Colombia - Chivor Hydroelectric Project

R E- ST R I C T E D Report No. PU-31a This report was prepored for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION INTERCONEXION ELECTRICA S.A. CHIVOR HYDROELECTRIC PROJECT COLOMBIA May 7, 1970 Public Utilities Projects Department  CURRENCY EQUIVALENTS US$1 = Col$1 7.30 Col$1 a US$o.0s8 Col$1 million - US$57,800 1 .US mill - US$O.O01 UNITS AND EQUIVALENTS 1 meter (a) a 3.28 feet 1 kilometer (km) - 0.6214 miles 1 cubic meter (i3) 1.308 cubic yards 1 cubic meter per second (m-/sec) = 264.2 gallons kilovolt (kV) 1 Megawatt (KW) - 1,000 kilowatts 1 Gigawatthour (GWh) = 1 million kilowatthours ABBREVIATIONS AND ACROWNMS I3A Interconexion kaectrica S.A. CHEC Central Hidroelectrica de Caldas CHIDRAL Central Hidroelectrica del Rio Anchicaya Libuitada CVC Corporacion Autonona Regional del Cauca EEEB Bnpresa de Ehergia Electrica de Bogota IMCALI Enpresas Municipales de Cali EHM Empresas Publicas de Medellin ICEL Instituto Colombiano do Ehergia Electrica IDB Inter-American Development Bank Ingetec Ingetec ILimitada - Aigineering Consultants Integral Integral Limitada - Engineering Consultants Plan.eacion Departamento Nacinal de Planeta.i (National Planning Office) FISC.AL YEAR ends December 31  TABLE OF OONTENTS Page No. SUMMARX AND CONCLUSIONS i 1. INTRODUCTION 1 2. THE SECTOR 4 3. THE BORROWER 7 4. JUSTIFICATION OF THE PROJECT 10 The Market 10 Power Generation Program 11 Utilization of Chivor 12 Project Justification 12 5. THE-PROJECT 13 Project Description 13 Project Schedule 14 Project Cost Estimate 14 Project Management and Engineering 15 Procurement 16 Disbursenent 16 6. FINANCIAL PLANS 17 Interconexion Electrica S.A. 17 Sponsors' Positions 20 Accounts and Audits 21 7. AGREEMIENTS REACHED DURING NEGOTIATIONS 22 ANNEXES MAPS This report has been prepared by M. Isla and K. Stichenwirth from previously collected information; from information they and M. Reis obtained during an appraisal in Colombia in August- September 1969, and from infomation imade available during a visit to Colombia by M. Isla in April 1970   LIST OF ANNFES No. of Annex 1. Interconexion Electrica S.A. - Sponsor Systems Actual Peak Load, Gross Generation and Load Factor 2. Interconexion Electrica S.A. - Sponsor Systems Demand and Generation Forecasts 3. Interconexion Electrica S.A. - Interconnected System Energy Interchange and Chivor Generation Forecasts 4. Chivor Hydroelectric Project - Schedule of Expenditures 5. Interconexion Electrica S.A. - Forecast Sponsors' Fixed Charges' Payments and Investments 1969-1978 6. Interconexion Eaectrica S.A. - Actual and Forecast Income State- ments 1968-1978 7. Interconexion Electrica S.A. - Forecast Sources and Applications of Funds 1969-1978 8. Interconexion Electrica S.A. - Actual and Forecast Balance Sheets 1968-1978 9. Empresa de Ehergia Electrica de Bogota Page 1 of 3 pages : Actual and Forecast Income Statements 1968-1978 Page 2 of 3 pages : Forecast Sources and Applications of Funds 1969-1978 Page 3 of 3 pages : Actual and Forecast Balance Sheets 1968-1978 10. Empresas Publicas de Medellin - Energia Page 1 of 3 pages : Actual and Forecast Income Statements 1968-1978 Page 2 of 3 pages : Forecast Sources and Applications of Funds 1969-1978 Page 3 of 3 pages : Actual and Forecast Balance Sheets 1968-1978 11. Corporacion Autonoma Regional del Cauca Central Hidroelectrica del Rio Anchicaya, Ltda. Page 1 of 3 pages : Consolidated Actual and Forecast Income Statements 1968-1978 Page 2 of 3 pages : Consolidated Forecast Sources and Applications of Funds 1969-1978 Page 3 of 3 pages : Consolidated Actual and Forecast Balance Sheets 1968-1978 124 Interconexion Electrica S.A. - Organization Chart Map 1 : Colombia Central Interconnected System - Location of Plants and Transmission Lines Map 2 : Colombia Chivor Project - General Location   COLOMBIA APPRAISAL OF THE CHIVOR HYDROELECTRIC PROJECT INTERCONEXION ELECTRICA S.A. SUMMARY AND CONCLUSIONS i. Interconexion Electrica S.A. (ISA) requires the equivalent of about US$75.1 million in external financing to cover the foreign exchange cost of the Chivor Project, consisting of the first phase (500 MW) of the Chivor hydroelectric plant and of a 180 km 230 kV line to connect the plant to ISA's interconnection network. The plant would include the Es- meralda rockfill dam on the Bata River, a 5.75 km pressure tunnel, a 2 km surface penstock, and a powerhouse with 4 x 125 MW units. The estimated cost of the Project is US$114.2 million equivalent. The external finan- cing would be provided by the proposed Bank loan of US$52.3 million equivalent and by bilateral credits estimated to total about US$22.8 million equivalent. ii. ISA was fomned in 1967 for the interconnection of the four main electric systems in central Colombia, representing about two-thirds of the whole Colombian power sector, and for the planning, construction, ownership and operation of new power plants in the interconnected syst.EL ISA is owned by the public utilities owning the four systems, with load centers in Bogota, Medellin, Cali and Manizales (para. 3.01). The Bank has decisively supported the concept of integration, first by advocating the interconnec- tion and coordinated operation of the four systems and then by helping to finance ISA's first project, a 535 Im 230 kV network interconnecting the four systems, presently under construction, with completion expected by mid-1971. iii. ISA's network is appropriate to the planned general development of the Colombian power sector, and it has made possible the first joint planning of a large-size power development in Colombia. Studies perforued by ISA, its consultants, and the Departamento Nacional de Planeacion (Planeacion) to determine the most suitable power generation program in- dicated that Chivor was of highest priority, and the Bank agrees with this conclusion. Chivor, the first generation project to be built and operated by ISA, is to start operation in mid-1975, and this schedule is realistic. The project design contemplates the future expansion of the plant to a total of 1,000 MW. iv. The proposed Bank loan would finance the foreign exchange cost of the main and minor civil works contracts and minor equipment orders, all of them to be awarded on the basis of international competitive bidding, and the corresponding interest during construction. Prequalification of contractors for the main civil works contract has been completed, and bid- ding is presently under way. Colombian firn's would compete for minor civil works contracts and a few minor equipment orders. It has been estimated that the foreign components of such contracts and orders awarded locally  (ii) would be 40% and 70%, respectively, of their total costs, and the Bank loan would be disbursed against these percentages of the actual costs of local contracts and orders. A 15% margin of preference will be allowed domestic suppliers in evaluation of bids for these equipment orders. v. The financing of the main equipment orders would be arranged directly by ISA with the supplier countries. Meetings to consider Bank- sponsored joint or parallel financing of the Chivor Project were held in Paris in December 1969 and March 1970 with the principal supplier countries 1/. Agreement was not reached on either system of flnanclng. ISA has therefore undertaken to obtain bilateral financing for the main equipment orders. vi. The local currency cost of the Project, equivalent to about US$48.5 million, and the interest during construction on the bilateral credits, estiaated at about US$2.7 million equivalent, would be financed by the four sponsors in proportion to their agreed participation in the output of Chivor. The actual and forecast financial positions of the sponsors, including provisions for their investments in Chivor, are acceptable. vii. ISA's Estatutos do not define precisely the method for pricing Chivor energy. ISA has prepared a tentative mathod Which is acceptable in principle and is used in this report. The aotual aothod will depend on the revision of the Estatutos presently being studied by consultants, as required by undertakings received in connection with the first Bank loan to ISA (575-C0), and will be reviewed by the Bank. The revision should take place before mid-1971, when the interconnection network will be placed in operation. viii. The estimated financial positions of ISA and its sponsors not only seem sound, but at projected levels of tariffs and construction activ- ity, all the systems taken together appear to generate considerable oash surpluses in later years. This is attributable in part to the realization of the very economies for Which ISA was establiahed, and in part to the fact that the sponsor companies pay no dividends on the substantial equity investments in them. Thus, in the future divideods could be paid to the local and national governments, or tariffs could be reduced. ix. This would be the Bank's second loan to ISA. Loan 575-0D for the interconnection project was made in Decemaber 1968 for an amount of US$ 18 million equivalent, and is being disbursed. A total of 13 Bank loans with an aggregate initial principal amount of about US$216 million equivalent has been made to ISA's sponsors. The Bank's experience with ISA in the adsinistration of Loan 575-00 and in the appraisal of the Chivor Project has been satisfactory. No problems are foreseen regarding ISA's capacity to manage the construction of, and to operate the interconnection network and Chivor. x. The Project is suitable for a Bank loan of US$52.3 million equiv- alent, for a term of 30 years including a grace period on amortization of about 7 years. 1/ Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, Switzerland, U.K. and U.S.A.  COIOMBIA APPRAISAL OF THE CHIVOR HYDROELECTRIC PROJECT INTEROONEXION ELECTRICA S.A. 1. INTRODUCTION 1.01 Interconexion Electrica S.A. (ISA) requires the equivalent of about US$75.1 million in external financing to cover the foreign exchange cost of a project consisting.of the first phase (500 MW) of the Chivor hydroelectric plant and of a 230 kV line to connect the plant to ISA's network (see Map 1). The cost of the Project would be approximately US$114.2 million equivalent. The foreign exchange cost of the Project is estimated to be equivalent to US$65.7 million, and the corresponding interest during construction would be equivalent to US$12.1 million. The proposed Bank loan of US$52.3 million equivalent would finance the foreign exchange cost of the main and minor civil works contracts and minor equipnent orders, and the interest charges on the loan payable during construction. The main equipment orders, estimated to total about US$22.8 million equivalent;, would be financed by bilateral credits. 1.02 ISA is owned by the following sponsors, which are the utility companies owning the four main electric systems in central Colombia: (i) Empresa de Ehergia Electrica de Bogota (EEEB) (ii) Empresas Publicas de Nedellin (EFM) (iii) Corporacion Autonoma Regional del Cauca (CVC) and Central Hidroelectrica del Rio Anchicaya Limitada (CHIDRAL) (iv) Central Hidroelectrica de Caldas (CHEC) and Instituto Colombiano de Ehergia Electrica (ICEL) The local currency cost of the Project equivalent to about US$48.5 million, and the interest during construction on the bilateral credits, about US$2.7 million equivalent, would be financed by the sponsors as follows: 40% by common stock subscriptions in equal parts by the four sponsors, and 60% by bonds purchased by EEB (91.8%) and EPM (8.2%). 1.03 EEEB initiated in 1955 investigations of the hydroelectric pos- sibilities of the Ouavio, Bata, Lengupa and Upia basins (see Map 2), and in 1961 studies for a power development on the Bata River. For these investigations and studies, BEEB has used the services of the Colombian engineering firm Ingetec Limitada (Ingetec) as general consultants, and of several specialists of international reputation in hydrology, geology, dam, tunnel and power plant design and construction, as advisers. The studies indicated that the most feasible and economic development would be the Chivor Project, consisting of a regulating reservoir on the Bata River, created by a rockfill type dam at the Esmeralda site, and of a  -2- powerhouse on the Lengupa River bank, to which the water from the reservoir would be conducted by two pressure tunnels and penstocks developing an average head of 756 m. 1.04 The Chivor Project is the first jointly planned large-size power development in Colombia. It is the culmination of the efforts of many years by the Departanento Nacional de Planeacion (Planeacion) with the Bank's active support. Planeacion, ISA and the Colombian consultants Ingetec and Integral Limitada (Integral) made several studies to deter- mine the most suitable sequence of construction of generating plants for a long range power generation program. These studies included the eval- uation of several alternative prograns equally capable of meeting the interconnected system's demand up to 1980. In accordance with the results of the studies, ISA and its sponsors adopted a program with Chivor (first stage, 500 NW) as the first plant to be built, owned and operated by ISA, to start operation in mid-1975. The initial design of Chivor included provisions for the future diversion of the Ouavio River to the Esmeralda reservoir on the Bata River. After discussions with the Bank, ISA gave further consideration to the Ouavio-Bata develoPient, and concluded that the Guavio River should not be diverted because it presents good and economic possibilities of its own. The corresponding changes of Chivor's initial design reduced its cost by about US$25 million equivalent to the present estimate of US$114.2 millixn equivalent. The Emeralda reservoir and the Bata River flow would be adequate for an ultimate installed capacity in Chivor of 1,000 MW; the present first stage would include the necessary provisions to permit the future expansion. 1.05 This would be the second loan to ISA 1/. The Bank has financed power development in Colombia for nearly 20 years, and 14 loans with an aggregate amount of about US$234 million have been made to ISA and the four interconnected systems, which represent about two-thirds of Colombia's electric power sector. The Bank's experience with ISA and its sponsors has been generally satisfactory, with the notable exception of CVC/CHIDRAL's financial difficulties, the product of insufficient revenues and funds to finance the heavy investments in which they are involved. The Government has agreed to provide additional credits to CVC/CHIDRAL, which, in conjunc- tion with tariff increaset,will assure adequate funds to carry out their progps and participate in Chivor. The construction of ISA's 230 kV interconnection network is progressing satisfactorily and on schedule. The need for the central interconnection is urgent and ever-growing; it will be utilized imediately upon its completion in mid-1971 to prevent the power shortages otherwise forecast on the CVC/CHIDRAL system. The 115 kV 1/ The Bank and 12 supplying countries (Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, Switzerland, U.K. and U.S.A.) agreed to participate in joint financing of the interconnection pro- ject. Bank loan 575-co of December 1968 is for a mximum of US$18 million equivalent. It is exPected that joint financing from those countries of some equipment orders on a 50/50 basis will contribute about US$9 million equivalent.  - 3 - line Ibague-Zarzal (see Map 1), in operation since September 1969, is being used intensively to supply surplus energy from FEET to cVC, thus helping to solve the serious power shortages which occurred in 1969 in Cali and the Valle del Cauca. The construction and operation of the interconnection network and of the Chivor plant will establish ISA's desirably predominant role in thei development of the Colombian power sector. 1.06 At the time this report was prepared, information on the results of 1969 operations was not yet available in final form, and therefore the latest "actual" figures are for 1968. A review of pre- liminary results of 1969 operations confirms that they were essentially the same as the estimated figures used herein. 1.07 The Bank has been collecting and reviewing basic information on the Chivor Project since mid-1968, and in January 1969 initiated in Colombia the discussions on the Project and the power generation program which ultimately led to the cost reduction mentioned in paragraph 1.04. This report has been prepared by M. Isla and K. Stichenwirth makinig use of this information; from information they and M. Reis obtained in August-September 1969 during an appraisal mission to Colombia with visits to Bogota, Cali and the Chivor site; and from information made available during a visit to Colombia by M. Isla in April 1970.  -4- 2. THE SECTOR 2.01 Colombia, with a population of about 20 million, had in 1968 a Gross Domestic Product (GDP) of about Col$95 billion, equivalent to a per capita GDP of about US$285. The population is growing at a rate of approximately 3.3% per year, and emigration from rural to urban areas has been taking7place at a fast pace. The major influence on the country's overall economic performance has been the world market for coffee, Colombia's principal export. During the last decade, the structure of production changed considerably. Agriculture, which in 1958 accounted for about 37% of GDP, by 1967 had fallen to 30%; manufac- turing in that period accounted for about 16% to 17%. The relative share of electric power, gas and water more than doubled, from 0.7% to 1.5% of QDP. 2.02 Official planning is now based on a GDP growth rate of the order of 7% per year, compared to actual growth rates of 6.5% in 1969, 5.8% in 1968 and below 5% in the preceding years. To support this increased development effort, the Government has boee rapidly improving the coordination of the different elements of economic policy, planning more systematically the public sector, and making much needed changes in sectoral policies, institutions and priorities. However, the real- ization of Colombia's considerable growth prospects will still remain dependent on continued coordinated effort between the external financing agencies and the Colombian Government. 2.03 Colombia occupies a territory of 1,139,000 kn2, crossed on the western part by a mountain system with three north-south cordilleras, ranging up to 5,000 m in altitude, which divide the country into three main geographic regions: Costa Atlantica (northern), Andina (central and western) and Llanos Orientales (eastern). Near 99% of the population live in the Costa Atlantica and Andina regions, which comprise abouw 40% of the area of the country and are divided politically into Departamentos and the Distrito Especial de Bogota. The Llanos Orientales region has an extreuely low population density and minimum economic development, with practically no electrification. The electric sector is therefore geo- graphically located in the northern, central and western regions of the country, which, because of the extensive mountain system, have important potential hydroelectric resources. 2.04 At the end of 1968, the total installed generating capacity in Colombia was 1,940 MW, including 250 Ml in privately owned plants. The total generation in 1968 was 7,500 GWh, including 1,000 GWh generated in the private plants; 74% of the electric energy generated by the public utilities was of hydro origin. Public service was supplied alost wholly by the following four entities (the figures in brackets are installed capacities at the end of 1968):  (i) EEEB (471 MW), a municipal utility for electrical service only, which supplies energy to Bogota and the Departamento de Cundinamarca, directly and by bulk supply to departmental rural distributing agencies and subsidiaries of ICEL. (ii) EPM (450 MW), a municipal utility providing elec- tricity, water/sewerage and telecommunications services, which supplies electric energy to Me- dellin and the Departamento de Antioquia, directly and by bulk supply to the rural distributing sub- sidiary of ICEL. (iii) CVC (270 MW, including CHIDRAL's plants), a multi- purpose, autonomous, nationally-chartered regional entity for the development of the Cauca Valley, which supplies electric energy to the Departamento de Valle, mainly by bulk supply to Empresas Municipales de Cali (EMCALI) and to other rural distributing agencies, subsidiaries of ICIL and CVC. (iv) ICEL (466 MW, including 67 MW of CHEC's plants), a National Government Institute, formerly called Electraguas, which through 15 departmental and 13 minor subsidiaries supplies electric energy to the rest of the northern, central and western regions of the country. 2.05 The development of the Colombia electric sector in recent years has been remarkable: in the last 12 years the energy demand has increased at an average rate of approximately 11% per year, which is expected to be at least maintained in the next decade, as the prospects are that GDP will grow at a higher rate than in the past (paras. 2.01 and 2.02). In spite of this, the average per capita annual consumption in 1968 was about 375 kWh, below the Latin America average of approximately 475 kWh. The extensive geography and the rugged mountain chains have isolated the various regional centers, which traditionally have developed separately their own customs, regional institutions and economic resources, and also their own electric systems. The levels of electric development and consumption are substantially different between regions, and even more so between urban and rural areas. The average per capita annual consumption in some Departamentos is of the order of 500 kWh, but in others does not reach 100 kWh. While in the 30 cities of more than 30,000 inhabitants the average consumption in 1968 was 565 kWh, about 70% of the country's rural population did not have any electric service at all. Furthermore, the parochial attitude prevailing in the various regional electric systems sometnwes has caused uneconomic development of the country's power sector. This has been more noticeable in recent years, when the need to supply higher and rapidly increasing demands has showin the advantages of the integration and joint planning of the sector, which will pernit the development of larger and more economic projects and a better utilization of the country's energy resources. Had  -6- the central interconnection been accomplished earlier, it would have avoided power shortages recently experienced in the Caucs Valley (para. 1.05). 2.06 As indicated in paragraph 2.o41, the principal population centers in the country are served by autonomous local or national agencies, with state systuis controlled by ICEL providing service in the rural areas and some secondary population centers. In some of the latter, electricity is provided, by municipal undertakings which in many instances rely upon the ICEL systess for bulk supply. The principal cities have enjoyed the bene- fits of sophisticated planning by the utilities serving that, whereas the development of the rest of the country has at times been haphazard and uncoordinated. Recognizing this, the Government working through ICEL and the major urban "eIpresas" is attempting to improve planning by grouping the smaller systems into six zones and delegating the responsibility for coordination of supply within each zone. This represents a departure from the hitherto highly centralized and sometimes unresponsive control exerted by ICEL's predecessor. For example, a new ageancy, Corporacion Electrica de la Costa Atlmstica, has been created to construct and operate major steam- electric plants and high voltage transmission faeilities to provide coordi- nated supply to Barranquilla, Cartagena, Santa Marta, Sincelejo, etc., which were being supplied separately frm isolated alL plants. In the long term it is likely that more intensive development of later-regional trans- mission facilities at 230 kV and higher voltages will gradually bring about integration of the sector, and permit the realization of economies of scale through the construction of larger plants. The ISA system will form the keystone for this developnent. 2.07 For many years the Bank has urged the eatabliahment of a compre- hensive., rational public utility tariff policy In Colombia, but until re- cently, tariff adjustments have been granted on an ad hoc basis, aud some- times they have been too small and too late. At present, the situahion is much improved with respect to the power sector. In December 1968, tbe Government instituted the Junta Nacional de Tarifas de Servicios Publicos (Junta), as part of Planeacion, to regulate public utility tariffs., appro- priately structuring and adjusting them to cover operating expenditures and provide a reasonable return on revalued assets to permit the orderly financing of expansion. The Junta has been able to process a good part of the backlog of'applications by electric power agencies. Notwithstanding, much work remains to be done to bring about national uniformity in accounting, reporting, valuation techniques, etc.  3. THE BOROWER 3.01 ISA is a stock corporation established on September 14, 1967 under Colombian commercial law. Its authorized stock capital at present amounts to Col$200 million, divided into 2,000 shares with a nominal value of Col$100,000 each. The founding menbers have subscribed and paid for in Colombian currency 200 shares representing a total of Col$20 million as follows: 50 shares Col$ 5,000,000 E1H4 50 shares 5,000,000 CVC 49 shares 4,900,000 CHIDIRAL 1 share 100,000 ICEL 49 shares 4,900,000 CIIEC 1 share 100,000 TOTAL 200 shares Col$20,000,000 Since CVC is th? major owner of CHIDRAL, and CHEC is a subsidiary of ICEL, it is considered that ISA's sponsors are EEE, EPM, CVC/CHIDRAL and ICEL/ N6IC; each is represented on ISA's four member board of directors. 3.0'2 ISA's statutory purposes are the interconnection of the sponsors' electric systems and the planning, construction, ownership and operation of new powier generating plants in the interconnected system (see Map 1). All major generation projects in the system will be built by ISA, with the ex- ception of the following plants under construction in 1967, which will be completed and wholly owned by the respective sponsors: E1 Colegio (300 MW), Canoas (148 KW) and Alto Muna (future) (EEEB); Guatape (560 MW) (EPM); San Francisco (135 MW) (CHEC); and Calima I (120. Mi) (CVC). CVC/CHIDRAL re- served the option to build and own Alto Anchicaya, and have since exercised it. ISA's Estatutos outline procedures for financing ISA's investments and guiding its operations, differentiating between the interconnection network and generating plant 1projects. In both cases, it is contemplated that the foreign exchange component of the investments would be financed by external loans. 3.03 The Estatutos establish that the four sponsors will provide in equal parts the necessary funds to finance the interconnection network, re- ceiving ISA shares, and that they will be guarantors of credits and loans to ISA for the network. The Estatutos define also how the sponsors con- tribute to the operating expenses of the interconnection network, and re- quire that the energy transferred will be bought by ISA from the supplier and sold1 to the recipient at no benefit or loss to ISA. 3.04 Regarding IoA's generating plants, the Estatutos contemplate that they will be financed by the sponsors as follows: 40% by subscription of ISA stock in equal parts by the four sponsors, and 60% by bond sales to the sponsors in the proportions necessary to have each sponsor's total contribu- tion proportional to its agreed participation in the output of the plant. The present Estatutos are silent with respect to the sponsors' obligations to be guarantors of credits and loans to ISA for generating plant projects. The Estatutos stipulate that ISA's tariffs for the energy generated in its plants should be sufficient to provide for operating expenses, debt service  -8- and payment of dividends on the stock associated with each plant at least equivalent to the current interest rate in Colombia. 3.05 All these provisions of ISA's Estatutos regarding the intercon- nection network and the generating plants are used in chapter 6 of this report to analyze ISA's financial plan for the period 1969-78, including the completion of construction and the operation from mid-1971 of ISA's first interconnection project, financed by Loan 575-OD (see para. 1.05) and the construction and the operation from mid-1975 of ISA 's first generating plant, the proposed Chivor ProJect. The present FEtatutos are generally acceptable, but contain some shortcomings needing reso- lution, in particular: (a) With regard to the pricing of energy transfers among the sponsors through ISA's network, the method to determine the supplier's tariff, based on a return on its investment, should be defined more precisely to take into account the lack of uniformity in accounting methods among the sponsors and the different values of the various classes of energy (peak, base, emergency, dump,etc.) (b) Regarding ISA's generating plants, the Estatutos should establish the sponsors' obligations to be guarantors of credits and loans to ISA., and should include more complete and definite criteria and methods to schedule the operation of the plants and to price the various classes of energy generated. ISA agreed, in connection with Loan 575-C0, to study these shortcomings of the Eatatutos with the assistance of consultants. Such a study is now underway by the Swiss firnm of Motor-Columbus, financed from the pro- ceeds of Loan 575-0), to be completed by the end of 1970. ISA has in- dicated that it will be prepared to modify the Ebtatutos in accordance with the results of this study. Daring negotiations, ISA agreed that the revision of the Estatutos will be effected before mid-1971, When the interconnection network will start operation. The Bank will have an opportunity to approve the proposed revisions before their adoption. 3.06 ISA is administered by the General Assembly of Shareholders, the Board of Directors, and the General Manager. The General Assembly elects the Board's four members, and the Board appoints for two years the General Manager and his two Deputies (Administrative and Technical), who may be reappointed inrdefLaitely. The resolutions of the General Assembly or the Board are adopted by the favorable vote of at least 75% of the shares or 3 of its 4 members, respectively. The General Manager is ISA's legal representative for all its commitments. 3.07 ISA's planned organization (see Annex 12) includes five adsinis- trative and five technical departments. The Bank's experience with ISA in the administration of Loan 575-CO and in the appraisal of the Chivor Pro- ject has been satisfactory. Assisted by consultants, ISA is managing the interconnection project acceptably. ISA is a new, not-yet fully tried organization, but no problems are foreseen regarding its capacity to manage the construction of, and to operate the interconnection network and generating plant projects, for which ISA will have the support of its  - 9 - sponsors' experienced personnel and facilities for training. ISA's manage- ment has been successful in recruiting well-qualified personnel, and all of the departments are at present appropriately staffed.  - 10 - 4. JUSTIFICATION OF THE PROJECT The Market 4.01 The annual peak loads, gross generation and corresponding load factorsV/ for each of the sponsor systems in the period 1959-68 are shown in Annex 1. Operating results for 1968 and installed capacities at the end of that year were: EEEB EPM CVC/CHIDRAL CHEC TOTAL Peak Load (MW) 350.1 327.0 211.0 75.5 915.4 Gross Generation (GWh) 1,629.7 1,698.4 1,033.9 373.4 4,735.4 Load Factor (%) 53.1 59.1 56.o 56.2 59.0 Installed Capacity (MW) 471.0 450.o 270.0 67.0 1,258.0 Because the time incidence of system peak load varies between sponsors, the coincident peak load on the interconnected system is expected to be about 5% lower than the aggregate of the individual peaks. The following data sum- marize the overall annual rates of growth experienced: ESEB EPM CVC/CHIDRAL CHEC Period 1959-68 1959-68 1960-68 1964-68 Overall Rate of Growth: (% per year) - Peak Load 11.8 9.3 11.7 6.4 - Gross Generation 11.9 9.9 12.0 7.6 Examination of historical data reveals wide fluctuations in growth rates and load factors, reflecting economic problems of the country which depressed mar- ket growth in some years and brought about financial difficulties in the sector contributing to shortages of power. However, remarkable stability has been manifested in later years, and a more orderly development in the future is ex- pected. The CHEC system has shown an increasing rate of growth in 1968 and 1969, higher than the 1964-68 average, caused by a relatively rapid industrial development in the area of Manizales, which is expected to continue in future years. 4.02 The market forecasts of each sponsor, based on an examination of the past, and projection of trendz ln the future, with due account, of planned eco- nomic development through the 'sponsor's area, have been reviewed by the Bank, and the following annual rates of growth forecast by each sponsor have been used in this report for the peak load and gross generation demand forecasts of each system up to 1980 (see Annex 2): RFR 12% (1969-1972) and 10% (1973-1980) EPM 9% (1969-1980) CVC/CHIDRAL 10% (1969-1980) CHEC 10% (1969-1980) 1/ the ratio of average load to peak load  - 11 - Statistical data on past rates of growth (para. 4.01) show that the peak load and gross generation have increased at a fairly comparable rate, the data on the CHEC system having minor significance in this respect not only because the period involved is short but also because the system itself is relatively small. Furthermore, as the high rates of growth forecast for the four systems start from rather low levels of per capita consumption, it is likely that the favor- able effect on the load factor of the increase in industrial consumption will be compensated by a rapid increase in domestic uses of electricity.1/ The pre- diction used in the forecasts that the 1968 load factors of each system will be maintained is, therefore, justified. 14.03 The rates of growth adopted are slightly lower, as an average, than 11% predicted for the whole Colombian electric sector (para. 2.05). Should the actual growth of the sponsors' markets be larger than the forecasts, higher utilization of the existing and planned plants, including Chivor in the initial years of its operation, and eventually the installation of short construction term generating facilities, such as gas turbine units, would be required. Power Generation Program 4.04 The existing generating plants and those under construction in the four sponsors' systems, including Alto Anchicaya (340 MW) under construction by CVC/CHIDRAL for initial operation in 1974., can meet the interconnected system demand forecasts up to 1975. Several studies have been carried out by ISA, its consultants Ingetec-Integral and Planeacion to determine the most suitable and economic schedule of new generating plant construction in the interconnected system to meet the demand forecasts up to 1980. These studies took into account the 16-month dry periods that are likely to occur once in seven to ten vears and the need for a 10% reserve margin in capacity. These are reasonable planning criteria. Following is a summary of these studies and their conclusions which have been found acceptable. )J.oL