependency upon outside food  5 10. Needless to say, the project did experience a number of difficulties throughout much of the implementation phase, including problems with resettlement of a much larger than estimated population; EEB's financial difficulties; ineffective management of the project, particularly in the early phase of project implementation; and a landslide and adverse geological conditions. All of these factors contributed to a delay in project completion to December 1993 (six years later than appraisal estimate) and a seven and a half year implementation phase for disbursement (versus appraisal estimate of six and a half years); and a 195 percent cost overrun (Table 8, para. 24). 11. Resettlement Issues. At appraisal it was thought that only 250 families would be affected by the project and hence a resettlement plan was not considered necessary and EEB planned to simply purchase the land. The reality is another story. At project completion, 1,774 families were displaced due to land acquisition required for the project. Of this number, 1,002 families (54%) left the region (since no resettlement took place in the early years, they were left on their own. There is no information about the socio- economic impact on this population.) Consequently, 772 families (46%) remained in the region. According to EEB8, 521 families have suffered significant socio-economic problems due to the displacement while 207 families suffer no significant impacts after the displacement (as per the 1988 census). As of the end of 1995, there were 17 families still awaiting relocation, which EEB is in the process of finalizing9. 12. The Power Sector Adjustment Loan (PSAL, Loan 2889-CO), which was implemented 1988-90, became the vehicle for correcting the social, as well as the environmental, issues confronting the projectl'. The PSAL was instrumental in addressing these concerns despite the continuing managerial neglect in EEB. Such neglect included lack of vehicles for the community relations unit staff, poor coordination with other units working on the Guavio project; bureaucratic inaction on key issues such as compensation payments for defrauded resettlers and land regularization; and failure to resolve expeditiously conflicts between EEB's contractors and the resettlers. 13. While the numbers above tell the sad story, such outcome must be tempered by the fact that Bank policy for resettlement was still evolving. The Bank's comprehensive policy for resettlement (OD 4.30) did not come out until June 1990 when the project closed. This policy substantially strengthens the Bank's first resettlement policy of 1980 (OMS 2.33) and its follow-on policy of 1986 (OPN 10.08). Since 1991, EEB has been able to put in place a Rehabilitation Plan (Plan de Manejo de Impactos Socioeconomicos), with supplies, led to sharp increases in homicide and other crime rates, and generated a need for greater public health, police, and other governmental services. 8See EEB's report on the socioeconomic impact of the Guavio hydroelectric project, March 1996, in LAC Information Center. 9 A condition for further preparation of the follow-on project with EEB will be satisfactory relocation of the remaining 17 families, as well as satisfactory economnic and social results of the mitigatozy actions put in place. 10 For a comprehensive assessment of the social and enviromnental issues of the Guavio project see Report No. 13453 of August 17, 1994 (PCR for Loan 2889-CO).  6 the Bank's assistance, which has benefited 257 displaced families and 158 families that were economically affected but not displaced. This must be recognized. 14. In sum, three key planning problems hampered the resettlement component of the project: (a) population estimates seriously undercounted the population to be displaced, including the new settlements attracted by the construction work; (b) widespread illiteracy and people's lack of information were used by dishonest officials to commit compensation fraud; and (c) resettlers who realized they had been left out of the compensation program, defrauded, or left without enough resources to move elsewhere, became politically active and joined forces in strikes with dam workers. Eventually fraud was eliminated, replacement lands were provided for remaining settlers, and research and resettlement planning have now become more prominent in Colombia's dam planning. As a result, the same organizational structures that initially channeled frustrations into organized resistance are now providing the architecture for developing resettlement procedures and support for resettlers' re-establishment. 15. EEB's financial difficulties were surfacing as early as 1981 (and continued throughout implementation), forcing EEB to rely on borrowings and delays in payments to ISA and contractors to finance its investments. Expected revenue was eroded by rationing; investment targets were unattainable with the lack of domestic financing (providing an uncertain short-term outlook for carrying out the construction program); and an overall lack of confidence and aggressiveness in financial management pervaded the utility. Key contributing factors to EEB's poor financial performance which prevailed throughout implementation of the project were: (i) decreased electricity sales due to rationing particularly during the period 1980-81; (ii) increase in electricity theft resulting from poor commercial management; and (iii) the country's economic recession. 16. In addition, the traditional strong municipal and trade union influence prevented EEB's management from following a proactive rational tariff policy and introducing long overdue operational efficiency improvements. ISA's shareholders were also unable to meet planned contributions to Guavio because of similar liquidity problems. To ameliorate the acute funding constraints of the project, EEB resorted to extreme current liability financing by increasing its accounts payable related to purchased energy (from ISA) and contractor's billings. These practices caused a deterioration in the compliance with financial covenants of existing multilateral loan agreements which in turn delayed processing of new multilateral and linked commercial financing operations included in Guavio's financing plan. In June 1988, the Government created a Management Steering Committee for Guavio composed of management representatives from Interconexion Electrica S. A. (ISA). The Steering Committee had a significant positive effect in the overall management of the project. Its mandate of issuing "prior formal opinions" on all fundamental project matters improved the implementation transparency of the project. But, handicapped by the above mentioned financial constraints, the improved management framework failed to demonstrate its effectiveness" . For a more comprehensive study of the financial issues see Report No. 8893 (June 28, 1990), OED Report on Colombia - The Power Sector and the World Bank, 1970-1987.  7 17. Ineffective management of the project adversely affected implementation of the project. The Project Management Unit was weak, particularly at project start-up, with unclear definition of the organization, functions and staffing for the Unit together with cumbersome procedures. Frequent top management changes at EEB (between 1985 and 1988 EEB had 3 changes in the General Manager position) together with weaknesses in organization and mid-level management all contributed to ineffective management of the project. In June 1982, a delegation from EEB came to the Bank/IDB to seek help in improving the Unit's functioning. This resulted in improvements to the Project Management Unit. And, in November 1987, in order to more effectively deal with arising critical issues, two additional units were created in the EEB for project management - one for planning and control and the other to deal with the social issues of the project. Nevertheless, project management did continue, in many respects, to remain weak, primarily due to: (i) interference of EEB's top management (Board) in project management; (ii) unclear responsibilities of numerous actors in project supervision (besides EEB project unit there were four consulting firms); and (iii) lack of experience of EEB staff in project management, which was further exacerbated in an environment where financial losses were increasing and the magnitude of the work was overwhelming. 18. Project implementation was seriously delayed when, on July 28, 1983, a landslide at the intake site killed about 200 people working on project construction, interrupting work on the river diversion component. The investigation found the contractor had taken the necessary safety precautions, citing the exceptional rainfall on July 8 (170mm at the dam site) as the major contributor, which drastically increased the movement rate of unstable mass, resulting in a "debris avalanche". In addition, adverse geological conditions, especially at the pressure shaft site and powerhouse discharge tunnel, contributed to delays. A second pressure shaft collapsed in March 1988 after the first one was abandoned in September 1987. Both events were beyond the control of the implementing agency. 19. Timing of Project Completion. Delays in completing the individual components of the project put the commissioning of the plant back by approximately six years. The following table shows planned and actual completion dates of the main structures and erection work:  8 SCHEDULED PHYSICAL COMPONENT COMPLETION (1) COMPLETED Infrastructure, accesses, roads, camps May 1985 September 1988 Dam and auxiliary features April 1986 March 1990 Batatas diversion January 1984 August 1984 Chivor diversion February 1986 October 1987 Underground powerhouse and conduits November 1986 Januaiy 1991 Electromechanical equipment November 1987 December 1992 Control houses, outdoor substation, switchyard August 1985 December 1992 (2) Transmission lines October 1986 December 1993 (3) Plant conmmissioning November 1987 December 1993 NOTES: (1) Staff Appraisal Report, May 6, 1981, Annex 4.6, page 56. (2) Installation work in cable vault A was completed in May 1995. (3) At the outset, as the transmission lines for the project were being completed, energy produced by the Guavio plant was delivered through the priority connection with the Chivor plant. Lines for the central corridor were completed in December 1993 and for the south corridor in May 1994. 20. Reasons for Project Completion Delays. Construction work was started hurriedly on this project in July 1981, in an effort to help make up an energy shortfall which forced the country to ration electricity that year and the next. Early on, a series of difficulties with loan disbursements and acquisition of land, coupled with geological and construction problems, prompted the first complaints from contractors. This led to a first general rescheduling of the project in July 1985, which moved its expected completion date from November 1987 to March 1989. 21. Energy-efficiency and energy-substitution campaigns launched in the wake of the 1981 - 1982 rationing drove demand figures down drastically, and the expansion plan had to be revised accordingly. The combination of successive adjustments to the plan and the government's macroeconomic policy prompted a second overall rescheduling of the project in mid-1987. Calls for tenders for equipment supply and installation likewise had to be adjusted, and the expected date for completion of the project was put at late 1993. 22. Finally, in April 1992, in the midst of an economic state of emergency and severe electricity rationing, the government decided to step up the pace of work on the project to see it completed quickly. The first generating unit was commissioned in December 1992 and the four others in 1993, the last of them in July of that year.  9 23. Performance of Consultants. The consultants' performance was generally satisfactory. During the construction phase a number of complaints were filed by contractors who alleged that consultants were at times taking too long to do their work. The consultants took an active role in resolving these problems. A Colombian consulting firm was awarded the contract for basic and detailed design engineering, preparation of bid documents for the main civil-works contracts and equipment supply and installation, examination of bids, and construction advisory services. The design concept and technical features were reviewed periodically by a Consultants' Committee of four international experts and two local consultants representing EEB. Three local consortia were engaged to supervise and monitor the construction and installation contracts, providing inspection, technical, administrative, and accounting services. They supervised construction of the dam and appurtenant structures and oversaw construction of the underground structures and instaDlation of electromechanical equipment. A local consortium was hired to design the transmission system and provide advisory support during its construction, and another Colombian consortium supervised erection of the lines. 24. Project Cost Overrun. The total cost of the project was US$2,545 million in comparison to the appraisal estimate of US$1,303 million. The increase in costs is due mainly to increases in (i) engineering and administrative costs because of the longer period of project construction and higher than expected participation of consultants in project supervision; (ii) infrastructure and land acquisition costs underestimated at appraisal; (iii) civil works costs due to geological problems found at tail-race tunnel and power shaft; and (iv) equipment costs initially underestimated. It should be noted that 63 percent of the overall cost overrun and 85 percent of the foreign cost overrun is attributable to interest during construction. In short, overall poor management within EEB is a key contributor to the high project cost overrun (Table 8a). D. Project Sustainability 25. Project sustainability is considered likely, i.e., the project will likely maintain the achievements generated in relation to its major objective of providing new capacity and energy needed by EEB and the rest of the National System to meet forecast demand. Certainly the project is a financial disaster in terms of the high project cost overrun, and overall poor management within EEB during the project timeframe has been a large contributor to this12. While EEB's financial difficulties could negatively impact sustainability, to date this has not occurred and it is considered unlikely to do so, particularly in light of the recent decision to lease the plant to a private operator to help pay the debt of the Guavio plant. In support of sustainability, two key factors stand out: first, the simple maintenance required of the plant, which is being done effectively; and second, the low operating costs necessary for the plant. Therefore, it is expected that the Guavio plant will continue to generate electricity well into the 21st century. 12 It should be noted that the financial difficulties are also shared by Interconexion Electrica S. A. - Generation (ISAGEN) and its shareholders.  10 E. Bank Performance 26. The Bank's overall performance is considered to be deficient. The Bank failed to appraise the project adequately. As stated in para. 4, the magnitude of the project was not consistent with the implementing and financial capacity of the borrower; and there was insufficient analysis of the risks. The Bank's continued failure to supervise the social program in the early years of implementation sent a signal to project management that these issues could be left aside, which they were until they reached crisis levels. In addition, the project was deficient in not having a well developed and detailed environmental management plan (with a specific budget, timetable, and implementation targets) before project construction began. An acceptable Environmental Management Plan for the project was produced in 1988, long after construction had begun"3. 27. On a more positive note, during implementation, the Bank showed a good deal of flexibility in modifying elements of the project to more effectively meet the changing needs of the borrower. For instance, the Bank agreed to temporarily advance disbursements through the Special Action Program and to finance interest during construction for two debt service payments, when the borrower was particularly vulnerable. Numerous other modifications, including reallocations, were agreed to by the Bank to facilitate the Borrower's implementation of the project. In addition, the Bank did eventually play a key role in directing the borrower's attention to the serious social and rural displacement problems started by the project, and continued to closely follow-up the corrective action program, primarily through the PSAL. F. Borrower Performance 28. The overall performance of the borrower is considered to be deficient in preparing and implementing the project. In part due to limited capacity, the borrower's involvement in project preparation was passive. And clearly, EEB's performance during project implementation was seriously hampered by its ongoing financial difficulties, the lack of continuity in senior management, and the overall poor management of the project which gave rise to strong public criticism. In general, the poor performance of EEB is rooted in the institutional set-up which did not provide incentives for the company to improve its performance. Political interests and short-term motives have taken precedence over financial and commercial objectives. Clearly, the long-term solution for the company's problems lies in the restructuring of the legal and institutional framework of the power sector. (See Box 1 for history of EEB, highlighting the cycles of public and private sector involvement. This history is similar to that of several other utilities in Latin America). On a positive note, during implementation the borrower did respond effectively to arising issues such as the landslide, and the adverse geological conditions and, much later in 3 The Bank's environmental assessment procedures (OD 4.01 October 1991) now require that (for Category "A" environmentally sensitive projects) a draft environmental management plan be prepared prior to start of appraisal.  11 implementation, the relocation of project affected families. The Resettlement Report prepared by EEB's Community Relations Office provided a virtual gold mine of statistical information on the demography and socio economic situation of the rural population displaced by the land acquisition program at the Guavio site. Regrettably, such analysis was not performed at the preparation stage of the project. It is safe to say, however, today the Colombian power sector is among the Bank's most advanced borrowers in its ability to manage social issues. Box 1 The History of Empresa de Energia de Bogota (EEB) Cycles of Public and Private Sector Involvement A successful concession was foiled by bad tariff regulation ... In 1885, the Municipality of Bogota signed a concession contract with a local entrepreneur for the formation of the Electric Company of Bogota (EEB) to generate and distribute light and power to the city. It was stipulated that the electricity tariff should be determined by free competition with alternative sources of light and power (at the time, wvax candles, oil, gas and other lighting companies). In 1890, EEB started to supply electricity to BogotA from its 300 kw hydro plant. The Company was an immediate success, with rapid growth in electricity consumption for the next two decades. By 1920 EEB was exploiting to the limit the hydro potential available to it and expansion would have to be based on coal-fired plants. Electricity tariffs, however, according to the concession contract were set below long-run marginal costs and did not generate enough resources for the transition from low cost hydro-electricity to higher cost thermal- electricity. After two years of deterioration in quality of service and decline in energy consumption, EEB was allowed to double its tariffs in order to finance the expansion of the system. As would be predicted consumer reaction to the price increase was strong. But predatory price competition over a natural monopoly was not the answer... .The Government decided then that the best way to control electricity price increases was to end EEB's monopoly and introduce competition in the electricity industry through the creation of the National Electricity Company (NEC). Nevertheless, the end-result of competition was not the intended one. NEC invested heavily in generation equipment and developed a distribution network alongside the existing one owned by EEB. Soon after the start of NEC's operations, predatory competition began between the two power companies which, as is typical for power utilities, had high investment costs and low short-run marginal costs. The result of the price war, when many consumers moved from one company to the other without paying their bills, was the financial insolvency of both companies and a power crisis. Mixed ownership of a single supplier was an improvement.... In 1927, the Municipality of Bogota was forced to intervene by buying half the shares of EEB and the whole of National Electricity Company, merging them into a single mixed company. The power crisis was thus solved and from 1928 to 1950 the electricity market resumed healthy growth, supplied by a well-managed and profitable utility. Public ownership with private control also yielded acceptable results .... In spite of the satisfactory services rendered by the local power company, the Municipality of Bogota in line with the then current practice in Latin America, decided to increase its control over the power utility through complete ownership of its assets. In 1951, the Municipal Government obtained financing from local commercial banks and bought the totality of shares of EEB. The commercial banks involved, concerned with the good management of EEB, demanded control of Company's board. Under the commercial bank's control, EEB continued to be well run and profitable. Until the public sector took full control.... In 1971, after liquidation of the twenty-year debt, the Municipality took full control of EEB. From then on the history of EEB is one of continuous decline. Between 1971 and 1990, operating costs grew 83 percent in real terms, total electricity losses increased from 10 to 22 percent, and the company's financial situation went from healthy to critical. Recently, EEB has had six commercial managers in a period of two years.  12 G. Assessment of Outcome 29. Generally speaking the project's outcome has to be considered highly unsatisfactory. Notwithstanding the partial success in achieving project objectives, this has been at a high cost, particularly in terms of the non-viability (financial and economic) of the project at completion H. Future Operation 30. The Guavio hydroelectric plant has been built for an ultimate capacity of 1,600 MW, but is currently operating at 1,000 MW. With its current capacity it can generate 5,200 GWh of firm power annually. The plant can be expanded by installing three additional 200-MW units; the civil works needed for this increase in plant capability are complete at this writing. 31. As part of the National Interconnected System, the plant must adhere to the rules of the National Load-Dispatch Center. The restrictions this has entailed have kept the plant's output below the design levels to ensure overall economic efficiency of the power system. As of December 1995 it had produced approximately 13,017 GWh (an annual average of 4,300 GWh), as follows: YEAR ENERGY WATER STORAGE 1992 62 GWh 786 Mm3 100% 1993 4,111 GWh 771 Mm3 98% 1994 4.444 GWh 766 Mm3 97% 1995 4,400 GWh 735 Mm3 94% 32. A technical and economic feasibility study is being conducted to determine how many units should be added to the plant, and the best timing, in order to boost its generating capacity particularly at times of peak demand. 33. The EEB has been administering, operating, and maintaining the plant with its own funds. Seeing to these tasks for the Guavio Project Office are its Operations and Installation Division and Construction Division, which handle operations and maintenance on site with a team of temporary operators. These units receive technical, administrative and logistical back- up from the Engineering Division and Contracts Division and from the Socioeconomic Group, which deals with issues affecting communities in the region. This administrative, operational and maintenance arrangement has worked fairly well to date, and will continue in place until the best operating approach for the EEB is determined.  13 I. Key Lessons Learned 34. The review of this project yields four key lessons, which have already been built into follow-on projects and instituted in both Bank policy and Colombia's sector policy: Greater attention is required early in the project cycle to resettlement issues for a project's affected population. Involuntary resettlement is an integral part of project design and should be dealt with from the earliest stages of project preparation. In this project, there is clear evidence of the limited focus early on to the issue of resettlement, which led to delays in project implementation, an excessive cost overrun, and distrust on the part of the affected families. The Bank has now institutionalized early assessments as well as broader policies for involuntary resettlement'4, and the Government also has placed resettlement planning at a more prominent level in the country's dam planning. * Quality at entry (involving country commitment through broad-based participation in project preparation and ownership through borrower's leadership of project preparation) is paramount for project success. Clearly evident in this project is the lack of quality at entry: there was passive involvement by borrower during project preparation, in part due to limited capacity, indicating limited commitment and ownership; the project's magnitude was not consistent with institutional capacities. Resettlement particularly lends itself to active participation of borrower and stakeholders but with the underestimation of the affected population, participation of the stakeholders was not actively pursued at the early stages of the project. - Rigorous analysis of project risks is required at early phases of the project cycle. The institutional framework and external environment are critical to a project's success. In this project, a greater degree of certainty has been conveyed than is warranted, hence overly optimistic objectives/targets. More rigorous analysis of risks, such as the implementing and financial capacity of borrower; and the economic, social and environmental risks associated with resettlement, should have been undertaken. * There is a need to undertake a realistic appraisal of the underlying institutional framework of the sector and the borrower, and to include institution-building components in a project only if there is a commitment and a policy to implement required reforms. In general, the poor performance of EEB is 14 The Bank's OD4.30 of June 1990 broadens the treatment of resettlement issues beyond hydropower and irrigation projects to all types of investment operations, emphasizing the need for (a) minimizing involuntary resettlement; (b) providing people displaced by a project with the means to improve, or at least restore, their former living standards, earning capacity, and production levels; (c) involving both resettlers and hosts in resettlement activities; (d) a time-bound resettlement plan (prior to appraisal start-up); and (e) valuation and compensation principles for land and other assets affected by the project.  14 rooted in the institutional set-up which did not provide incentives for the company to improve its performance. Political interests and short-term motives have taken precedence over financial and commercial objectives. The long-term solution for the company's problems lies in the restructuring of the legal and institutional framework of the power sector.  - 15 - IMPLEMENTATION COMPLETION REPORT COLOMBIA GUAVIO HYDRO POWER PROJECT (LOAN 2008-CO) 4. PART II. STATISTICAL TABLES A. Table 1: Summary of Assessments A. Achievement of Substantial Partial Negligible Not Applicable objectives Macro policies E El x Sector policies ni oo x Financial objectives O n 3 x Institutional development L X 3L Physical objectives C X 3 L Poverty reduction 31 3 x Gender issues 3 3 3 x Other social objectives 3 x 3 X Enviromnental objectives 3 x 3 X Public sector management El Li LI x Private sector development 3 x L 0 Other (specify) L 1X 0 3 B. Project sustainability kely Unlikel Uncertain x LI D C. Bank perforrnance Highly satisfactory Satisfactory Deficient Identification K I Preparation assistance Li x  - 16- Appraisal C H X Supervision X H ~~~~~~~~x m- D. Borrower Perfornance Highly satisfactory Satisfactorv Deficient (/) (/) (v) Preparation Implementation Covenant compliance F] Operation (if applicable) E. Assessment of outcome Highly satisfactory Satisfactory Unsatisfactory Highly unsatisfactory O C x  - 17 - B. Table 2: Related Bank Loans/Credits'5 Loan/credit title Purpose Year of approval Status Preceding operations 1. 681 -CO Chivor Hydroelectric 1970 Completed 2. 874-CO Guatape II Hydroelectric 1973 Completed 3. 1582-CO San Carlos I Hydropower 1978 Completed 4. 1628-CO (EEB) Mesitas Hydroelectric 1978 Completed 5. 1725-CO San Carlos II Hydropower 1979 Completed 6. 1807-CO (EEB) Bogota Power Distribution 1980 Completed 7. 1868-CO Guadalupe IV Hydropower 1980 Completed 8. 1953-CO Playas Hydropower 1981 Completed Following operations 1. 2401-CO Power Development Finance 1984 Completed 2. 2449-CO Rio Grande Multipurpose 1984 Completed 3. 2634-CO (EEB) Bogota Distribution II 1986 Completed 4. 2889-CO Power Sector Adjustment 1988 Completed 5. 3278-CO Public Sector Reform 1990 Ongoing C. Table 3: Project Timetable Steps in project cycle Date planned'6 T Date actual/ latest estimate Identification (Executive Project Summary) 1979/80 May 18, 1979/Jan. 16, 1980 Preparation 1980 January - December 1980 Appraisal December 1980 December 1980 Negotiations April 1981 April 1981 Letter of development policy (if applicable) NA NA Board presentation May 1981 May 28, 1981 Signing August 1981 March 8, 1982 Effectiveness November 1981 October 29, 1982 First tranche release (if applicable) NA NA Midterm review (if applicable) NA NA Second (and third) tranche release (if NA NA applicable) ____ Project completion November 30, 1987 December 31, 1993 Loan closing May 30, 1988 June 30, 1990 Includes projects in the same sector/subscctor as this project and adjustmcnt operations with related objectives. 16 As provided in the Staff Appraisal Report (SAR) No. 3408b-CO.  - 18 - D. Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual . FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 Appraisal 53.0 98.0 166.9 254.7 328.1 355.9 359.0 estimate I Actual 0 41.7 70.1 157.0 203.4 295.0 348.5 352.4 358.0 359.0 Actual as % 0 43 42 62 62 83 97 98 99.7 100 cf estimate Date of final disbursement: November 13, 1990  - 19- E. Table 5a: Key Indicators for Project Implementation/ Planned and Actual Performance Indicators17 Empresa de Energia de 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Bogot6 _ _ -Service - Gross generahion,own (3,601) 3,330 (4,108) 3,222 (4,777) 3,490 (4,842) 3,862 (5,347) 2,706 (5,611) 2,714 (5,635) 3.233 (7,597) 4,316 (8.791) 3,780 3,441 3,861 4,265 3,802 7,914 8,205 plants (GWh) - Purchases (GWh) (1,625) 1,523 (1,643) 1,391 (1,587) 1,672 (2,179) 1,636 (2,361) 2,972 (2,891) 3,306 (3,787) 3,247 (2,678) 2,637 (2,476) 3,473 4,127 4,132 3,935 3,481 695 1,055 Total Suppy (5,226) 4,853 (5.751)4,613 (6,364) 5,163 (7.021) 5,498 (7,708) 5,678 (8,502) 6,020 (9,422) 6,480 (10275)6,953 (11267)7,253 7,568 7,993 8,200 7,283 8,609 9,260 - Sales (4.009) 3,956 (4,410) 3,832 (4,875) 4,178 (5,393) 4,183 (5,967) 4,259 (6,605) 4,551 (7,315) 4,876 (8,104) 5,140 (8,982) 5,435 5,857 6,145 6,525 5.909 6,422 6,929 Losses and unaccounted (1,097) 898 (1,208) 781 (1,177) 985 (1,229) 1,315 (1,310) 1,419 (1.403) 1,469 (1,508) 1,603 (1,593) 1,813 (1,690) 1,818 1,710 1,848 1.675 1,373 2,188 2,331 for (GWh) %io (21 0))227% (21 0) 20 4% (18 5) 23 6% (17 5) 31 4% (17 0) 33.3% (16 5) 32 3% (16 0) 32 9% (15 5) 35 3% (15.0) 33 5% 29 2% 30 1% 25.7% 23 2% 34 1% 33 6% Number of customers (580) 560 (633) 585 (690) 622 (753) 666 (822) 710 (898) 764 (980) 805 (1,071) 859 (1,170) 914 973 1,023 1,085 1,120 1,142 1,292 (1000) Number of employees" (2,662) 2,729 (2,822) 3,079 (2,991) 3,210 (3.170) 3,443 (3,361) 3,636 (3,562) 3,771 (3,776) 3,972 (4,003) 4,165 (4,243) 4,064 4,193 4,307 4,339 4,301 4,255 4,297 Customers per employees (218) 205 (224)190 (231)194 (238) 193 (245)195 (252) 202 (260) 203 (268) 206 (276) 225 232 238 250 260 268 301 Energy sates per employee (1,506) 1,227 (1,563) 753 (1,630) 968 (1,701) 740 (1,775) 623 (1,854) 780 (1,937) 904 (2,024) 975 (2,117) 1,371 1,664 1,838 2,186 1.608 2,167 2,632 (MWh) Financial -Rate of return for the year (92) 24.4 (15 3) 212 (14.5) 191 (14 5) 217 (16 8)16.0 (20 2)14 9 (25 2)12.0 (23 2)105 (20.5)8.1 8 6 12 0 6 6 6 0 7 7 5 9 - Self-financing ratio (%) ' (32) 33 (21) 25 (32) 30 (37) 39 (36) 34 (49) 104 (55) 34 (70) 27 (97) 75 31 31 23 36 16 31 annual -Debt service coverage (2 3) 2 6 (1.8) 2 5 (1 6) 2 0 (1.5)1 8 (1 7)1 8 (1.7) 3.0 (18)1 7 (2 3)1 5 (2 4)1 1 1 0 1 0 1 0 0 6 1 4 0 6 ratio"1 - DebVtequity ratio n (40/60) 62 (47/53) 70 (51/49) 75 (51/49) 75 (51/49) 79 (49/51) 84 (46Y54) 85 (41/59) 84 (33/67) 84 84 86 81 82 73 67 Accounts recervable as a (23) 47 (21) 57 (19) 48 (17) 42 (17) 41 (17) 43 (17) 44 (17) 38 (17) 68 44 36 35 47 43 33 % of annual sates 17 Planned Performnance Indicators in brackets. 'I Percent of total supply. 19 Projected to grow at an average of about 6% per year. 20 Net intemal cash generat3on/construction program plus interest during construction and Investment in ISA. 21 Times that total debt service is covered by net income. n Total debt (including ISA contributions to Guavio and liability reserves)/total equity.  - 20 - 23 F. Table 5b: Key Indicators for Project Implementation/ Planned and Actual Financial Indicators Empresa de Energia de 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Bogota Rate of Return Aver Net Fixed Assels (19133) 12851 (24489)21438 (45032) 34029 (72081) 54332 (96680) 87185 (125839) (155303) (276134) (423434) 780574 1064665 1381487 1766599 2232431 2697633 (Mil col) 153703 266244 415033 584710 Net Operating Income (Mill (1880) 3140 (3750) 4547 (6543) 6506 (10428)11796 (16276)13975 (25458) 22862 (39134) 31934 (64304) 43500 (86682) 47081 67139 128281 90720 106546 172874 159518 Cot ) Rateof Return(%) (9 2) 24.4 (153) 212 (14 5) 191 (14 5) 217 (168)160 (20.2) 14.9 (252)120 (23 3) 10.5 (20 5) 81 86 120 66 6 0 7 7 5 9 Debt Debt Service Coverage (2.3) 2 6 (1.8) 2.5 (1.6) 2.0 (1 5)1.8 (1 7)1.8 (1 7) 3 0 (1 8) 1.7 (2 3) 1.5 (2 4) 1 1 1 0 10 1 0 06 1 4 06 (times) DebtIEquity Ratio (40/60) 62 (47/53) 70 (51/49) 75 (51/49) 75 (51/49) 79 (49/51) 84 (46/54) 85 (41/59) 84 (33/67) 84 84 86 81 82 73 67 Cash Generation Ratio (%) (32 2) 33 (20 9) 25 (32 2) 30 (36.5) 39 (36.1) 34 (49.2) 104 (54 5) 34 (70.4) 27 (96.9) 75 31 31 23 36 16 -31 Accounts Receivable (23) 47 (21) 57 (19) 48 (17) 42 (17) 47 (17) 43 (17) 44 (17) 38 (17) 6B 44 36 35 47 43 33 (as a percentage of annual sates) Operating Ratio (1.0) 52 (1 0) 50 (1 0)53 (0.9) 45 (0 8) 53 (0 7) 43 (0 8) 43 (0 8) 41 (0 9) 50 48 53 59 64 53 64 CurrentRatio (1 3)0.6 (1.6)0.8 (18)0.9 (17)11 (1.4)09 (1.6)07 (18)05 (1.8)05 (21)04 0.4 03 0.5 05 08 0.7 Depreciation (39)53 (38)1.8 (43)51 (3.7)58 (3.8)57 (38)5.1 (3.8) 1.5 (4.0)3.8 (35)3.8 35 40 38 07 2.8 33 (as a percentage of average gross fixed assets) Cost of Borrowin (%M 7.8 6.6 7.3 5.4 4.8 2.9 2 2 35 4 6 58 42 30 3 2 23 9 221 23 Planned Financial Indicators in brackets.  - 21 - G. Table 6: Key Indicators for Project Operation I. Key implementation indicators Service Gross generation (Gwh) Purchases (Gwh) Total Supply (Gwh) Sales (excl. own consumption) Losses & unaccounted for No. of customers No. of employees Customers per employee Energy Sales per employee (Mwh) Financial Rate of return for year (%) Self-financing ratio (%) Debt service coverage ratio Debt/equity ratio Accounts receivable as a 0% of annual sales Implementation Indicator projections are still being determined by EEB and will be incorporated in the proposed follow-on project, now being identified/prepared.  - 22 - H. Table 7: Studies Included in Project Study Purpose as defined at Status Impact of study appraisal/redefined Institutional Assess improvements in EEB's Completed Institutional studies operation and maintenance recommended EEB staff training planning and practices in programs, which staff undertook generating plants. Recommend to improve skills for operation, training required by EEB's staff control and maintenance of in charge of operation and generating plants. maintenance of generating plants. Environmental Environmental Impact of Completed On the basis of the study, Project program was set up to alleviate adverse effects of project. Further studies were also carried out on environmental issues, such as development of a Five Year Environmental Action .__ _ _ _ _ _ _ _ _ _ _ _ _ ._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ._ __._ __._ __._ _ P la n . 1. Table 8A: Project Costs Appraisal estimate (US$M) i tual (US$M l Item Local costs Foreign Total Local costs Foreign Total . __________________________ _____________ costs costs Engineering and Admin 51.6 6.4 87.4 230.6 1.9 232.5 Infrastructure and Land 12.7 9.1 21.8 71.9 16.9 88.8 Main Civil Works 172.8 292.2 465.0 329.1 251.4 580.5 Electro-mechanical 4.7 89.1 93.8 66.0 92.6 158.6 Equipment. Transmission System 7.5 19.2 26.7 10.9 36 0 46.9 Load-Dispatch Center 2.1 13.0 15.1 8.1 39.8 47.9 Studies and Training 0.5 0.8 1.3 0.4 0.4 Contingencies Physical 40.0 60.5 100.5 132.0 200.0 332.0 Price 83.0 187.9 270.9 -118.2 138.9 20.7 Subtotal 123.0 248.4 371.4 13.8 338.9 352.7 Total Project Cost 374.9 678.2 1053.1 730.4 777.9 1508.3 Interest during 0.0 250.0 250.0 206.2 831.1 1037.3 construction TOTAL 374.9 928.2 1303.1 936.6 1609.0 2545.6  - 23 - J. Table BB: Project Financing Item Appraisal Estimate ActualLatest Estimate (US$m) (US$m) Commercial Bank 340.0 1,158.1 Suppliers 129.0 169.3 I1DB 100.0 859.2 World Bank 359.0 359.0 TOTAL 928.0 2,545.6  - 24 - K Table 9: Economic Costs and Benefits __________________ ~~(millions of U.S. dollars)__ __ __ __ _ Year C AO&M Toal Energy Net Revenues- CosIts Costs Cost Sales E . I 1980 0.0 2 1981 56.6 56.6 -57 3 1982 21,6 21.6 -22 4 1983 1493 149.3 -149 5 1984 201.4 201.4 -201 6 1985 213.7 213.7 -214 7 1986 226.9 226.9 -227 8 1987 223.2 223.2 223 9 1988 286.8 286.8 -287 10 1989 222.0 222.0 -222 11 1990 250.7 250.7 -251 12 1991 1802 180.2 .180 13 1992 243.9 0.2 244.1 2.3 -242 14 1993 34.9 1.2 36.1 128.0 92 15 1994 197.2 11.5 208.7 161.0 -48 16 1995 10.0 28.2 38.2 174.2 136 17 1996 26.7 26.7 197.2 171 18 1997 25.0 25.0 219.2 194 19 1998 23.1 23.1 250.0 227 20 1999 24.4 24.4 282.4 258 21 2000 24.8 24.8 277.5 253 22 2001 25.7 25.7 292.3 267 23 2002 26.5 26.5 301.5 275 24 2003 28.1 28.1 342.3 314 25 2004 28.2 28.2 325.5 297 26 2005 28.1 28.1 298.5 270 27 2006 29.3 29.3 321.3 292 28 2007 30.2 30.2 330.9 301 29 2008 31.1 31.1 340.9 310 30 2009 32.0 32.0 351 1 319 31 2010 33.0 33.0 361.6 329 32 2011 34.0 34.0 372.5 33B 33 2012 35.0 35.0 383.7 349 34 2013 36.1 36.1 395.2 359 35 2014 37.1 37.1 407.0 370 36 2015 28.3 28.3 419.2 391 37 2016 39.4 39.4 431.8 392 38 2017 40.6 40.6 4448 404 39 2018 196.3' 41.8 238.1 458.1 220 40 2019 43.1 43.1 4718 429 41 2020 44 4 44.4 486.0 442 42 2021 45.7 45.7 500.6 455 43 2022 47.1 47.1 515.6 469 44 2023 48B5 48.5 531.1 483 45 2024 49.9 49.9 547.0 497 46 2025 51.4 51 4 563.4 512 47 2026 53.0 53.0 580.3 527 48 2027 54.6 54.6 597.7 543 49 2028 56.2 56.2 615.7 559 50 2029 57.9 57.9 634 1 576 51 2030 59.6 59.6 653.1 594 52 2031 61.4 61.4 672 7 611 53 2032 63.2 63.2 692 9 630 54 2033 65 1 65 1 713 7 649 55 2034 671 671 7351 668 56 2035 69.1 69 1 757.2 688 57 2036 71.2 712 779.9 709 58 2037 73.3 73.3 803.3 730 59 2038 75.5 75 5 827.4 752 60 2039 77.8 77 8 852.2 774 61 2040 80 1 80 1 877 8 798 62 2041 82.5 82.5 9041 822 63 2042 85 0 85.0 931 2 846 Total 2714 7 2232 2 4946.9 24513 9 19567 0 12% 11% 10% 9% 8%/ Net Present Value 1360) 373) 241 (3) Internal Rate of Return I I I 8 'Replacement of the equipment after reaching a life sWn of 25 years. 2 Asunptiona used are: (i) Constat USS of December 1993; (ii) exchange rate of lIUSS=ColS804.33; (iii) discount rate 9%; (iv) life span 50 years, 5 years for equipment; (v) use of long term teriff arting at USS30.S7/MWh; (vi) operation and maintenance costs and transference according to the Environmental Law are included in the tables; and (vii) genetion: tarting with 4200 MW and reaching 5000MW in 1998, then constant.  - 25 - L. Table 1024: Status of Legal Covenants CONTRACT COMPLIANCE DATE SECTION SUBJECT-MATTER PER CONTRACT COMPLIANCE STATUS / COMMENTS 3.03(b)i Environmental inpact assessment July 1983 C: Letter 320951, May 30/83. I BRD acceptance, letter July 18/83 3.03(b)ii Discussion with the Bank July 1983 C: Letter 320951, May 30/83. I BRD acceptance, letter July 18/83 3.03(b)iii Implementaton of program in January 1984 C: Done accordance with environmental impact assessment 3.03(c) Employment of consultants for study of April 1985 C: Done maintenance program, and implementation of same 3.03(c)i Training part d(1) C: Done 3.04(a)(b) Insurance policy C: Policies in force through June 25, 1996 3.05(c)i Quarterly report on the project (Periodically) C: Done. 55 reports sent 3.06 Land CP: Negotations complete for all land required for the project. Instability in reservoir area made it necessary to purchase 10 new properties. Titles being formalized 3.07 Environmental impact C: Being fulfilled pursuant to Section 3.03(b)iii 5.02(a)i-iii Audited financial statements (Periodically) C: Most recent report sent by EEB with note 563021 of June 6/95 5.02(b) Rate of retum (Periodically) C: Most recent report sent by EEB with note 563021 of June 6/95 5.02(c) Balance sheet projecUons for seven (Periodically) C: Most recent report sent by EEB with note years 523863 of October 31/94 5.05(a)(b) Energy sales C: Most recent report sent by EEB with note 563021 of June 6/95 5.06-5.07-5.08 Tariff review C: Current National Tariff Board directives being .__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _applied Complied with ': Complied with partially Because of the time lag between the project closing and the preparation of the ICR, and the change in the MIS for covenant compliance, together with no records in the files for covenant compliance, at the Bank's request the borrower has prepared a summary of covenant compliance.  - 26 - M. Table 11: Compliance with Operational Manual Statements (Not Applicable) N. Table 12: Bank Resources: Staff Inputs Stage of project cycle Planned Revised Actual l___________________ Weeks US$ Weeks US$ Weeks US$ Through appraisal 68.6 73,537 Appraisal-- Board X _ X___X___7.8 38,819 Board -- effectiveness NA NA NA NA 23.9 26,233 Supervision 72.8 235,271 Completion 13.5 " 23,425 1 This time includes the output of an internal report on assessment of the resettlement component as a divisional exercise.  - 27 - 0. Table 13: Bank Resources: Missions _ - Stage of project Month/ Number Days in Specialized Performance Rating Types of cycle year of field staff skills Problems p ersons represented Implnemntation Development status objectives Through 10/79 3 12 pe,fa,lo appraisal 12/79 2 5 pe Appraisal -- 12/80 5 12 pe,fa,lo,dc through Board approval Board -- 6/81 1 5 ec effectiveness 9/81 1 5 pe Supervision 10/81 2 5 pe 2/2 f, m 12/81 1 5 fa 12/81 1 5 pe 12/81 1 5 fa 3/3 f, m 4/82 3 5 pe 6/82 1 5 pe 3/2 f,m 7/82 1 5 trg 11/82 1 5 pe 6/83 1 5 pe 12/83 1 3 pe 1/84 1 3 fa 3/84 1 5 pe 2/2 f,m 10/84 1 5 pe 2/2 f,t,m 11/85 2 5 pe,fa 8/86 2 5 pe,fa 11/87 4 5 3pe,fa 2 2 1/88 1 5 ss 2/88 1 5 anthro 4/88 5 5 2pe,fa,2trg 3 3 12/88 3 5 2pe,fa 3 3 6/89 2 5 2pe 3 3 10/89 1 5 pe 3/90 1 5 socio 8/90 1 5 pe,fa 2 2 3/91 1 5 anthro 7/91 3 5 pe 3 3 pe= power engineer fa-fin.analyst lo=Ioan ofricer ececologist ss=social scientist anthro=anthropologist socio=sociologist -ffinancial m-management t-technical  - 28 - IMPLEMENTATION COMPLETION REPORT COLOMBIA GUAVIO HYDRO POWER PROJECT (LOAN 2008-CO) Appendix: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. INTRODUCTION This report on the implementation of the Guavio hydro power project was prepared by staff of the Guavio Project Management Unit, with input from the Finance Department of Empresa de Energia de Bogota (EEB). The project, which took twelve years to complete, was funded with a loan from the International Bank for Reconstruction and Development (IBRD) and cofinancmg from the Inter-American Development Bank (IDB), commercial banks, and Financiera Energ*tica Nacional (FEN). The local counerpart was furnished by the shareholders of Interconexion El6ctrica S.A. (ISA) and EEB itself. 2. BACKGROUND The Guavio project was added to the National Energy Sector Expansion Plan in 1977 to meet projected new demand for the period 1984 to 1988. It was slated to begin operations in 1987, in the hope of averting the need for stringent energy rationing in the late 1980s or early 1990s. In 1979, the shareholders of ISA (including EEB) agreed that Empresa de Energia E1lctrica de Bogota (today EEB) would take charge of construction and would own the plant. ISA would be entitled to 40% of the installed capacity and of the energy generated by the project, in return for funding 40% of the total investment. ISA thereupon handed over to EEB the studies, contracts, infrastructure, and land negotiatons it had completed as of that date. Heavy constructon and work on the main structures began in July 1981, with an expected completion date of 1987. As the project got under way, electricity was being rationed in Colombia. Early on, a series of difficulties with loan disbursements and acquisition of land, coupled with geological complications and construction problems, prompted the first complaints from contractors. This led to a first general rescheduling of the project in 1985, which moved its expected completion date to 1989. In the wake of adjustments to the Energy Expansion Plan and the central government's macroeconomics policy, the project timetable was completely revamped for a second time. In the process, midway through 1987 the timetable of tenders for the procurement and installation of equipment for the plant was rewritten, and the expected date for completion of the project was put at late 1993. Finally, in April 1992, in the midst of an economic state of emergency and severe electricity rationing which remained in place for over a year, the government decided to step up the pace of work to see the project completed quickly. The first generating unit had its commercial commissioning on December 15, 1992, and the four others in 1993, the last of them in July of that year. 3. ACHIEVEMENT OF PROJECT OBJECTIVES The general objectives of the project can be summed up as follows: - To provide new capacity and energy needed by EEB and the rest of the national power systern to meet forecast demand.  - 29 - - To enable EEB to deliver energy at least cost and take part, with other ISA shareholders, in least-cost operation progms in the national intercomnected system, and to operate more efficiently. - To help EEB improve its maintenrnce practices through study and training programs for its operations staff. - To encourage adequate environmtal protection in the Guavio River basin and reservoir, developing a clean and renewable water resource. - To promote government efforts to improve organization of the sector and ensure sufficient acces to local financing needed for future expansion plans. 3.1 Physical Objectives The project's physical targets were achieved according to plan. The power plan, with an ulimate capacity of 1,600 MW, was completed and conumissioned. hital installed capacity is 1,000 MW (five 200-MW units). The following are the prncipal features of the power-plant complex. - An earth-and-rockflhl dam 250 m high with a 1.012 billion m3 capacity reservoir. Spillway cnsisting of a control structure and two 500-m tunnels. Auxiliary tunnel giving access to the two valve houses and undersluice. Submerged intake connected to the penstock. - Two 2-km diversion tunnels to convey water from the Chivor and Batatas rivers into the Guavio reservoir. - A 17-km underground conduit between the intake and underground powehue , consisting of a 13-km upper penstock, 500-m-high surge tank, pressure shaft 500 m high, and lower penstock, which branches into two conduits each 1,400 m long ending in distributanes that deliver water to each of the generating units (banks of four units per distributary). - Underground powerhouse at a depth of 600 m, with two bays housing the generating plant and tLansfonners. A 2-km access tunnel. Two cable vaults each 500 m high to transport enrgy to the surface. - Freeflow tailrace tunnel 5 km long to restore water to the Guavio River. - Control houses, outdoor substation and switchyard connecting to 230-kV transmission lines. Control and communications center. - Transmission system: two double-circuit 230-kV lines, 80 and 150 km long, convertible to 500-kV single-circuit; 115-kV transmission line 40 km long with two terminal substations at Mmnbita and Ubali. - About 100 km of access and service roads and heavy equipment for their maintenance. Infirastructure, camps, offices, shops, general services buildings. - Environmental and socioeconomic studies. Training of staff, in Colombia and abroad, in the operation and maintenance of the plant and its control and communications system. Cumulative delays in completing the physical elements of the project postponed the plant's commissioning by 5.5 years. The following table compares scheduled and actual completion times for the most important works:  - 30 - SCHEDULED PHYSICAL COMPONENT COMPLETION (1) COMPLETED Infrastructure, access and other roads, carnps May 1985 September 1988 Dam and auxiliary features April 1986 March 1990 Batatas diversion January 1984 August 1984 Chivor diversion February 1986 October 1987 Underground powerhouse and conduits November 1986 January 1991 Electromechanical devices November 1987 December 1992 Control houses, outdoor substation, switchyard August 1985 December 1992 (2) Transmission lines October 1986 December 1993 (3) Plant commissioning November 1987 December 1992 (4) NOTES: (1) Staff Appraisal Report, May 6, 1981, Annex 4.6, page 56. (2) Installation work in cable vault A was completed in May 1995. (3) At the outset, as the transmission lines were being completed, energy produced by the Guavio plant was delivered through the priority connection with the Chivor plant. Lines for the central corridor were completed in December 1993 and for the south corridor in May 1994. (4) The first unit went on stream in December 1992, the second in January 1993, the third in March 1993, the fourth in June 1993, and the fifth in July 1993. 3.2 Overall Project Timetable According to the original plan, construction work was to start in 1981 and be completed in 1987. The actala chronolog. was as follows, divided into three main periods. 1979 to 1984: Civil works tendered; extemal borrowings finalized; access and other roads and camps completed; river- diversion works to prepare for construction of the dam. 1985 to 1989: Construction of the dam, penstocks, and underground powerhouse. Bids called for electrical and mechanical devices. Determination of scope of work that could not be completed by pnme contractors without remaining on the site with concomitant cost overrun. 1990 to 1993: Civil works completed; tunnel supports and equipment installed. Transmission configuration decided upon, system tendered and erected. This period was marked by the effects of electricity rationing in 1981 and 1982. The variances between the original timetable, the 1987 rescheduling (Table 1), and actual completion times (Table 2) are attributable to the setting in which the project unfolded and a series of problems, the most serious of which are described in this report. 4. RESULTS  - 31 - This section sumnmaims the outcorne of the project. On the positive side, the power plant was constructed in conformity with the inital design parameters; geneatig efficiency has improved; less expensive fuel now is being used in energy generation, stored water reserves have been boosted; EEB now plays a stronger role in least-cost operation programs within the national iterconnected systemn; a stronger element of competition was introduced in the energy marketplace; operations staff have been taught state-of4he-art technology; maintenance practices have irproved considerably; and there have been heavy resource transfers for protection of the envirounent in the Guavio basin. However, the fact that the project was completed years later than plarned clearly takes away fomn its success. In the face of the delays, finncl projeaons that had been posited on the plants being conmissioned as origially scheduled fell apart. The deferral, for nearly six years, of anticipated revenues took a toll on the cmpanys finances from which it has yet to recover. This is harming its chances of securing local funding needed for its future expansion plans. On balance, then, the project from a concetual standpoint stands as a highly satisfactory achieverm, but a very unsatisfactory venture from the standpoint of financial projections. 5. RETURN ON INVESTMENT AND PAYBACK PERIOD The Staff Appraisal Report, in a preliminary assessment, estimated a 15% rate of return for the project, which was pointed out as comparing favorably with the opportunity cost of capital fur Colombia, estimated to be 11% at the time. Changes in the variables that had been used for the appraisal, plus a construction period 5.5 years longer than envisaged, explain in large measure the variance in the project's costs and benefits, on the basis of which the project's return now is estimated at 8% (see Table 6 produced by the EEB Finance Departnent). One original projection that is unlikely to materialize concerns the project's financial flows and payback period. As part of the national interconnected system, the Guavio plant must adhere to operating rules and policies goveniung the energy sector. The limitations this enWails for its output will make it impossible to generate the fimds originally projected. 6. PROJECT IMPLEMENTATION 6.1 Main difficulties experienced The following are the main problems encountered in the successive stages of implenentation of this project. 6.1.1 Appraisal stage The risks examined at this stage were those typically associated with construction of large dams and tunnels, it being assumed that once the implementing unit had been set up and organized there would be no further difficulties. This proved to be far from the case. Due consideration was not accorded to other contingencies such as political and legal risks (levying of new taxes, new customns laws, adverse changes in legislation, pivotal importance of the project for the region's infrastructure), market and sales risks for the product, and potetial events of force majeure (an understanding of the socioeconomic culture of the region, strikes, public protests). 6.1.2 Construction stage The project ran into serious difficulties from the start. - Land acquisition problems triggered delays and adjustments in the design of accesses to work fronts, river diversion work, and the access tunnel and other work sites fur the underground powerhous.  - 32 - - A cave-in near the intake caused the death of 105 workers as they left the job site and occasioned further delays and changes in accesses and in work on the river diversion and dam footings. - There were delays as well in installing and firn-unig the crushing and mixing plant supplied by the contractor to prepare materials for the dam. - During construction of the pressure shaft the contactor ran into problems in locating the pilot weUl. When this was followed by cave-ins, it was decided to abandon the well and resituate it 300 neters upstream. This alone added a year to the project. - Serious geological complications arose when an 80-meter stretch was found during tailrace excavation to contain friable formation sands under pressure of as much as 20 bars. It took 39 nonths to consolidate this area, but the technical and construction problerns ulimatly were surmouted. The project was not delayed on tis account, since this was a standalone work front, outside the project's critical path. - Contract awards for elecrmnical devices were held up by delays in securing approval of supplier credits and changes in inport rules. This added two years to the original procurement timetable. 6.1.3 Acquisition of land Imnmxdrate demands on the part of the low-incone residerts that comprise the population of the project area were manifested in a series of demonstrations and labor strikes, which held up construction. Since the original appraisal had looked only at the purchase of property that would be directly affected by construction for the project, it had esimated that about 200 dwellings and some 1,500 area residernts would be affected. In the end, a total of 1,774 families were displaced, and detailed programs had to be devised to resettle and otherwise assist project-area residents. As a result, the total cost of the necessary land plus the replacernent of area infrastructure and compensation of residents is about four times higher than budgeted. In sum: initial estimates of the fimilies that stood to be affected by the project were too low, and due account was not taken of prospective community problems compounded by the absence of an institutional presence and infrastructure in the area. This can stand as a valuable lesson for socioeconomic and environmental program planning and management in future in the region. 6.1.4 Finances EEB was in financial difficulty before the project began, and the situation did not improve during the construction penod. The company was forced to secure additional loans and hold off energy payments it had been making to ISA and payments to construction contractors. The company's revenues were lower than anticipated, because of low tariff levels and because it did not have energy available to meet the demand. Its meager local revenues were not enough to fund its investment programs. Other factors compounding EEB's weak financial performance during the construction stage were a rise in non-system losses, the scant percentage of overdue accounts it managed to collect, and cash-flow problems of ISA shareholders who thus were unable to honor their project commitments when the time came. The Steering Conmittee set up by the ISA shareholders to take decisions was ineffectual because of continuing financial constraints throughout the project implementation period. 6.1.5 Administration  - 33 - The project's implementing unit started out weak. Its organization and functions were not clearly mapped out, and its procedures were cwnbersome. Not until 1985, with support from the Bank, was the unit's organizatio strengthened, to give it the needed professional and administrative capabilities. However, it did not manage the project autonomously: other EEB deatents remained in charge of finances, accounting, legal affairs, and key decisions. Responsibility likewise was diluted between the consulting firm (1) and the project supervision finns. Six firms supervised the main works, and six companies were involved in the erection of the transmission system (four for design and advisory support, two for supervision). Further complicating the administration of the project was the lack of continuity at the helm of EEB and thus of executives with experience in managing the project. In the iuterval from 1985 until 1993, the year of project completion, EEB had nine general managers, and eight deputy managers were assigned to the project. Though the project's middle management staffing was somewhat more stable, the unit did not have particularly effective or efficient direction, in the face of ongoing financial constraints and the daunting project workload. Finally, in 1987, the implementing unit appointed a scheduling and impleenutation team for the project and another team to deal with social issues and community relations. However, neither was given the tools or resources it would have required. 7. CONSULTANT PERFORMANCE The Colombian consulting firm Ingetec S.A. was awarded the contract for basic and detailed design engineerirg, preparation of bid documents for the main civil-works contracts and equipment supply and installation, examination of bids, and construction advisory services. The design concept and technical features were reviewed periodically by a Consultants' Committee of four international experts: Guy S. Larocque, Roy E. Coxon, Leib Wolofsky, and James Sherard. Gabriel Fernandez and Bayardo Mater6n, two local consultants representng EEB, worked with the Conmittee. Three local consortia were engaged to supervise and monitor the construction and installation contracts, providing technical, administrative, and accounting oversight. The consortium Compafiia de Estudios e Intcrvcntorias CEI - Estudios Tecnicos - Gomez Cajiao e Integral Ltda. supervised construction of the dam and appurtenant structurcs Hidroestudios- Restrepo y Unbe Ltda. oversaw construction of the underground structures and installation of electromechanical dcvices. The local consortium Consultores Regionales Asociados - Zuleta Holguin y Consultoria Colombiana w as hired to design the transmission system and provide advisory support during its construction. Another Colombian consoruum. ACI - Sedic Ltda., supervised erection of the lines. The consultants' performance was generally satisfactory, notwithstanding the dilution of rcsponsibilit stemming from the large number of firms that oversaw the project. During the construction phase a number of complaits wexre filed by contractors who alleged that consultants were at times taking too long to do their work. The consultants took an active rolc In settling these disputes. 8. PROJECT COSTS The total cost of the power plant was US$2.545 billion: US$1.037 billion (63.4%) in financc charges ovcr 12 years of construction (1981 to 1993), and US$1.508 billion (36.6%) in direct costs. The US$1.037 billion in finance costs is 4.15 times more than the original SAR estimate of US$250 million The direct costs of US$1.508 billion are 1 .43 times over the US$1.053 billion esimated in the SAR.  - 34 - lhe dirc cost overnms in de Guavio projec (ficor of 1.43) can be viewd as nmiuL and compar fvomably with the weighted avwrag ovanm obsurved m ahr projects with geoocal omplicatins auditd by the Bank, which revaled ovemm fiaors of 1.33 and 1.63 (Geological Complications and Cost Overnms - Energy Dprbmt - IBRD - May 1995). Taking into accon the completion of all construcbion work needed for di plans ultimate 1,600 MW capacity, the proecs total dired cost of USS1.508 billion, and cost esttes of USS100 million for the acquision and assembly of three additional units at a soond stage, the Guavio plants unit cost is on the order of USS1,000 per insalled kW. This comares favrably with the unit costs rported for odher projects brougjt on stream recently n oter comis. The chief rasons for the fmancial cost overm wre the drawn-ut consucon time (5.5 ymrs longer than antcpaed), changes m ht onal financig tems, anges in urcy values against the dollar, f-E's financdal staits, bridging loans taken out to case cash-flow problems, late paynts to coactrs and ISA, and too-ow estimates at the ouset of interest during costuctin. Direct-cost ovemuis can be attibuted layely to the pmrtacted consucto time (5.5 years over shdule), which drove up the projects ngineering, admistatio and supervision costs; too-low inital estimates of the cot of inuuctu, land, and elecromchaimcal devices; cotactr protest tgared by design and oher changes; geological complicaos, and oter continaecies encountered in the course of construction. Table 3 compares iniial cost estimates with Januazy 1996 updates. Table 4 shows the distribution of project Cost. The project was financed for he most part by oans fmn the Inter-American Dvelqopmt Bank and fomn the IBRD, bridging loans frmn co Qecial banks, and supplier credit for te el hanical equipt. In Colombia financing was supplied by Financiera EnerBgica Nacional; local conterpart funds were supplied by ISA and its seders and by EEB. 9. FUTURE OPERATION OF THE PLANT The Guavio hydroelectric plant has boen built for an ultimate capacity of 1,600 MW, but is curnty opeating at 1,000 MW (five 200-MW genratig unts). With its cunt capacity it can produce 5,200 GWh of firm power annually. The plant can be expanded by installing three additional 200-MW units; the civil works needed for this incease in plant capability are compklte at this writing. As part of the natonal interconnected systen, the plant must adhere to the policies of the National Load-Dispatch Center. The restictions this has entaied have kept the plats output below the design lvls. As of December 1995 it had produced approximately 13,017 GWh (an annual average of 4,300 GWh), as follows:  - 35 - YEAR ENERGY WATER STORAGE 1992 62 GWh 786 Mm3 100% 1993 4,111 GWh 771 Mm3 98% 1994 4,444 GWh 766 Mm3 97% 1995 4,400 GWh 735 Mmn' 94% A technical and economic feasibility study is being conducted to determine how mnany units should be added to the plant, and the best timing, in order to boost its geBneraig capacity particularly at times of peak demand. EEB has been admmnisng, operatng, and maintaining the plant with its own funds. Seeing to these tasks for the Guavio Project Managemnent Unit are its Operations and Installation Division and Construction Division, wiuch handle operations and mnantenance on site with a team of temporary operators. These units are assisted by the Engineeing Division and Cortracts Division and by the Socioeconomic Group, which handles issues affecting area commnunities. This administrative, operational and maintenance arrangement has worked quite well to date, and will continue in place until the best operating approach for the Empresa is determined. 10. BANK'S PERFORMANCE For the most part the Bank's performance was satisfactory; it kept abreast of project operations and organization at all times. Nevertheless, more advisory support would have been needed at the preliminary stage of financial studies and risk assessment, to identify potential risks and devise ways of protecting the project against contingencies on these fronts.  I   IMAGING depoprt Nor 15 -41 Type: ICR