Colombia - Third Power Expansion Project

RETURN, TO REPORTS5 DESK R E STR IC TE D PRITHIN DE5K Report No. P-596 ONE WEEK FIL LCC c- 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 The report may not be published nor may it be quoted as representing their views.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 EMPRESA DE ENERGIA ELECTRICA DE BOGOTA FOR THE THIRD POWER EXPANSION PROGRAM COLOMBIA May 16, 1968  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESA DE ENERGIA ELECTRICA DE BOGOTA FOR THE THIRD POWER EXPANSION PROGRAM COLOMBIA 1. I submit the follow-ring report and recommendation on a proposed loan in an amount in various currencics equivalent to US$18.0 million to Emprcsa de Energia Electrica de Bogota (Empresa). PART I - HISTORICAL 2. The proposed loan would be the third Bank loan to the Emprosa to assist in financing its continuing expansion program. The first loan of US$17.6 million was made in January 1960 and the second of US$50.0 million in May 1962, for the financing of additions of about 300 MW hydro and thermal generating capacity together with extension of transmission and distribution systems. The work financed by the first loan was com- pleted in 1963. Construction under the second loan was delayed by un- expected problems encountered in tunneling and in stabilizing a large soil mass which affected the penstock and powerhouse. The project was sub- stantially completed in mid-1967. 3. In addition to these loans for power in Bogota, the Bank has made another 11 loans totalling US$130.8 million for power enterprises serving the cities of Cali, Medellin and Manizales, and which have helped to build these enterprises into centers of power generation for their respective regions. Five years ago it was foreseen that this separate regional develonment of power would become less economic with the ex- haustion of the possibilities of exploiting cheap hydro power by rela- tively small individual stages, appropriate to the scale of each regional power market. The next generation of hydro power sites would require projects the output of which would be too great to be immediately absorbed by any one regional market. As the four regions on which the Bank has focussed its lending for power accounted for most of the country's eco- nomic activity, and about two-thirds of its power demand, the intercon- nection of these regions was the obvious means of establishing a larger market for power, anpropriate to the scale of prospective hydro projects. 4. A joint study was therefore undertaken by the four power enter- prises of an interconnected power system. This study, completed in 1965, clearly demonstrated the economic advantages which could result from the interconnection of the four power enterprises, and the subsequent cen- tral programming of future power development. From that time, the real- ization of these advantages became the criterion for further Bank lending in the power sector, implying that the preparation of further Bank power projects should wait upon the establishment of suitable arrangements for  -2- proceeding with an interconnection project (which is among those which are expected for presentation to the Executive Directors in the next few months). On the assumption that this step would be taken in mid-1967, the Bogota Third Power B pansion Program was appraised early in 1967, after receipt of a formal request in late 1966. However, the establish- ment of arrangements for interconnection was delayed u=til the end of 1967, and the completion of the appraisal report for the Bogota program was correspondingly postponed until early 1968. 5. Negotiations for the Bogota Power loan took place in Washing- ton April 8 - lB, 1968. Empresa was represented by 1r. Virgilio Barco, Mayor of Bogota and President of the Board of Directors; Mr. Hernan Borrero, General Manager; and Mr. Ronaldo Alvarez, Financial Sub-iManager. The Government was represented by Mr. Jose Camacho, Minister Counselor of the Colombian Embassy and lr. Omar Botero of the Department of Planning. 6. The proposed loan would bring the Banzk's total lending to Colombia to US$486.0 million (net of cancellations and excluding the proposed loan of US$14.0 million for Bogota water supply). In addition, an IDA credit of US$19.5 million for highways was made in 1961. The following is a summary statement of Bank loans and IDA credits to Colombia as of April 30, 1968: Loan/ Amount (Us$ 1i1lion) Credit Utndis- No. Year Borrower Purpose Bank IDA bursed Fully disbursed Total (less cancellations) 313.8 5 1961 Government Roads 19.5 1.1 345 1963 Acerias Paz del Rio S.A.