Colombia - Power Interconnection Project

RESTRICTED FILE COPY Report No. P-653 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INTERCONEXION ELECTRICA S.A. COLOMBIA November 13, 1968  1'TEhWAT10'-Al BANK FOR RECONSTRUCTIOY AND DEV2OPNENT REPORT AND RECOCI'EMATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTCRS CMT THE PROPOSE: LCAW1 TO I.NTRCOVIETKICf ELECTRICA S.A. COLCOBIA 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US$18.0 million to Interconexion Electrica S.A. (Interconexion). PART I - HISTORICAL 2. The Bank has contributed to the financing of power development in Colombia for more than 15 years. W-hile Bank operations have been con- centrated on the three systems serving the major cities of Bogota, Cali and Medellin, a substantial contribution has also been made to the expan- sion of the Manizales system. Thirteen loans with an aggregate initial principal amount of about US$216 million have been Tmade to these four systems, which presently produce some two-thirds of all the electric power generated in the nation. 3. Until the early 1960's these systems, which are primarily hydro- electric, had developed through staged expansion reasonably in accordance with the growth of demand in each area. However, looking ahead, it was possible at that time to foresee that future power development would be relatively large for the individual systems, requiring much larger blocks of investment. This suggested the desirability of interconnecting the separate regional systems to create a single market capable of absorbing large blocks of new power capacity. ii. Accordingly, in the summer of 15963 a study -as conmissioned to investigate the potential economies of interconnection. When completed in 1964, the study demonstrated that interconnected development would result in significant economies by permitting the deferral of some in- vestments and by the more rapid utilization of others. In mid-1965 a consulting firm employed to review the institutional implications of interconnection recommended that the four regional power agencies create a new jointly-owned company to construct, own and operate not only the proposed interconnecting transmission system, but also major future power generating facilities. The Bank indicated its willingness to consider financing the interconnection project after a new company had been formed, a general manager had been appointed, and a viable financial plan had been drawn up. The last of these conditions was fulfilled in the Spring of 1968.  5. NegotiatJons for the proposed loan began on September 16, 1968 and were completed on September 19. Interconexion was represented by the General Manager, Dr. Piedrahita, and by officials from three of its four principal shareholders: Mr. Borrero (Bogota), Mr. Aristizabal (Medellin) and Mr. Eder (CVC). The Government of Colombia was represented by Dr. Camacho and Mr. Botex'o of the National Planning Department. 6. The proposed loan would bring the Bank's total lending to Colombia to US$561.1 million (net of cancellations). In addition, an IDA credit of US$19.5 million was made in 1961. The following is a summary statement of Bank loans and IDA credits to Colombia as of October 31, 1968: Loan/Credit Amount (US$ Million) Number Year Borrower Purpose Bank IDA Undisbursed Fully disbursed Total (less cancellations) 313.8 5 1961 Government Roads 19.5 .5 345 1963 Acerias Paz del Rio, S.A. Steel 30. 0 1.O 369 1964 Empresas Publicas de Medellin Power h5.0 23.7 448 1966 Government Agriculture 16.7