Colombia - Village Electrification Project

Doumt of The World Bank FOR OFFCIAL USE ONLY Repon No. 12039 PROJECT COMPLETION REPORT COLOMBIA VILLAGE ELECTRIFICATION PROJECT (LAN 1999-CO) JUNE 18, 1993 MICROFICHE COPY Report No.:12039 CO Type: (PCR) Title: VILLAGE ELECTRIFICATION PROJEC Author: BARBU, ALAIN Ext.:31710 Room:T 9102 Dept.:OEDD3 Trade, Finance, Industry and Energy Operations Country Department III Latin America aja4 the Caribbean Regional Office This document has a restricted disrbution and may be ued by rocpieWts only In the perfornnue of thei official duties. Its contents may not odtrwie be dicosed without World Rank athorizato  ABLREVIATIONS CONPES - Consejo Nacional de Politica Econ6mica CORELCA - Corporaci6n El6ctrica de la Costa Atl}ntica CVC - Corporaci6n Aut6noma Regional del Valle del Cauca DNP National Planning Department EEB - Empresa de Energia de BogotA EM - Empresas Publicas de Medellin FEN - Financiera Electrica Nac'onal GTZ - Deutsche Gesselachaft fur Technishe Zusammernarbeit ICEL - Ixtituto Colombiano de Energia Electrica IDB - Inter-American Development Bank IERR - Internal Economic Rate of Return IRR - Internal Rate of Return ISA - Interconexi6n Electrica S.A. JNT - Junta Nacional ae Tarifas MME - Ministerio de Minas y Energia PESENCA - Programa Especial de Energia para la Costa Atl4ntica PNR - Plan Nacional de Rehabilitaci6n SENA - Servicio de Entrenamiento Nacional CURRENCY EQUIVALENTS Currency Unit - Colombian Peso (Col$) Col$620 (date 12/31/91) - US$1 FISCAL YEAR - CALENDAR YEAR  FOR OFFICIAL USE ONLY THE WORLD BANK Washkng, D.C. 20433 U.SA Office of Director-Geaeral Operotiou. Evaluation June 18, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AID TEE PRESIDENT SUBJECT: Project Completion on Colombia Villeag Electrification Project (Loan 1999-CO) Attached is the "Project Completion Report on Colombia - Village Electrification Project (Loan 1999-CO)" prepared by the Latin America and the Caribbean Regional Office, with Part II contributed by the Borrower. The project achieved its main objective which was to supply power to the rural populations of Colombia's underdeveloped northern coastal region. Indeed significant cost savings enabled the project scope to be considerably expanded, although implementation lagged much behind the original schedule. The project was not as successful on the institutional and policy front: the training component failed and the financial performance of the borrower and its subsidiaries did not improve as expected. The latter resulted primarily from the Government's inappropriate tariff and financial policies, which affected not only the project entities but the sector as a whole. In retrospect, it appears that the Bank was not realistic in its assessment of the Government's commitment to tariff reform. In spite of recent progress on this front, considerable political obstacles remain and the project's long-term financial sustainability is considered uncertain at this point. Overall, the project is rated satisfactory, its institutional impact partial and its long-term sustainability uncertain. The Project Completion Report is thorough and informative. No audit is planned. Attachment This docusent has a restrfcted dfstribution and may be used by recipfents only in the performance of their official duties. Its contents may not otherwis. be disclosed wifthout World Sank authorfzation.  FOR 0MCAL USE ONLY PROJECT COMPLETION REPORT COLOMBIA VILLAGE ELECTRIFICATION PROJECT tLOAN 1999-CO) TABLE OF CONTENTS Paite No. PREFACE EVALUATION SUMARY ii I. PROJECT REVIEW FROM BANM'S PERSPECTIVE 1. Project Identity 1 2. Background 1 - Benk Lending to the Sector 1 - Electric Power Sector Organization 1 - Development of the Sector 1970-1939 2 - Role of the Bank 3 - CORELCA'S Installations and Market 3 3. Identification, Preparation, and Appraisal 4 - Background 4 - Project Issues and Decisions 5 - Project Objectives 8 - Project Description 8 - Project Design and Organization 9 - Project Cost Estimate and Financing 10 - The Village Electrification Loan Documents 11 - Environmental Issues 11 4. Project Implementation 12 - Effectiveness 12 - Procurement 12 - The Village Electrification Component 12 - Training Component 13 - Power Losses Study 14 - Fixed Assets Revaluation Study 15 - Timetable and Costs 15 - Financing 16 5. Project Results 16 6. Project Sustainability 17 7. Bank Performance 17 8. Borrower Performance 18 9. Project Relationships 19 10. Performance of Consultants 19 11. Project Documentation and Data 20 12. Conclusions and Lessons to be Learned 20 - Conclusions 20 - Lesson to be Learned 20 I This documnt has a resticted distribution and may be used by recipients only in the performane of their ofllcil duties Its contents may not otherwise be disclosed without World Bank authorization.  Table of Content - Cont. "age No. II. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 22 III. STATISTICAL AND OTHER PROJECT INFORMATION 24 1. Related Bank Loans 24 2. Project Timetable 24 3. Loan Disbursement 25 4. Comparison of SAR and Actual Project Costs 26 5. Internal Economic Rate of Return Computation 27 6. Use of Bank Resources 28 Mission Data 29 7. Status of Compliance with Major Covenants 30  PROECT COMPLETION REPORT COLOMBIA VILLAGE ELECTRIFICATION PROJECT (LAN 1999-CO) 1. The Prcject Completion Report (PCR) for the Village Electrification Project in the North Atlantic region in Colombia is presented in tthis paper. The main component of the project --the village electrification scheme --was completed successfully in 1991 with an internal rate of return of 23 percent compared to 13.3 percent at appraisal, even though it took about 5 years more than anticipated at appraisal. The training component has not been completed and no decision has been taken so far as to its final outcome. 2. The project was partially financed with World Bank Loan 1999-CO (approved Kay 21, 1981). The borrower is the Corporaci6n Elictrica de la Costa Atlintica (CORELCA), a government-owned electric power utility in charge of generation and bulk electric transmission of electricity in the North Atlantic region. The loan was closed on June 30, 1988, two years late. Except for US$5.94 million which was canceled, the proceeds of the loan were 'ully disbursed, and the last disbursement was on Narch 31, 1989. 3. The draft of this report was discussed with the borrower and its comments have been set forth in Part II of the PCR. 4. The Trade, Finance, Industry and Energy Division, Country Department III of the Latin American and Caribbean Regional Office (LA31E) prepared Parts I and III of the PCR based, among other sources, on the Issues/Decisions Paper, the Staff Appraisal Report, the Loan and Guarantee Agreements, records of the World Bank and of the borrower and interviews with borrower's staff in Barranquilla.  v ii - ZEOJCTg COMPEION REPOR COLOMIA VILLAGE ELECTRIFICATION PROJECT -LOAN 1999-CO) 1. The loan for the Village Electrification Project was the tenth Bank loan to Colombia's power sector since 1970, and the first and only loan so far to CORELCA and the only one for rural electrification in Colombia. It helped to finance a project consisting of: (a) a village electrification scheme over seven stateq in the North Atlantic region of the country; (b) a training component; and (c) a power losses study. Later on were added to the project scope an assets revaluation study and a power losses control component. 2. The project was estimated at appraisal to cost the equivalent of US$68.7 million. World Bank financing for the project amounted to US$36 million, the proceeds of which were fully disbursed, except for US$5.94 million which was canceled. CORELCA provided financing amounting to US$15.7 million, while Government only financed US$11.5 million instead of the US$13.7 million it had undertaken to furnish. The two other sources of finances were CORELCA's subsidiaries (US$0.3 million) and the beneficiaries (US$1.1 million). Both these sources contributed far less than agreed originally. Final cost of the project -- US$58.7 million -- was about 15 percent below project cost estimated at appraisal. 3. Albeit with long delays, caused mainly by problems with obtaining legal sanction for contracts to procure goods and services for the project because of cumbersome legal clearances, and delays in receiving the Government contribution to the project, the village electrification scheme was successfully implemented. The project's main objective of supporting the Government's efforts to integrate the country's poorest and most backward region, the North Atlantic regional rural population, into national life, was fully achieved. In fact, due to significant savings in the procurement of materials and equipment, CORELCA was able to expand considerably the scope of this component. The expanded project reached 68,700 rural consumers instead of the 33,000 foreseen at appraisal. Moreover, using the transmission and subtransmission infrastructure built in the project, CORELCA was able to extend electric service to another 53,000 consumers in 412 villages. Funding for these additions came from the National Rehabilitation Plan (PMR). The evident success of the village electrification component of the project owes much to the flexible approach taken by the Bank staff vis-a-vis the many difficulties encountered by CORELCA in implementing the project, particularly in the contracting process for procurement of goods and services and in the very complex problem of dealing with the electrificadoras. All in all, the project successfully achieved and exceeded the physical targets established at appraisal. The recomputed rate of return of the village electrification scheme is 23 percent, compared to 13.3 percent calculated at appraisal.  ^ iii - 4. The training component failed, after encountering various obstacles, and presently, no action is underway to solve the situation and complete this component. 5. The power lose study has been the basis for a serious drive to control power losses, which is achieving some degree of success. Adequately staffed and equipped power loss control units have been established in each electrificadora and in CORELCA. ID addition, the Goverment has authorized the application of strong measures to control power theft. 6. Although CORELCA achieved in 1991 an 11 percent rate of return on revalued net fixed assets, the electrificadoras had a consolidated negative net income from operations in 1990 and only slightly positive in 1991. Besides their poor operating resultst the electrificadoras are affected by very large arrears from consumers that have reached the equivalent of US$86 million at end of 1991, of which governmental entities owed about half. The electrificadoras' problem with arrears has been transferred to CORELCA which has accounts receivable for the equivalent of US$161 million at end of 1991. Currently, the Government has decided to take strong measures to try to correct this situation. Whether these measures will be successful will depend on the political will to enforce them. 7. Lessons to be Learned. The following lessons can be derived from the implementation of the project: (a) Although there was no previous Bank experience with rural electrification in Colombia, the implementation schedule for projects involving rural electrification should be based on the Bank's general experience and should adhere to available implementation profiles, unless it can be shown that the project can be completed in a shorter time span. (b) The different steps needed to obtain legal sanction for contracts to proture goods and services for the project should be clearly determined during project preparation, in order to avoid ?ster problems during project implementation. If necessary, specific actions should be discussed during negotiations to accelerate the procurement process. (c) During preparation of projects of the nature of the Village Electrification Project, a detailed evaluation should be made of the procedures for the collection of contributions of beneficiaries, as well as of their legal implications. (d) The Bank should make use of the existing institutional training infrastructure instead of having borrowers take on responsibilities that lie outside their key ones. (e) With hindsight, the objectives set In the SAR concerning institutional reform of the electrificadoras and improvement of their financial position proved optimistic, partly because of the politicized onvironment of the Region but also in large part because the Central Government did not fulfill its agreements under the Loan to: (a)  - iv - authorize tariff increases as scheduled; (b) make programed budgetary contributions to CORELCA's investment programs and (c) carry out a program to settle arrears to the electrificadoras for electricity sales. These risks vere not anticipated in the President's or Staff Appraisal Reports, and such assessmen's should be made and reflected in those reports. (f) The project clearly demonstrated the value of having the Project Unit set up and adequately staffed early-in this case it was functioning by appraisal. This contributed to efficient implementation despite many problems that emerged along the way; and (g) Supervision staff should work closely with borrowers, especially new or relatively week ones, to assist them to anticipate and deal with lmplementation problems. In the case under review, this approach helped in shaping the project to changing circumstances.  PROJEC CMPLETON REPOR COLOMIA VILLAG ELECTRIFICATION PROJECT PART L; PROJECT REVIEW FROM BAMK'S PERSPECTIVE 1. Proje