Colombia - Bogota Power Distribution Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9226 PROJECT COMPLETION REPORT COLOMBIA BOGOTA DISTRIBUTION PROJECT (LOAN 1807-CO) DECEMBER 21, 1990 Infrastructure and Energy Operations Division Country Department III Latin America and the Caribbean Regional Office 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 EQUIVALENTS Currency Unit = Colombian Peso (Col $) ColS 433.92 (12/31/89) = US$1 Col$ 513.71 (07/31/90) = US$1 GLOSSARY OF ABBREVIATIONS EEEB = Empresa de Energia Electrica de Bogota INCOMEX = Instituto Colombiano de Comercio Exterior ISA = Interconexi6n Electrica S.A. JNT = Junta Nacional de Tarifas SEB = Skandinaviska Enskilda Banken FISCAL YEAR = CALENDAR YEAR  TN* WORLD SANK. FOR OFFICIAL USE ONLY WashiAlton. D.C. 20433 U.S A Office of Virect-GOOT:I Opera:lac~ Uialuatic December 21. 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Colombia Bogota Distribution Proiect (Loan 1807-CO) Attached, for information, is a copy of a report entitled "Project Completion Report on Colombia - Bogota Distribution Project (Loan 1807-CO)" prepared by the Latin America and the Caribbean Regional Office with Part II contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment |Ths daCM has a Min'g d_ Mb wan OM may be se by 'ro ueu mlU sonl l* pSiufUmOcN= Of shut ofikud dmuauu Its mmaaS may GM cterewi be duckaa wstbout 'WoiW Baok awbemionj  COLOMBIA FOR OFFICIL USE ONLY BOGOTA DISTRIBUTION PROJECT (LOAN 1807-CO) PROJECT COMPLETION REPORT TABLE OF CONTENTS Page No. EVALUATION SUMMARY ............................. ...... ii PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE ............... .. 1 1 - Project Identity c...................................... 1 2 - Project Background ......... .... . ............................... 1 Sector Development Objectives ................... ....... 1 Policy Context.*.*.*.*.*..*........................................ 1 Linkages between Project, Sector and Macro Policy 3 - Project Objectives and Description ................... 2 Project Objectives ......... ... .. f............. ... 2 Project Description..*. .................. ..... ................... . 2 4 - Project Design and Organization ......... ......... . 2 5 - Project Implementation ..... .... ............ ....................... . 3 Loan Signature, Effectiveness and Project Start-up ... 3 Implementation Schedule ...................... . . .. . 3 Procurement .......................................... 4 Project Costs ..... 5 Disbursements ............. ...................................... 5 Loan Allocation ............. .0... ..... 5 6 - Project Results ...................... ........... 5 Meetin of Pro Pet Objectiv tOes . 5 Physical Results ........................ ......... . .. 5 Financial Performance .......... .................... . 6 Impact of the Project ... . ... .......... 9 7 - Project Sustainability ......... ........... . 9 8 - Bank Performance ...... ........ . . . . . 10 9 - Lessons Learned ....... .............. 10 10- Borrower Performance ..................................... . 11 11- Project Relationship .......... .... . . . . . . . . .. ............ 11 12- Consulting Services ......................... ... .................. . 11 13- Project Documentation and Data ........................................... 11 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.  ABLE OF CONTENTS (Cont.) Page No. FART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE*.............. 13 -Introduction ................... ......................... 13 - Chapter of Conclusions of the Final Report prepared by EEEB.......... ** .............. * * . .......* 14 - Letter with EEEB's Comments on the PCR ............. 17 - Translation into English of the Chapter of Conclusions of the Final Report prepared by FEEB and the letter with EEEB's comments on the PCR .... *................0 PART III STATISTICAL INFORMATION ........... ....... oo, .... 19 Table 1. Related Bank Loans...*..* .............. *** .......... * * 19 Table 2. Project Timetable ....... ....................... .... 21 Table 3. Loan Disbursements. ............... .................... . 22 Table 4. Allocation of Loan Proceeds .......... .... ... 23 Table 5. Planned and Actual Completion Dates of Components.... 24 Table 6. Project Costs and Financing ........ ...........** .... 25 Table 7. Project Results ........................ . ............. 27 A. Economic Impact ......... . ........ ........... *........ 27 B. Project Studies ... . ..... #0. ...... .......... . . 29 Table 8. Status of Loan Covenants . ............... # ............ 30 Table 9. Use of Bank Resources..,*** ......................... 32 ANNEXES Annex 1 - Comparison of Actual and Forecast Income Statements (1979-1987) ....... ..... ... ......... 33 - Comparison of Actual and Forecast Sources and Application of Funds (1979-1987) . ..... . .............. .-.0... . 34 - Comparison of Actual and Forecast Balance Sheets (1978-1987) .......... ......... ...O... 35 - Comparisvn of Actual and Forecast Performance Indicators (1979-1987)....... ............... .#..... *. . 36 Annex 2 - Actual and Forecast Sales (GWh) ................... ...... 37 Annex 3 - Energy Purchases .......... ... .............................. 38 Annex 4 - Operating Expenses. ... ..................................... .. . . . . . 39 Annex 5 - Transmission Lines and Transformer Capacity ............ . 40 Annex 6 - Installed Capacity and Generation for 1988.......-...... 41 Annex 7 - Participation of the Plants Built by the Project in the EEEB System ............. . ....... ........ . ..... ......... 42  COLOMBIA BOGOTA DISTRIBUTION PROJECT (LOAN 1807-CO) PROJECT COMPLETION REPORT PREFACE This Project Completion Report (PCR) deals with the Bogota Distribution Project, for which Loan 1807-CO in the amount of US$87 million was approved on March 13, 1980. The Loan was closed on December 31, 1986, three years behind schedule. It was fully disbursed, with the last disbursement on September 30, 1987. Parts I and III of the PCR were prepared by the Infrastructure and Energy Division, Country Department III, of Latin America and the Caribbean Regional Office and are based, inter alia, on the Staff Appraisal Report; the Loan and Guarantee Agreements; supervision reports; a final report prepared by Empresa de Energia Elactrica de Bogota (EEEB); correspondence between the Bank and the Borrower; and internal Bank memoranda. Part II of the report reproduces the chapter of conclusions of the final report prepared by EEEB. The PCR was sent to the Borrower for comments on May 1, 1990 and the comments received have been incorporated into the report to the extent deemed appropriate. The letter with EEEB's comments is attached to Part II of this report.  ii COLOMBIA BOGOTA DISTRIBUTION PROJECT (LOAN 1807-CO) PROJECT COMPLETION REPORT EVALUATION SUMMARY Project Obiectives i. The objectivt of the Project were to expand the transmission and distribution systemu to meet projected energy demand, to improve the level of street lighting, and to modernize the distribution system and ancillary facilities in order to improve the quality of service (para.3.01). Implementation Experience 2. Although the Loan was approved by the Board on March 13, 1980, it was not signed until almost one year later on February 6, 1981. This delay was caused by difficulties in obtaining Congressional approval for increasing the level of external borrowing by the public sector. Further delay was -xperienced in de:laring the Loan effective, which cook place on September 25, 1981, about one year later than expected at appraisal. This delay was caused by difficulties in obtaining local loans to cover the financial needs of EEEB's investment program, as well as the Company's problems in settling its overdue accounts to Interconexion Electrica S.A. (ISA) (para. 5.01). 3. The Project was scheduled for completion by December 31, 1982, but most of the original components were completed two years later, by December 31, 1984. The remainder of the original components, and the works added, were completed by September 1987, about five years later than the originally scheduled date. The reasons for this delay were: delay in signature and in declaring the Loan effective; slow procurement processing bAcause of insufficient experience of the staff who handled this task; changes in the scope of the Project; lower demand than expected; management weakness; and EEEB's commitment to an ambitious investment program that overwhelmed its implementational and financial capacity (paras. 5.01 to 5.03). Prolect Results 4. The objectives of the Project were only partially met because, even though EEEB completed the Project originally planned and was able to add other works to it, the Project was implemented with considerable delay. This delay factor contributed to EEEB's inability to decrease its power losses to the level established as a performance target. Actual power losses for 1985, the last year for which a target was established in the Staff Appraisal Report (SAR), were 24.4%, versus 14.3% targeted. Losses increased further to 24.7% in 1986 and to 26.1% in 1987 (para. 6.01). 5. It also must be pointed out that other important objectives of the Project, such as the improvement of the operational and financial areas of EEEB, fell short of appraisal expectations. From 1979 to 1984, the rate of return was lower than that covenanted, and, for the period 1985 to 1987, it  iii was somewhat above that covenanted. Tariffs were increased substantially during the period of implementation, but internal cash generation was lower than expected because of reduced sales growth, high energy losses, and increased operating costs. Likewise, there was a huge increase in the construction program with the decision to build the Guavio hydroelectric project, which was not included in the program at the time of appraisal. Consequently, the self-financing ratio deteriorated, and EEEB was obliged to increase its borrowing, a large part of which was obtained on commercial terms. This factor, coupled with the devaluation of the Colombian peso (which increased the debt service), strained EEEB's finances which, in turn, reduced the Company's implementational capacity and forced it to accumulate large overdue accounts with contractors and ISA (para. 6.03). 6. Perhaps the Project's most important achievement was the creation of the basis for dealing with the expansion of distribution facilities as a permanent planning activity of EFEB and for improving its operating and financial efficiency in the future. The Project helped the Company to buy equipment for expanding services and detecting deficiencies in the distribution system, as well as to initiate the establisbment of a data base for collecting, verifying and updating the information of the transmission and distribution system. These contributions are now important tools that the Company is using in its drive for efficiency. In 1989, EEEB took decisive actions to reduce power losses and accounts receivable, and, even though moderate in scale, these actions have started to pay off. The losses in 1989 declined to 22.4%, which corresponds with the revised target agreed with the Bank for that year (paras. 6.10 and 6.11). Proilect Sustainability 7. It is expected that the facilities, as well as the institutional development, created by the Project will continue to produce benefits since EEEB is improving its capacity to maintain its facilities properly and the Government has consistently shown its commitment to the development of the power sector. Moreover, the benefits will increase if EEEB's management continues its efforts to improve its operating and financial efficiency (para. 7.01). Issues Remaining Outstandina 8. EEEB's main problems upon completion of the project are thats (a) energy losses remain high, about 22.4% in 1989, as compared to 10 to 13%, which is the reasonable level for a system such as EEEB's; (b) the ratio of accounts receivable to total sales was about 24% in 1988, but should be no more than 17%; and (c) residential tariffs, especially those of the first blocks of the residential category, are extremely low and need to be raised to reflect the economic cost of the service. Lessons learned 9. The implementation of the Project suggested the following lessons: (a) Procurement is an important area for attention during preparation and appraisal. If training is needed, arrangements should be made to get it promptly either from the Bank or through consultants. This period should provide the opportunity to discover conflicts between the Bank and the borrower regarding application of Bank procurement rules.  iv (b) The simultaneous construction of the subject Project together with Guavio, Mesitas and other smaller projects, overwhelmed the constructional and financial capabilities of EEEB, thereby delaying the implementation of all the projects and putting EEEB in a difficult financial position. In the future, the Bank should give more weight to the risks of overburdening the institutional and financial capacities of companies and should refrain from financing additional projects when the assessment shows that capacities are being over-extended (para. 9.01).  COLOMBIA BOGOTA DISTRIBUTION PRJJECT (LOAN 1807-CO) PROJECT COMPLEA;ION REPORT PART I. PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Proiect Identity - Project Name: Bogota Distribution Project - Loan No: 1807-CO - RVP Unit: Latin America and the Caribbean Region, Country Department III - Country: Colombia - Sector: Power 2. Proiect Background 2.01 Sector Development Obiectives (at time of Project appraisal). Considering the power sector's important role in Colombia's development process, the Government and the main power companies established, in the mid-1970s, the "Sochagota" Agreement for orderly and efficient sector expansion. All plants requiring a joint effort by all its shareholders were to be constructed, owned and op-rated by Interconexion Electrica S.A. (ISA). However, plants of regional interest might be built by one or several shareholders, subJect to IS^As approval. The energy requirements of the interconnected system were expected to increase at an average annual rate of about 10.6%. To satisfy these requirements, a development plan for the period 1978 to 1985 included new projects with an aggregate installed capacity of 2,133 MW; of these, 1,701 were hydroelectric. The sector was also iziterested in improving its efficiency, and, toward this goal, a tariff study based or. marginal costing and a study of power system losses were to be undertaken by ISA. 2.02 Policy Context. The Government's development strategy was aimed at expanding the power system in pace with demand. To this end it proposed to make full use of those energy sources which were in abundant supply, i.e., hydropower, natural gas and coal. Consistent with this objective, 80% of the power sector expansion plan for 1978-85 consisted of hydroelectric projects. The Government, however, also wanted to step up surveys of identified coal fields in the departments of Santander and Antioquia and to study the feasibility of using low-grade coal for large thermal plants likely to be needed in the early nineties, when potential hydro sites were expected to be increasingly more costly to develop. 2.03 Linkages between Project. Sector and Macro PolicSy Oblectives. The Project objectives of constructing/improving the distribution facilities (described in detail in paragraph 3.02), were the means for providing to the final consumers the electricity generated using the abundant national resources. The Project was also aimed at improving efficiency by adding distribution facilities and by introducing changes in the tariff structure in order to correct considerable existing imbalances.  - 2- and which subsequently were incorporated into CUEP (e.g., reform of Iller Bank), these issues may not have received the attention they deserved as participants preferred to focus on identifying possible investments. 1.03 The Bank and the Government were cognizant of the failure of the Istanbul Integrated Urban Development (para 1.01), and hoped to limit the risks of a second failure through more thorough preparation. Because the requirem .ats for preparing the Cukurova project were expected to exceed the resources available through the Bank's Project Preparation Facility (PPF) which had already been tapped, the Government requested an engineering loan to prepare a pilot investment project for five municipalities (Adana, Mersin, Iskenderun, Tarsus, Ceyhan) in November 1984. The Cukurova region was selected as a pilot area because of its rapid urban population growth and municipal service deficiencies. P' 2. Proiect Obiectives and Description: 2.01 CUEP was a project preparation loan. Its objectives were first, to identify and design investments for financing under the follow-on Cukurova Region Urban Development Project (CUDP; LN2819-TU) and second, to develop complementary policies and national, regional, and local institutional mechanisms to support decentralization, integrated planning, and improved urban efficiency. The total planned cost of CUEP was US$10.7 million. 90X of project costs were budgeted for consultants to manage preparation activities an-I carry out instttutional, feasibility, and design work. Components included water suDDly and sewerage, solid waste management, urban transport, upgrading infrastructure and services in informal housing areas (i.e., Gecekondus), design of on- and off-site infrastructure for Urban ExNansion Areas (UAEs) and establishment of municipal Housing and Urban Development Companies (HUDCs) to market serviced land in these areas.V 2.02 In addition to the municipal infrastructure and related institutional components such as creating separate water authorities within municipalities, CUEP aimed to develop reorganization Rlans for local government, design and implement new municipaL accounting standards and establish a new regional planning authority. Funds were also budgeted for staff training, technical assistance and equipment for the national and regional cadastral programs