Colombia - La Insula Hydroelectric Project

LtV- 3 CO RESTRICTED No. Loan P - 13 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT RETUl,M To REPORT AND RECOMMENDATIONS . "_ ; of the L3 PRESIDENT . . - to the EXECUTIVE DIRECTORS on the PROPOSED LOAN to CENTRAL HIDROELECTRICA DE CALDAS, LIMITADA guaranteed by the REPUBLIC OF COLOMBIA December 26, 1950  CO-4FIDENTTIAL REPORT AN14D RPCOl.,&NDATIONo` OF THE PlRiSIDEIT TO THE ZX'L'C jT1VL DIRECTORQ CONC2RINING TIhb P.QF06ED LQAN TO CLIiTRAL HKDROOLL2CTRICA DL CAxLDAS, LIViITADA 1. I submit the following report and recomrmendations with regard to the Droposed loan of $?,600,000 to the Central Hidroelectrica de Caldias, Limitada (Caldas), of TLlanizales, Colombia, for the construction of the La Insula hydroelectric project. PART I. - HISTORICAL 2. On July 20, 1948, a Colombian Financial &Jission to the United States presented to the Bank an informal loan application for various development projects. 3. A Banl; mission visited Colombia in July and August 1948 to assess the financial and economic situation of the country and to report on the projects submitted. The mission recormmended a list of projects of high priority for the Bank's consideration, wh4ch included three hydroelectric projects (Anchicaya, La Insula (Caldas) and Lebrija) and a project for agricultural mechanization. Loans fQr the agricultural. mechanization project (W5 million) and the Anchicaya project (r3 M3 million) were made by the Bank on August 19, 1949, and NMovember 2, 1950, respectively. 4. The technical and financial aspects of the Ta Insula project were examined by a technical missi on of the Ban+; which visited Colombia in Decemaber 1948 and January 1949. 5.- After supplementary information had been received and analyzed, the, Bank informed Caldas on i.ay 20, l949, that it was prepared to enter into preliminary negotiations for a loan for the La Insula hydroel.ectric project. 6. INegotiations centered around tiree matters of substance, upon which the Bank desired satisfaction. 7. In the first place, there was the problem of the adequacy of the water supply... iater availability was examined for the Bank by lr. Gail Hathavway of the U.S. Army Engineers, and ~,. Carl Flesher of the' Bank's engineering staff. They found that the vwater supply was not sufficient to permit capacity operation of both of the 10,00O kw generators to be installed. It was established, however, that the deficiency could be supplied by; diverting water to the reservoir from the nearby Rio WOT>: (1) Rates of exchange used 'in .this report: 1.96 pesos l,peso . (2) The w sign is used exclusively for U.S. dollars; pesos are designated as such.  2. Campoalegre.. Construction pf this diversion.canal,,,vhich is entirely practical and economic,'will not be needed, however, until'a later date when the demand for power requires the operation of the two generators at capacity. 8. The second question centered around the market for the power to be generated. Mlanizales has been served up to now by inadequate inunicipally- ovned power generating and distributing facilities. Thus, it was necessary for Caldas to purchase these facilities and to rehabilitate a'nd expand the distribution system if its power was to be economically sold in the city. The Bank has now been informed that this purcnase has been completed, and in September 1950, engineering details and cost estimates covering the rehabilitati.on and expansion were presented to the Bank for inclusion in the project. The Bank's engineering staff is satisfied with the plans and details which have been submitted. 9. Thirdly, in order both to provide adequate peso funds to complete the project, and to cure certain legal defects in the status of the company, it was deemed necessary to dissolve the existing company and to form a new limited liability company with an increased paid-in capital of 16 million pesos. Caldas has reported that this reorganiza- tion ha's been accomplished. 10. Caldas formally applied for a loan on December 22, 1950. The Colombian Ambassador to the United States has been authorized to execute the Loan Agreement on behalf of Caldas and the Guarantee Agreement on behalf of the Colombian Government. PART WI DESCRIPT1IOI OF THE PROPOSLD LOAN Borrower 11. The Borrower would be the Central HLidroelectrica de Caldas, Limitada, a company organised and established under Colombian law as a commercial company of limited liability. Its stock is owned by the National Institute for the Utilization of 'Vater and Electric Develop- ment - an agency of the Colombian Government -, by the Department of Caldas, by the Municipality of Manizales, and by the MIuncipalities of Santa Rosa, Neira, Palestina, Chinehina, Mlaria, Marsella and Aranzazu, The participation of the first three shareholders is 51%', 20% and 27.2%, respectively; the participation of the other-share- holders combined amounts to 1.8%. Guarantor 12. The Guarantor would be the Republic of Colombia, a member of the Bank. Purpose 13. The proceeds of the lc-zn would be used to provide the Borrower with the greater part of the foreign exchange requi~red for the construc- tion of the La Insula hydr6electric project. This project is divi.ded into two parts.  - 3.- 14. The first part, which the Bank would partially finance,, consists of the construction of a hydroelectric plant of 20,000 kw capacity, transmission lines and a 12,000 kva distribution system to supplv electric power principally to the city oft Manizales. This part of the project is scheduled for completion in February 1952. The hydroelectric plant is at present about 80% completed. 15. The second part of the La Insula project consists of the above- mentioned increase in the water supply and of a further expansion of the distribution system. It will be undertaken by Caldas and will be. financed entirely from its own resources at a future date, when adequate demand for electric power w.ll have developed to require these measures. Appropriate protective provisions to insure completion of the second part of the project are contained in the proposed Loan Agreement. i 16. Caldas will be the only public utility supplying power to Manizales. In addition to the new generating plant and transmission line of the La Insula system, it will own and operate the existing generating and distri- bution facilities which have reportedly been acquired from the Municipality of Manizales.. 17. The total cost of the first part of the La Insula project is esti- mated at the equivalent of $9,429,000, broken down as follows: Foreign Exchange Local Currency Sources of Financing Ex enditure Exenditure expressed in b.S. dollarsF Caldas 345,