Colombia - San Carlos Hydropower Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-2239-CO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INTERCONEXION ELECTRICA, S.A. WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR A SAN CARLOS I HYDRO POWER PROJECT May 17, 1978 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 without World Bank authorization.  CURRENCY EOUIVALENTS Average Calendar 1977 March 31, 1978 Currency Unit = Peso - Col$ Col $ US$1 = Col$36.985 38.42 Col$1 = US$0.027 0.002603 WEIGHTS AND MEASURES 1 meter (m) - 3.281 feet (ft) 1 square kilometer (kn2) - 0.386 square mile (mi2) 1 cubic meter (m3) = 35.315 cubic feet (ft2) = 264.2 gallon (gal) 1 kilogram (kg) = 2.206 pounds (lb) 1 ton (t; metric; 1,000 kg) = 1.100 short tons (sh. tons) 1 kilowatt (kW') - 1,000 Watts (103 W) 1 Megawatt (HI) - 1,000 kW (103 kW = 106 W) 1 Gigawatt (GI) = 1,000 MW (106 kW = 1o9 w) 1 kilowatt-hour (kWh) = 1,000 Watt-hours (103 Wh) - 830.3 Kilocalories (kcal) 1 Gigawatt-hour (GWh) = 1,000,000 kWh (106 kWh) 1 Terawatt-hour (TWh) = 1,000 GWh (109 kWh) 1 kilovolt (kV) = 1,000 Volts (V) 1 kilovolt ampere (kVA) = 1,000 Volt amperes (103 VA) 1 Megavolt ampere (MVA) = 1,000 kVA (106 VA) 1 Megavolt ampere reac- = 1 Megavolt ampere reactive tive (MVAr) power (COS 0 = 900) 1 kilocalorie (kcal) = 3.968 British thermal units (Btu) 1 Hertz (Hz) = 1 cycle/second ..per ... = ... /... ...per second; ...per hour - .../s; .../h ...per day; ...per year = .../d; .../a GLOSSARY OF ABBREVIATIONS CHEC = Central Hidroelectrica de Caldas CHIDRAL = Central Hidroelectrica del Rio Anchicava S.A. CORELCA - Corporacion Electrica de la Costa Atlantica CVC = Corporacion Autonoma Regional de el Valle del Rio Cauca DNP = National Planning Department EEEB = Empresa de Energia Electrica de Bogota EPM = Empresas Publicas de Medellin GDP = Gross Domestic Product ICEL = Instituto Colombiano de Energia Electrica IDB - Inter-American Development Bank ISA = Interconexion Electrica S.A. JNT ' Junta Nacional de Tarifas de Servicios Publicos KfW m Kreditanstalt fur Wiederaufbau FISCAL YEAR January 1 to December 31  voa oTXIAL USE ONLY Page 1 of 3 COLOMBIA SAN CARLOS I HYDRO POWER PROJECT LOAN AND PROJECT SUMMARY Borrower: Interconexion Electrica, S.A. (ISA) Guarantor: The Republic of Colombia Amount: US$126 million equivalent Terms: Repayment in 17 years, including 4 years of grace; interest at 7.5% per annum. Project Description: The project forms part of ISA's 1978-82 expansion program and would provide part of the additional power capacity required in the early eighties. It includes (a) construction of a 70 meter high earth dam on the Guatape River, inlet and discharge tunnels, and an underground power station with four generating units, as well as related transmission facilities; (b) consultant services for engineering, civil works and supervision; and (c) a study of power losses to ascertain their nature, size and occurrence as a basis for recommending a program to minimize them. Once completed, the San Carlos I station would be the largest power generating facility within the integrated system, with an installed capacity of 620 MW. The second phase, to be constructed at a future date, would permit installation of an additional 930 MW. The project would continue the Bank's institution building efforts in the sector started in 1950. In particular, it would strengthen centralized planning, as well as the management and operations of two of ISA's shareholders. The project is subject to the risks normally associated with large civil works in difficult terrain. Project implementation may be delayed if ISA and its shareholders fail to generate sufficient funds through timely rate increases. The Government and the shareholders' commitment to providing the necessary financial resources should ensure that the project will be carried out as scheduled. This docueint ha a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Page 2 of 3 Estimated Cost: Local Foreign Total (US$ Million Equivalent) Engineering and Study 15.0 1.7 16.7 Civil Works 59.7 76.5 136.2 Electrical Equipment 2.8 21.4 24.2 Mechanical Equipment 4.2 27.3 31.5 Transmission System 6.4 15.2 21.6 Base Cost 88.1 142.1 230.2 Physical Contingencies 8.1 14.8 22.9 Price Contingencies 67.1 47.0 114.1 Total Project Cost 163.3 203.9 367.2 Interest and Other Charges during Construction - 54.1 54.1 Total Funds Required 163.3 258.0 421.3 NOTE: During the period 1978-82, ISA will carry out other works with an estimated cost of US$1,883.1 million equivalent and will require an increase in working capital of US$51.8 million. Financing Plan: Local Foreign Total (US$ Million Equivalent) Net Internal Cash Generation and Shareholder Bond and Equity Contributions 163.3 22.0 185.3 Proposed IBRD Loan - 126.0 126.0 IDB Loan (already approved) - 70.0 70.0 Suppliers' Credits . _- 40.0 40.0 Total 163.3 258.0 421.3 Rate of Return: Using revenues, at 1976 tariff levels, multiplied by the standard Colombian consumption factor as a proxy for benefits, the return on investment is 7.5%. While indicating the low level of 1976 tariffs, the return does not reflect the economic worth of the project. The exis- tence of a consumer surplus in electricity justifies the use of a higher consumption factor which, combined with tariff increases ranging from 25-35% (increases to be effected by ISA's shareholders are in this range), would  Page 3 of 3 increase the return on investment to the estimated opportunity cost of capital in Colombia, 11%, on the basis of revenues alone. The entry into operation of the San Carlos I project would obviate the power deficits in the interconnected system otherwise projected for 1983 and 1984. Although the San Carlos I project would not remove the projected deficits in critical hydrological periods, it would make the system more manageable. The impact of the project on Colombia's development process would be considerable as it would add 3,700 GWh of hydropower to the system. According to the overall distribution of consumption, 42% of the power generated would be for the residential sector and 35% for industry. Appraisal Report: Report No. 1850a-CO, dated May 17, 1978.   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INTERCONEXION ELECTRICA, S.A. WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR A SAN CARLOS I HYDRO POWER PROJECT 1. I submit the following report and recommendations on a proposed loan to the Interconexion Electrica, S. A. (ISA), with the guarantee of the Republic of Colombia, for the equivalent of US$126.0 million to help finance the San Carlos I Hydro Power Projetct. The loan would have a term of 17 years, includ- ing four years of grace, with interest at 7.5% per annum. The Inter-American Development Bank (IDB) has already approved a loan of US$70.0 million equiv- alent to ISA, for a term of 20 years, including 5-1/2 years of grace, at interest of 8% per annum, and commission of 1-1/4%, to finance part of the cost of the project. PART I: THE ECONOMY 1/ 2. The latest economic report on Colombia (1548-CO) was distributed to the Executive Directora in May 1977. It assesses current developments and provides a medium-term perspective of the Colombian economy. An updating report is being prepared and is scheduled for distribution to the Executive Directors in August 1978. Country data sheets are provided in Annex 1. Background 3. During the past two decades substantial structural transformation has taken place in the Colombian economy. The country has made impressive progress in the transition from a predominantly rural and agricultural economy made up of largely self-contained regions to a more integrated urban industrial economy oriented increasingly toward international trade. This broadening of the country's productive base has been accompanied by rapid growth of nontraditional exports and development of a modern sector which relies to a considerable extent on imported inputs. From 1967 to 1974 GDP rose by an average of 6.5% per annum in real terms, well above the historical average of less than 5% (1950-67). Accelerated economic growth coupled with a decline in population growth brought about a rapid increase in per capita incomes. Increased investment and relaxation of the foreign exchange con- straint were the major factors responsible for this acceleration in growth. Merchandise exports expanded more than four-fold during this period, and, most significantly, nontraditional exports became an increasingly important source of foreign exchange earnings, in large part compensating for the slow 1/ Substantially unchanged from President's Report, Second Cali Water Supply and Sewerage Project (Report No. P-2169-CO).  - 2 - growth of receipts from coffee exports. Much of this increase in non- rlitional exports was the result of both product and market diversifica- tion attributable to the Government's export promotion program. Substantial medium- and long-term capital inflows to the public and private sectors for development projects helped sustain investment levels and enabled Colombia to maintain the favorable structure of its external debt. However, despite the substantial progress made during the past two decades, Colombia still has a long way to go on the road toward modernization; it still is essentially an underdeveloped country with a limited modern sector super- imposed on a broad, traditional and poor base. 4. When the present Government took office in August 1974, the country was faced with a generally deteriorating economic situation--weakening balance of payments, loss of self-sufficiency in petroleum production, accelerating inflation, deterioration of the public finances, and reduced public invest- ment. GDP growth showed signs of slowing and unemployment was increasing, especially in the urban areas, reaching a peak of 13% in 1974. As a con- sequence, the new administration moved rapidly to introduce an economic stabilization program along with a set of reforms aimed at restoring the basis for long-term economic growth. In line with these goals, it initiated basic reforms of the fiscal, monetary and price systems. 5. To help strengthen the public finances, the new Government undertook a comprehensive tax reform designed to achieve a substantial improvement in the progressivity and elasticity of the tax system. Steps were also taken to correct major distortions which existed in the price system. Price controls on a number of important agricultural products were removed, thereby providing greater stimulus for increasing farm production. Far-reaching modifications in petroleum pricing policy aimed at regaining self-sufficiency in production of crude petroleum by improving incentives for exploration and exploitation were introduced. Concurrently, measures were taken to reduce the subsidy on local consumption of petroleum products, with the dollar equivalent price of gasoline being raised in successive steps by 150% between August 1975 to January 1977. 6. Economic growth slowed in 1975 and 1976, with real GDP increasing by less than 5% in both years. This was the result of the stabilization measures adopted at the end of 1974, the effects of the world recession, reduced private investment, and, in 1976, a poor harvest stemming from adverse weather conditions. The stabilization program succeeded in reducing inflation from 27% in 1974 to 18% in 1975, but the expansionary impact of rising inter- national reserves caused by higher coffee prices and shortages of basic food items produced an acceleration of inflation to 26% in 1976. Private invest- ment declined in real terms during this period as a consequence of attempts to stabilize the economy through tighter fiscal and monetary measures. Public sector revenues and savings were strengthened as a result of the tax reform and of increased revenue from coffee export taxes. The balance of payments improved substantially in 1976, mainly as a result of an increasing trade surplus caused by higher world coffee prices. Consequently Colombia's net international reserves rose by nearly threefold, from US$437 million in 1974 to US$1,166 million in 1976.  - 3- Recent Economic Performance 7. Growth and employment picked up significantly in 1977, largely as a result of increased iinternal demand generated by the income effects of exceptionally high export receipts from coffee. GDP is estimated to have increased by 5.4%. This higher level of growth was distributed evenly over all sectors of the economy except non-coffee agriculture which was affected by the continuation of the severe drought which began in the second half of 1976. High world coffee prices during 1977 produced a record trade surplus and the balance of paymenits registered an overall surplus for the year of US$686 million. By year enld, Colombia's net international reserves stood at US$1,852 million, equivalent to seven months' imports, the highest level in the country's history. Increased export receipts from coffee contributed to a further strengthening of public finances over that which had occurred in 1975-76. Increased receipts from taxes on coffee exports caused a substantial increase in the current surplus of the Central Government, more than off- setting unexpected slower growth in some of the country's other major taxes. 8. Expansion of coffee earnings combined with the shortages of basic food items led to an unprecedented acceleration of inflation during the first half of 1977. For the twelve month period ending in June 1977 infla- tion reached 45%. In an attempt to reduce inflationary pressure the Govern- ment introduced a number of fiscal and monetary measures aimed at curbing growth of coffee producers disposable income, at further strengthening public finances and at slowing the growth of the monetary aggregates. Legal reserve requirements were increased, limits were placed on external borrowing, and Central Bank rediscounts were reduced. The coffee retention tax rate was doubled from 23% to 46%, and the system of delayed payments to coffee pro- ducers was used to further limit growth of coffee producers' disposable in- come. In order to increase aggregate supply and stem the rapid accumulation of foreign exchange reserves, import duties were reduced and the import licensing system was liberalized. In an effort to curb upward pressure on prices, the authorities temporarily discontinued their policy of periodic adjustments in the foreign exchange rate and in prices of petroleum products. The last two measures were only a temporary expedient to break the infla- tionary spiral. From July 1977, the Government has resumed periodic ex- change rate adjustments aLnd in January 1978 increased the price of gasoline by 20%. The Government intends to continue to pursue policies that maintain Colombia's international competitiveness and that help regain petroleum self-sufficiency (paragraph 25). 9. Another conflict between short-term and long-term objectives exists in the Government's interest rate policies. To avoid cost push effects, nominal interest rates were frozen during the period of accelerating inflation and real interest rates cleclined rapidly and became sharply negative. As a consequence there was a growing unwillingness on the part of the public to hold medium- and long-term financial assets, and investment funds had to be increasingly allocated by cumbersome administrative controls. The problem has become less serious as inflation has abated, but will require further attention by the Government.  - 4 - 10. The stabilization measures taken earlier in the year, the gradual decline of world coffee prices from June 1977 on, and the availability of more ample agricultural supplies on the domestic market resulting from both im- proved weather and increased imports, produced a dramatic slowdown in infla- tion in the second half of 1977. For the full year 1977, inflation was re- duced to 29%. Further declines in the rate of inflation are expected this year as the Government maintains tight fiscal and monetary policies. Additionally, declines in international coffee prices and rapid increases in imports are expected to further reduce inflationary pressures from the ex- ternal sector. Prospects for this year's agricultural output appear good, and the Government is prepared to increase food imports substantially if needed. Development Strategy and Prospects 11. The Government's development strategy, embodied in the 1975-78 development plan, aims at creating the conditions necessary for substantially increasing employment opportunities, particularly for the poorest segments of the population. It provides incentives for private sector investment in the least developed areas of the country and for the use of more labor intensive production techniques. Public sector investment specified in the Plan concen- trates on expanding and improving infrastructure and on socially oriented projects designed to alleviate rural and urban poverty. This includes compre- hensive integrated rural development and nutrition programs which directly benefit the lowest income groups of the population. Because of the importance of commercial agriculture in generating employment and expanding exports, Colombia's development plan assigns a high priority to providing farmers with credit and technical services required to increase output. In order to alleviate urban poverty, the Plan places emphasis on reducing migration to the cities by increasing employment in agriculture and through provision of improved services in slums of Colombia's major cities. These efforts are being complemented by policies and programs to encourage the development of small- and medium-scale enterprises and to decentralize industry away from the three largest cities. Special priority is given to the development of domestic energy sources to reduce the country's growing dependence on imported oil. 12. In the past three years substantial progress has been made in carrying out this strategy despite the economic dislocations occasioned by the world recession and the need to concentrate on short-term economic management. Most of the Government's development efforts during this period have focussed on improving the standard of living of the poorest 50% of the population, with a substantial share of the benefits of public sector expenditures accruing to this segment of the population. Provision of improved social services has been a major objective of the current administration. This is reflected in the increase in expenditures on education, health, water and sewerage, which rose from 33% of total expenditures in 1974 to 37% in 1976. Preliminary estimates show an even higher share spent on such programs in 1977. 13. Projections of Colombia's energy balance indicate an expanding deficit which could reach significant proportions by the early 1980s. To avoid the constraint on growth that shortages of energy would entail, the Government is giving high priority to the development of alternative energy  - 5 - sources. Major projects are being developed to expand hydroelectric power generation and incentives are being provided private companies for accele- rated exploration and exploitation of the country's hydrocarbon potential. Coal and natural gas are expected to provide an increasing contribution to the country's energy needs in the future. An energy development program, which would nearly triple power generation by 1986, has been drawn up by the Government, with estimated investment requirements of between US$6.0 and US$8.0 billion in constant 1976 prices. Given the long gestation periods of power projects, their execution must be initiated without delay if energy constraints on future growth are to be avoided. 14. The Government is making a major effort to accelerate growth of the agricultural and industrial sectors. In the past, Colombia has been largely self-sufficient in basic foodstuffs. However, an increasing food deficit is projected for the years ahead in the absence of major advances in food pro- duction. The Government is attempting to meet these needs through integrated rural development programs directed towards small farmers, through expanded farm credit, research, ext:ension and marketing facilities and through improved farm management practices, including farm investment planning. Industry has been singled out as the leading growth sector for the future and the Government has adopted exchange rate, fiscal incentive, credit allocation, and locational policies intended to assure that the sector fulfills its role as a major con- tributor to employment growth and exports. 15. Based on its strong resource base and its high level of international reserves, Colombia should be able to sustain annual real growth of no less than 6% over the period 1978-82. Private sector investment is expected to recover as inflation subsides and fiscal and monetary policies are eased. Public sector investment is expected to increase as restraints on such spending are lifted and major energy projects enter the execution stage. Non-inflationary increases in public sector investment spending depends to a large degree on continuing Government efforts to maintain high levels of public sector savings. In this regard, timely and adequate adjustments of tariffs on public services is especially important, and the Government has already gone a long way in the adoption of such policies. 16. Less buoyant terms of trade as world coffee prices decline from the high 1977 level and rapidly increasing imports to meet the requirements of expanding investment are expected to lead to a renewed widening of the resource balance beginning in 1978. Assuming that economic growth accele- rates in the industrialized countries and that appropriate incentives-- particularly continuation of periodic exchange rate adjustments--are provided, nontraditional exports should resume the high rate of growth achieved in the early 1970s. Colombia iEI projected to require gross capital inflows of about US$3.7 billion during the five year period 1978-82, of which US$340 million should be disbursed from commitments made through the end of 1976. This inflow would enable Colombia to maintain an adequate level of foreign ex- change reserves during the period. A significant increase in capital require- ments is expected in the early 1980s when major additional projects in the energy sector will have to be initiated. To achieve these targets, annual  -6- gross capital inflow will have to increase from US$600 million in 1976 to ,-_r US$1.0 billion in 1982. While about half of Colombia's capital inflow is expected to be provided by official multilateral and bilateral sources, financing from commercial sources is expected to become increasingly important during the period as Colombia gains greater access to international capital markets. 17. Colombia's public external debt repayable in foreign currency amounted to US$3.3 billion at the end of 1976, or about US$2.4 billion excluding undisbursed commitments. The Bank/IDA share of this external debt was 28.5% and is expected to decline to about 25% by 1982. Although the public debt service ratio fell during the past two years as export growth accelerated, this ratio is projected to increase from 9.5% in 1976 to about 11% by 1982. Balance of payments prospects beyond 1980 will depend among other factors on the timely development of domestic energy sources and on progress made in executing several natural resource-based export oriented projects currently under preparation. As a developing country, it is normal to expect Colombia to be a net capital importer, i.e. to have a deficit in its balance of payments on current account. However, to avoid an excessive growth in this deficit over the next few years, careful management of internal demand will be required. Given such management, it should be possible to prevent the external sector from again becoming a constraint on economic growth, and to maintain Colombia's present creditworthiness for external borrowing of substantial amounts on conventional terms. PART II: WORLD BANK OPERATIONS IN COLOMBIA 18. The proposed loan, the 72nd to be made to Colombia, would bring the total amount of Bank loans to Colombia to US$1,713.2 million (net of cancella- tions). Of this amount, US$1,170.3 million is now held by the Bank; IDA made one credit of US$19.5 million for highways in Colombia in 1961. Disbursements have been completed on 46 loans and the IDA credit. IFC has made effective investments and underwriting commitments of US$53.7 million in 24 enterprises and now holds US$28.1 million. Annex II contains a summary statement of Bank loans and the IDA credit as of March 31, 1978, and IFC investments as of March 31, 1978. The Annex also contains summaries on the execution of the 23 on-going projects. 19. Since FY68, Bank lending in Colombia has become more diversified and has been concentrated on production-oriented programs and activities which carried social as well as economic benefits. Eight of the eleven agricultural loans have been made since then, seven of the ten loans for industry, all three loans in the education sector and all six loans for water supply and sewerage. This compares with only seven loans since FY68 in the power and transport sectors.  20. Bank lending to Colombia in FY77 consisted of loans for rural develop- ment, agricultural credit, telecommunications, highways and small-scale industry, totalling US$281 million equivalent. In addition to the proposed project, the FY78 program includes the recently approved loans for nutrition improvement, water and sewerage and urban development, and a proposed loan for power inter- connection (being considered simultaneously). Work is also under way in development finance companies, further urban development, water supply and slum improvement, transportation, mining, power, including rural electrifi- cation, and small farm development for possible consideration by the Executive Directors during the next two years. 21. The proposed Bank lending conforms closely with the Government's development strategy. To help Colombia develop domestic sources of energy, a substantial part of the proposed lending would be for hydro-power. The Bank would also assist the devealopment of coal mines, which hold potential in helping Colombia meet partL of its energy requirements. Bank involvement in the energy sector would help mobilize additional external financing as some of the projects would require co-financing. Other future loans would finance agriculture and industry ito assist the Government in its efforts to raise overall productivity, income and employment and to strengthen and diversify exports. Closely related to these objectives would be the proposed Bank lending for transport infrastructure in more backward areas of the country to integrate them into the modern economy. In this context, we are proceeding with a project to improve domestic.airports. Finally, we are preparing a relatively large number of loans in support of the Government's efforts to help the lowest 50% of thie Colombian population. The nutrition project, the proposed urban development and slum improvement project, and the proposed water supply and sewerage projects are principally designed to improve the poor's standard of living. 22. The operations of external lenders in Colombia are shown in Annex I. While IBRD, IDB, and AID provided about 75% of total external financing to Colombia in the 1961-72 period, their share has decreased since then to approximately 40%. Like the Bank, IDB and AID have given increased emphasis to social projects. For instance, the IDB has assisted projects in low cost housing, urban and rural development, agrarian reform, university education, water supply, and land erosion control; in the future IDB proposes to assist Colombia in its plans to develop sources of domestic energy and to expand the activity of the productive sectors to help generate increased employment. AID has supported programs in education, urban development and small farm develop- ment. More recently, it has moved to small project loans aimed chiefly at improving the distribution of income. It is expected to phase out its aid program in Colombia in 1979 with the commitment of a US$6 million nutrition loan. PART III: THE ENERGY SECTOR AND POWER REQUIREMENTS Energy Resources and Requirements 23. Colombia is endowed with substantial primary energy resources (hydropower, natural gas, petroleum and coal), the most promising of which is  - 8 - hydropower, estimated at a potential 100 GW, of which only 2.3% have been developed to date. Coal resources have been little explored, but reserves are estimated to range from 20-40 billion metric tons, at which level they would be the largest in Latin America. A recent discovery of natural gas in the Guajira Peninsula, amounting to 3.5 trillion cubic feet, has brought proven reserves to a level well above 5 trillion cubic feet. On the other hand, because of insufficient exploration, known reserves of crude oil have fallen and are estimated to amount to less than nine years of 1976 output. However, only one of Colombia's nine sedimentary basins (the Magdalena River Valley) has been explored on a systematic basis, although the state oil company, ECOPETROL, in association with foreign oil companies, is now exploring other basins. Additionally, investigation of nuclear, geo-thermal and solar energy is underway. 24. Since 1965, output of primary energy has lagged behind overall economic growth, mainly because of declining crude oil output. By 1975, production of crude (321 trillion Btu) had fallen to 78% of 1965 output and 72% of the 1970 level. While over 1965-75 total energy output increased by 3.6%, from 603 trillion Btu to 625 trillion Btu, energy consumption increased by almost 80%, rising from 271 trillion Btu to 489 trillion Btu. (Exports and losses account for the difference between production and consumption figures.) By 1976, hydrocarbon imports exceeded exports by US$35.6 million equivalent. Projections of Colombia's energy balance indicate an expanding deficit that could reach significant proportions in the early 1980s and become a constraint on economic growth (paragraph 13). Energy Development Objectives and Strategy 25. As stated, the Government's objective is to overcome the energy deficit by developing domestic energy sources and by promoting rational use of them. To this end, it has adopted several measures. First, it has recast its hydrocarbon pricing and regulation policy to stimulate output of petroleum, natural gas and coal. Foreign oil companies have reacted favorably to these measures and have initiated new explorations. Second, CARBOCOL, a Government agency established to develop the country's coal resources, has concluded contracts with various foreign companies to undertake exploration and develop- ment of several coal fields, particularly the largest, El Cerrejon, in the Guajira region. Third, considerable substitution of gas for petroleum products in industry and thermal power generation is being carried out on the Atlantic Coast. Fourth, a program for expansion of power generation and transmission facilities to meet forecast demand over the 1977-84 period has been drawn up (paragraphs 33 and 34). Fifth, the Government has concluded a contract with the French Minatome Group to explore the country's uranium potential. Lastly, the Government proposes to charge the full cost of energy to consumers and, in this way, self-generate an important share of the financial resources required for investment in the sector. The Power Market, Service Levels and Institutional Framework 26. Electric power is the fastest-growing form of energy in Colombia. Its share of total energy consumption has risen from 19% in 1960 to 24% in  - 9 - 1976. Colombia's installed capacity at the end of 1976 was 3,300 MW, includ- ing self production; hydro stations account for 68% of total energy generated. Since 1967, production of electricity has been growing at an annual rate of 10.5%, i.e., one and three-fourths times as fast as than the growth rate of GDP. Power sales have also been rising rapidly (9.2% per annum since 1972). Annual per capita electricity consumption stands at 599 kWh. 1/ Households (42% of the total), industry (35%) and commerce (13%) are the major electricity users. 27. About 60% of Colombia's 24.2 million population has electricity. The urban population, in 1977 estimated to be about 70% of the population, has greater access to electricity. 2/ In 1976, for example, 85% of households in large cities (population of 50,000 or more) had electrical service while in rural towns (population between 50-2,500) the corresponding figure was 36%; in other rural areas, 16%. With the assistance of external lenders. the Government is carrying out programs to increase the supply of electricity to rural areas. 28. The Ministry of Mines and Energy is charged with formulating national policy for power generation, transmission and distribution. In defining investment priorities, it shares responsibility with the National Planning Department (DNP). The Government cannot enforce its policies directly on the municipally-controlled power companies, but Interconexion Electrica, S.A. (ISA), a generating and transmission company controlled by the largest municipal power companies and by the Government-owned national power companies, provides a mechanism for reaching agreement on major issues affecting the sector (paragraphs 29 and 51). 29. The development of Colombia's power sector has been assisted by the gradual consolidation of isolated facilities into regional systems and the interconnection of these systems to facilitate development of low-cost hydro resources. The entities which provide electricity service comprise: (a) independent municipal companies, of which the largest are Empresa de Energia Electrica de Bogota (EEEB), Empresas Publicas de Medellin (EPM) and Empresas Municipales de Cali (EMCALI); (b) entities under the National Government, the most important of which are Corporacion Autonoma Regional del Cauca (CVC), Corporacion Electrica de la Costa Atlantica (CORELCA), and Instituto Colombiano de Energia Electrica (ICEL), all of which have numerous local subsidiaries; and (c) ISA, the shareholders of which are EEEB, EPM, CVC, CORELCA and ICEL. 1/ This figure does not take account of losses. 2/ Residents of cities with 2,500 or more inhabitants.  - 10 - 30, Public utility tariffs are regulated by the Junta Nacional de -rifas de Servicios Publicos (JNT) in the DNP. JNT, which was established in the late sixties with Bank support, has the power to approve requests from the power companies for tariff increases. The power companies, however, are free to set rates lower than those approved by JNT and have sometimes done so. Power Development and its Financing 31. Colombia's power sector has developed rapidly. Between 1950-1977 installed generating capacity increased by 3,000 MW or thirteenfold. A substantial part of this expansion was financed with internal cash genera- tion (in the case of the large municipal companies, about 40% of total capital outlays) and with contributions from the National Treasury, chiefly to ICEL, CVC and CORELCA. The Bank and IDB were the main source of foreign financing for the power sector (US$607 million equivalent combined), although in recent years suppliers' credits increased their participation. From 1971 onwards, power rate adjustments lagged behind cost increases and the companies' finances deteriorated. As a result, construction of new works was delayed and the operating efficiency of the companies suffered. Particularly affected was the renovation of subtransmission and distribution networks, resulting in increased energy losses. 32. Beginning with 1975, rate adjustments have been accelerated, with average yearly increases through 1977 marginally exceeding average annual inflation. Investment outlays have once again increased and in 1975 totalled US$187.6 million equivalent, i.e., 31% over the preceding year. The Govern- ment and the major power companies have initiated a program of tariff increases with the aim of achieving and maintaining satisfactory rates of return on revalued assets. This should generate an adequate portion of investment funds for planned expansion (paragraphs 53 and 54). In line with this, average tariff levels in companies accounting for the bulk of sales in the sector have been increased by some 37% for 1978, with further increases of 33% already approved for 1979. Power Requirements and Proposed Investments 33. Over 1977-84, power requirements in the interconnected system are projected to grow at 10.6% per annum, i.e. slightly faster than in the past. To meet this demand, about 4,300 MW in effective generating capacity would have to be added to the present system; of this, about 540 MW were completed in 1977 and 1,500 MW are under construction. 34. Investments in generation and transmission during 1977-84 are expected to amount to about Col$250 billion in current prices (about US$5 billion in 1976 prices), some 60% of which would be foreign exchange. This estimate is based upon the preliminary findings of a power development and sector study which the Government is carrying out, with assistance from the Federal Republic of Germany, and which will be presented to the Bank upon completion. To provide for an orderly expansion of the sector, ISA and the shareholders have agreed to prepare and present to the Bank no later than December 31, 1979, a Power Sector Development Master Plan covering the period  - 11 - 1980-90 in detail, and 1991-2000 in more general terms (Section 5.04 of the Loan Agreement and Section 5.09 of Shareholders' Agreement). Furthermore, the Government, ISA and the shareholders have agreed that, until the completion of the proposed project, they will seek Bank consent before starting construction of any generating facililty in excess of 200 MW in the case of ISA and of 100 MW in the case of the shareholders. To this end, they will submit to the Bank adequate financial and economic justification for each proposal (Section 5.06 of the Loan Agreement, Section 5.01 of the Shareholders' Agreement and Section 3.02(a) of the Guarantee Agreement). Bank Participation in the Power Sector 35. Since 1950, the Bank has made 18 loans to Colombia's power sector, totalling US$350 million. Sixteen loans have assisted the expansion of generating capacity in the systems serving Bogota, Medellin, Cali, Cartagena, Bucaramanga and Manizales. The most recent loan (874-CO, 1973) included expansion of electricity distribution to low income areas. In addition, the Bank is currently supporting rural electrification under the Integrated Rural Development Project (1352-CO, 1977). 36. ISA has received two Bank loans, totalling US$70.3 million. The first (575-CO, 1968) was to interconnect the central regional systems and was completed ahead of schedule at lower-than-estimated cost. Remaining funds were used to construct an additional transmission line which began operation in 1976. The second loan (681-CO, 1970) was used to construct ISA's first generating facility, Chivor I, which came into operation two years behind schedule in 1977, with a US$86 million cost overrun (for further details see Annex II, paLge 3). 37. One of the objectives of Bank assistance has been the strengthening of power sector institutions and finances. Through the late sixties, Bank efforts at institutional strengthening were most successful in the cases of EEEB and EPM. The late sixties also saw the creation of two new institutions, ISA and JNT, in which the Bank played a critical role. In the case of ISA, the entity's role in sector planning, coordination and regulation has grown as a direct consequence of Bank lending, and the company's importance is expected to grow concommitantly with its share in the sector's total generating capacity. By the mid-eighties, ISA would have the largest generating capacity in the sector. Furthermore, under the proposed project its planning and coordinating role would be strengthened (paragraphs 34 and 52). 38. Bank attempts to strengthen sector finances have had mixed results, chiefly because of the Government's reluctance, prior to 1975, to press for tariff increases under inflationary conditions and the unwillingness of local authorities to increase rates to compensate for rising costs. However, the Government, ISA and the shareholders intend to maintain in future tariffs at an adequate level in order to finance an important share of investments from internal cash generation and have already taken steps toward this goal (paragraph 32).  - 12 - 39. Past Bank lending to Colombia's power sector was reviewed in the OED report entitled "Bank Operations in Colombia, an Evaluation" (Report No. Z-18) of May 25, 1972. The report concluded that Bank financing was successful in assisting the power companies to develop hydroelectric plants at lower unit cost than they otherwise would have been able to do. In turn, this permitted greater urban coverage as well as cheaper and more reliable electricity supply to industry. The report commended Bank efforts in the establishment of JNT and the central interconnected system which facilitated further power sector development. Among other things, the report recommended that in the future the Bank pay increased attention to the companies' finan- cial planning, tariff structures and energy losses. The proposed project addresses these points. PART IV: THE PROJECT Background and Objectives 40. The project, prepared by ISA with the assistance of consultants, forms part of its 1978-82 Power Expansion Program and would provide about 15% of the planned increase in generation capacity. The project was appraised by a Bank mission which visited Colombia in March-April 1977. Supplementary work was undertaken by missions which visited Colombia in August and September of 1977. Negotiations were held in Washington during the weeks of March 6, and 13, 1978, with a Colombian delegation led by Messrs. Gabriel Turbay, Director of Public Credit, and German Jaramillo, General Manager of ISA. 41. Project objectives are to: (i) satisfy part of forecast demand at least cost by utilizing the country's large hydroelectric potential; (ii) enhance ISA's role as a major planner, coordinator and dispatch agency in the sector; and (iii) improve long-term sector planning and operating efficiency. Project Description 42. The project comprises: (i) construction of a 70 m high earth dam (Punchina), inlet and discharge tunnels, and a power station; (ii) engineering services related to (i); and (iii) a study of losses in the systems of ISA and its shareholders. Under the project, the Government/ISA would also carry out the Master Plan mentioned in paragraph 34. 43. Physical Facilities. The San Carlos hydroelectric complex, which will be located about 150 km from Medellin in northwest Colombia, will be built in two stages (1,550 MW total capacity), the first of which (620 MW) is included in the proposed project. These facilities constitute the second step in a series of four interrelated hydro developments, with a total capacity of approximately 2,500 MW on the rivers Nare, Guatape and Samana, of which the Guatape developments, financed by Loans 369-CO and 874-CO, are the first step. The project works consist of: (a) the Punchina earth dam, with a volume of six million cubic meters,. on the Guatape River, which will impound a reservoir with a useful capacity of 50 million cubic meters;  - 13 - (b) an intake tower and a 4.5 km long pressure tunnel (a second tunnel would be added at the second stage), and a discharge tunnel about 1.5 km long; (c) an underground power station consisting of two caverns with a volume to be excavated of about 140,000 cubic meters, and four vertical Pelton turbine generators aggregating 620 MW (six units of 155 MW will be added at the second stage); and (d) a control build:Lng, a 230-kV switchyard and 230-kV lines, totalling about 245 km, together with the related terminal substations, to connect the station to Guatape and Torca in the vicinity of Bogota. 44. Seventy families living in the project area would have to be relocated by June 30, 1979. (Relocation and readaptation are not expected to have any serious social repercussions.) An adequate land acquisition and evacuation program has been drawn up. Satisfactory progress in carrying out the program would be a condition of loan effectiveness (Section 8.01(e) of the Loan Agreement). 45. Engineering Services. With Bank agreement, ISA has engaged Integral, the Colombian consultants who prepared the final design of the proposed hydro plant, for all phases of project execution. Integral will engage outside expertise as needed for specialized tasks during construction. 46. Study of Losses. A study of power losses in the systems of ISA and its shareholders would be carried out by ISA through consultants under terms of reference and conditions satisfactory to the Bank (Section 3.02(b) of the Loan Agreement) by June 30, 1979. The study would identify the nature, size and occurrence of such losses and make recommendations for minimizing them, including actions to be taken and an implementation schedule. Costs and Financing 47. Total project cost is estimated at US$367.2 million equivalent, of which US$203.9 million equivalent correspond to the foreign exchange compo- nent. Also required are US$54.1 million equivalent for interest during construction including US$26.8 million equivalent for interest on the Bank loan. During project execution (1978-83), ISA plans to carry out other investments at a cost of US$1,883.1 million equivalent, and will require an increase in working capital of US$51.8 million equivalent. 48. The proposed loan of US$126 million would finance 30% of the total funds required for the project, i.e., 49% of the project's foreign exchange cost and interest and other charges on the Bank loan during construction (6% of total cost). Financing of interest during construction is justified in view of the heavy strain imposed on ISA by its large investment program. The remaining foreign exchange costs would be financed by a recently approved US$70 million equivalent loan from the IDB, contributions of US$22 million equivalent from ISA's shareholders, and US$40 million equivalent from supplier's  - 14 - credits. Local costs, US$163.3 million equivalent, would be financed by ISA's ireholders through equity contributions and bond subscriptions. Retroactive financing of up to US$200,000 equivalent is proposed for engineering services paid afC- January 1, 1977, and of up to US$4 million equivalent for the downpayment on the underground civil works contract (paragraph 50) which has recently been signed. The Bank agreed to ISA's awarding the contract in April 1978, in order to avoid one year's delay in project implementation (and consequent electricity rationing) as a result of the April-November rainy season (Schedule 1, paragraph 4 of the draft Loan Agreement). 49. The Bank loan would finance the foreign exchange cost of (a) under- ground civil works, (b) miscellaneous electrical and mechanical equipment, (c) mechanical equipment for the dam, (d) transmission lines and substations, and related control and communication equipment, (e) engineering, (f) consultant services for the study of losses (about 70 man-months of services would be required for (e) and (f), at an average base cost of US$7,000 per man-month), and (g) interest and financial charges on the Bank loan during construction. IDB will finance the foreign exchange element of (a) the Punchina Dam and some equipment, (b) foreign consultants to advise ISA on specific technical aspects of construction, and (c) interest and financial charges on the IDB loan during construction. Suppliers' credits would cover (a) turbines, (b) generators, and (c) other equipment. ISA would finance (a) access tunnels (already underway), (b) financing charges, (c) down payments, (d) price adjustments, and (e) local costs. 50. Effectiveness of the proposed Bank loan would be conditioned upon ISA's compliance with the conditions of initial disbursement of the US$70 mil- lion IDB loan and upon receipt of assurances that ISA has made satisfactory arrangements for the balance of project financing (Section 8.01 of the Loan Agreement). The Borrower, ISA 51. ISA, established in 1967, is a stock corporation formed to inter- connect the systems of its shareholders and to construct, own and operate new generating plants required for it. It is governed by a Board of Directors, representing the five major shareholders (EEEB, EPM, CVC, CORELCA, recently incorporated into ISA, and ICEL). Major decisions require the agreement of 75% of the shares. Day to day operations are managed by a General Manager (appointed by the Board), assisted by four departments (Technical, Operations, Finance and Administration). The company has sufficient competent staff and its pay levels are satisfactory. 52. During preparation of the proposed project, ISA amended its bylaws to the effect that in the future the entity will: (i) be responsible for planning expansion of the interconnected system;  - 15 - (ii) construct and own all future plants in the system except for plants of regional interest which may be undertaken by the shareholders af-ter approval by ISA; and (iii) set tariffs to achieve adequate annual returns on its revalued assets (paragraph 54). Any change in ISA's statutes would require prior Bank approval (Section 7.01(a) of Loan Agreement). 53. Finances. Between 1972 and mid-1977, ISA's assets comprised a 230 kV transmission line (financed under 575-CO), which was expected to serve for energy exchanges at cost between its shareholders. In September 1977, ISA's first generation asset, the Chivor I power station (681-CO), entered into operation. Thus, the company has been unable to generate a significant amount of funds and has relied upon shareholders' contributions to finance its investments. As the shareholders faced financial difficulties because of inadequate rates and rising costs, so has ISA. The shareholders have addressed the problem of cash shortages by agreeing to maintain in the future a satisfac- tory rate of return on r,evalued assets (Section 5.02 of Shareholders Agreement) which, inter alia, would enable EEEB, EPM and CVC to cover their shares of project costs; (Section 3.01 of Shareholders Agreement). The agreed rates of return and the expected levels of investment financed from internal cash generation (including contributions to ISA) are as follows: (i) EEEB would earn at least 12% from 1978 onwards and expects to cover, from internally-generated funds, 46% of its total investment requirements during the 1977-84 period; (ii) EPM would earn 7% in 1978, 6% in 1979, and 9% in 1980 and subsequent years and expects to generate internally 59% of the total funds it requires for investment over 1977-84; - (iii) CVC would earn 5% in 1978, and 9% thereafter and expects to generate 52% of its investment requirements over 1977-84; (iv) CORELCA, a rapidly-growing entity which serves the relatively poor Atlantic coast with 100% thermal-based power, would achieve 4% in 1978, 5% in 1970-80, 6% in 1981, 7% in 1982 and 9% from 1983 onwards. As CORELCA would be able to generate internally only 13% of the investment funds required over 1977-84, it would rely on the Government for its contribution to ISA (Section 3.02(b) of the Guarantee Agreement). As part of the project, CORELCA would under- take a program to improve its operating efficiency and financing planning (Section 5.05(a) of the Shareholders' Agreement)l and  - 16 - (v) ICEL functions essentially as a holding company for eleven, mostly-rural power utilities. It does not have any revenues of its own; the Government covers its expenses, debt service and investments, and has agreed to provide the necessary resources to ICEL for to contributions to ISA (Section 3.02(b) of the Guarantee Agreement). To assist in strengthening its major subsidiaries, ICEL would undertake a program to improve the operating efficiency and finances of at least the five most important of them (Section 5.05(b) of the Shareholders' Agreement). 54. For its part, ISA has agreed to earn a rate of return on its re- valued assets (other than the 500 kV interconnection line being considered simultaneously with this project) of 5.5% in 1978, 8% in 1979, 9% in 1980, 11% in 1981 and 9% from 1982 onwards. The agreed returns on the 500 kV line would be 3% in 1982, 2% in 1983, 2.5% in 1984, 4% in 1985, 6% in 1986, and 9% in 1987 (the first year of full utilization) and thereafter (Section 5.08 of draft Loan Agreement). Long-term contracts for the sale of Chivor energy would be finalized by ISA and the shareholders as a condition of loan effec- tiveness (Section 8.01(c) of the Loan Agreement). ISA's net internal cash generation would finance 9% of the 1978-82 investment program. This is low but acceptable since the share-holders contribution to the program would be 27%. 55. ISA faces heavy debt service obligations, despite the satisfactory forecast financial performance. ISA and the shareholders, therefore, have agreed to prepare and submit to the Bank no later than December 31, 1978, a review of the company's finances covering 1979-85, including proposals for achieving an annual debt service coverage by internal cash generation of at least 1.5 times from 1979 on (Section 5.09(b) of the Loan Agreement and Section 5.07(b) of the Shareholders Agreement). In addition, ISA has agreed that, until project completion, it would obtain the Bank's concurrence before undertaking any project costing in excess of 2.5% of the value of its net fixed assets in opera- tion (Section 5.06(b) of the Loan Agreement) and before contracting any long- term debt unless internal cash generation is more than 1.5 times its maximum projected debt service requirements (Section 5.09(a) the Loan Agreement). Finally, the shareholders have agreed that they would maintain in ISA all payments due to them from their share and bondholdings until project comple- tion and in any subsequent year in which ISA would not attain the 1.5 debt service target (Section 3.02 of the Shareholders' Agreement). Tariff Structure 56. The structure of retail power rates in Colombia is distorted. Although residential rates are generally progressive, the charge being higher as consumption increases, households pay substantially less for electricity than industry. This policy has led to some over-consumption of electricity by households, even though its principal objective was to benefit low-income consumers. Therefore, the shareholders, under the coordination of the Ministry of Mines and Energy, have agreed to carry out a study, to be discussed with the Bank no later than June 30, 1979, to seek ways to improve the tariff structure (Section 5.10 of the Shareholders Agreement and Section 3.06 of the Guarantee Agreement).  - 17 - Procurement, Implementation Schedule and Disbursements 57. Procurement under the proposed loan would be in accordance with international competitive bidding consistent with the Bank's Guidelines for Procurement. Colombian manufacturers would receive a preference of 15% or applicable duties, whichever is less, for bid evaluation purposes. The cost estimate assumes that local manufacturers would supply conductors, towers and certain miscellaneous electromechanical equipment, with an estimated cost of about US$10 million. 58. The prequalification and bidding documents for the underground civil works were reviewed by the Bank and are satisfactory. Fourteen foreign firms were prequalified to participate in the bidding; in June 1977, ISA called for tenders, and bids were opened in November 1977. In April 1978, the contract was awarded to the lowest evaluated bidder, a consortium compris- ing Ingenieros Civiles Associados; Ltda. (ICA, Mexico) and GRANDICON, Ltda. (Colombia). Bid documents for the remaining components are being prepared by ISA, with the assistance of Integral. Project works would begin in 1978 and be completed by mid-1983. 59. The loan would be disbursed over a five-year period. Disbursements would be made against (a) 100% of the foreign expenditures for civil works; (b) for equipment and materials, 100% of foreign expenditures or 94% of the ex-factory cost of locally-manufactured goods; and (c) for consultant services, 100% of foreign expenditures or 50% of total expenditures. Also, funds would be disbursed for the total amount of interest and other charges on the pro- posed loan during construction. The loan is expected to be fully disbursed by June 30, 1984. Benefits and Risks 60. The impact of the proposed project on Colombia's development would be considerable as it would add 3,700 GWh of hydropower to the system. According to the overall distribution of consumption, 42% of the power gene- rated would be for the residential sector and 35% for industry. The number of residential consumers is projected to expand by 95,000 each year and, as ICEL would receive 30% of the power generated by the project, a sizeable percentage of these customers are expected to be in rural areas. Upon enter- ing into operation, the project would obviate the power deficiency otherwise projected for 1983 and 1984. Although the project would not eliminate this deficiency in critical hydrological periods, it would make the system more manageable. 61. A return on investment was calculated for the San Carlos I Project by relating the costs attributed to it, both capital and operating/maintenance costs, to the 1976 average revenue for the Central and Atlantic systems of USi 1.45/kWh multiplied by the standard Colombian conversion factor of 0.785 to shadow price consumption. On this basis, the discount rate at which the present value of project costs would equal benefits would be 7.5%. Although this return indicates an inadequate level of power rates in 1976, it is of  - 18 - little significance as a measure of the economic worth of the project. There i- sufficient evidence concerning the presence of a consumer surplus in elec- tricity, which would result in a higher consumption factor (0.9-1.0) than the one assumed. Taking this into account, the tariff increases required to raise the return on investment to the estimated opportunity cost of capital in Colombia, about 11%, would range from 25-35%. Since ISA's shareholders plan such increases to achieve agreed financial rates of return, the return on the the San Carlos I investment, based on revenues alone, would equal the oppor- tunity cost of capital in Colombia. 62. The project is subject to risks normally associated with large civil works in difficult terrain. There is also a risk that the project may not be implemented in the time proposed if ISA, because of shareholder inaction to raise rates, would be delayed in mobilizing the required local currency. Given the rate increases approved and proposed, the assurances obtained and, more importantly, the general acceptance by all political sectors of the need to strengthen the shareholders' and ISA's finances, it is to be expected that the project will be carried out as scheduled. Ecology 63. An ecological study carried out by a specialized consultant (Cesar Perez Figueroa, Colombia) for Integral indicates that the project area is unsuitable for farming or stockraising because of extremely hilly topography, poor soils and heavy rainfall. Since conditions appear favorable to the development of water hyacinth (Eichhornia crassipes) in the reservoir area, ISA would have to take measures to control it. In consultation with the Bank, ISA proposes to formulate before December 31, 1980, a satisfactory medium-range program for rational use of the project basins, including reforestation, and organize a unit with adequate funding and administrative capacity to carry it out, not later than December 31, 1981 (Section 5.05 of the Loan Agreement). PART V: LEGAL INSTRUMENTS AND AUTHORITY 64. The Loan Agreement between the Bank and ISA, the Shareholders Agree- ment between the Bank and ISA's shareholders and the Guarantee Agreement between the Republic of Colombia and the Bank, and the report of the Committee provided for in Article III, Section 4 (iii) of the Bank's Articles of Agree- ment are being distributed to the Executive Directors separately. 65. Special conditions of the loan are listed in Section III of Annex III. Additional conditions of effectiveness would be (a) satisfactory progress by ISA in the evacuation of the site of the proposed project (paragraph 44); (b) that ISA has satisfied all the conditions precedent to disbursement of the US$70 million equivalent loan from IDB and has made satisfactory arrange- ments for the balance of project financing (paragraph 50); and (c) that the sales contracts for the Chivor I hydroplant have been finalized (paragraph 54).  - 19 - 67. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.. PART VI: RECOMMENDATION 68. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments May 17, 1978   ANNEX I Page 1 of 4 COLOMBIA - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) --- - ------------------------------------------ COLOMBIA REFERENCE COUNTRIES (1970) TOTAL 1138.9 MOST RECENT AGRIC. 224.8 1960 1970 ESTIMATE TURKEY BRAZIL MEXICO* _ -- -- -- -- --- -- -_ -- - _ -- - - _---- _- -- _- ----- --_ - _-_- -- - _- --- GNP PER CAPITA (USS) 210.0 350.0 640.0 500.0 550.0 690.0 POPULATION AND VITAL STATISTICS _ _--_ _ _ _ _ _ -_--_ -_-_ - ------ POPULATION (MID-YR. MILLION) 15.4 20.6 24.2 35.6 92.8 50.4 POPULATION DENSITY PER SQUARE KM. 14.0 18.0 21.0 46.0 11,0 26.0 PER SQ. KM. AGRICULTURAL LAND 71.O 93.0 108.0 65.0 49.0 52.0 VITAL STATISTICS A CRUDE BIRTH RATE (/THOU, AV) 46.1 44.3 40.9 40.6 38.4 43.8 CRUDE nEATH RATE (/THOU,AV) 14.7 11.0 6.8 14.4 9.9 10.2 INFANT MORTALITY RATE (/tHOU) o00.0/a 70.0/a *- 153.0/a 110.0 68.5 LIFE EXPECTANCY AT BIRTH (YRS) 54.7 - 58.5 - 60.9 54.4 59.4 62.4 GROSS REPRODucTION RATE 3.2 3.2 3.1 2.6/b.c 2.6 3.1 POPULATION GROWTH RATE (%) TOTAL 2.9 2.9 2.8 2.5 2.9 3.5 URBAN 6.0/b 5-5/b 4.9 4.9/d 5.0 4.8 URBAN POPULATION (% OF TOTAL) 53.0/C 60.3 70.0/a 38.7 56.0 56.7 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 46.6/C 46.6 44.1 41.7 42.0 46.2 15 TO 64 YEARS 50.4 50.4 52.7 54.0 55.0 50.1 65 YEARS AND OVER 3.0/c 3.0 3.2 4.3 3.0 3.7 AGE DEPENDENCY RATIO 1.o/c 1.0 0.9 0.9 0.8 1.0 ECONOMIC DEPENDENCY RATIO 1 .B/E 1'*6/c 1.6/b 1*1le 1.5 2.0 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) 0.5 306.9 955.1 .. 250.0 55.5 USERS (% OF MARRIED WOMEN) .. .. 31.0 8.2 1.6 EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 5100.0/c 6200.0 6900.0 14000.0/f 29400.0 13000.0 LABOR FORCE IN AGRIC2LTURE (x) 47.0 fC 39.0 .. 63.4 40.4 45.0 UNEMPLOYED (% OF LABOR FORCE) 8.0/:de 7.0 10.2/c 11.9/g 7.5 INCOME DISTRIBUTION X OF PRIVATE INCOME RECOD BY- HIGHEST 5% OF HOUSEHOLDS 41 2/C f 31.9/d 27.2 32.8 /h 35.0/a 27.2 HIGHEST 20% OF HOUSEHOLDS 67:7/c f 60.1/ 54.4 60.6 /h 62.0/a 58.3 LOWEST 20% OF HOUSEHOLDS 2.1 3.5/i 52 2.9 /_ 3 0/i 3.4 LOWEST 40% OF HOUSEHOLDS . 7 /d 14.3 /4 h 1'