FILE CopY Report No. P-279

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized R E S T R I C T E D FILE CopY Report No. P-279 This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE EMPRESA DE ENERGIA ELECTRICA DE BOGOTA IN COLOMBIA May 15, 1962

2 INTERNATIONAL BANK FOR RECONSTRUCTION AND DETELOPMENT REPORT AND RECO11AENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESA DE ENERGIA ELECTRICA DE BOGOTA IN COLOMBIA 1. I submit the following report and recommendations on a proposed loan, of an amount in various currencies equivalent to $50 million, to Empresa de Energia Electrica de Bogota (EEEB), to assist in financing its second expansion program. PART I - HISTORICAL 2. In January 1960 the Bank made a loan to EEEB of $17.6 million (246 00) to assist in financing additions of 117 MW to its generating facilities (18 MW hydro at Laguneta, 66 MW hydro at Salto II and a 33 MW thermal generating unit at Zipaquira) and related transmission and distribution facilities. The 18 MW addition to the Laguneta hydro plant has been completed; the remaining 99 MW and other facilities are expected to be completed by the end of Engineering studies completed in 1961 indicated that the urgentlyneeded additional power for the Bogota area could most economically be provided by the El Colegio hydroelectric plant downstream from Laguneta on the Bogota River. The plant would have an initial capacity of 150 MW with civil works built to accommodate an ultimate capacity of 300 MW. In addition, the proposed program would include a second thermal unit of about 33 MW for the Zipaquira plant and other related facilities. 4. A Bank mission reviewed the project in mid Subsequently EEEB received an increase in tariffs of 32%, effective February 1, 1962, and made arrangements to borrow funds for its expansion program not covered by internal funds or the proposed loan. Negotiations began on April 16, EEEB was represented by Dr. Manuel Madero Paris, General Manager, Dr. Dario Valencia, Technical Director, and Dr. Ronaldo Alvarez, Auditor General; and the Government, by Dr. Carlos Sanz de Santamaria, Ambassador in Washington, and Dr. Ignacio Mesa, Minister. 5. The proposed loan would be the Bankts twentieth loan in Colombia and would increase the Bank's lending from $220.1 million to $270 million net of cancellations. The status of previous Bank loans is as follows: As of April 30, ($ million) Total loans net of cancellation J of which has been repaid 49 5 Total now outstanding Amount sold 10.1 of which has been repaid Net amount held by Bank / Including $69.6 million not yet disbursed

3 At present the Bank lhas under consideration additional projects in Colombia in the fields of transportation, power, industry and agriculture. PART II - DESCRIPTION OF THE PROPOSED LOAN 7. The main features of the proposed loan are as follows: BORROWER: GUARANTOR: AMOUNT: PURPOSE: Enpresa de Energia Electrica de Bogota (EEEB), an autonomous agency which provides electric power for Bogota and the surrounding area. Republic of Colombia The equivalent in various currencies of $50 million. To assist in financing PER'Is second expansion program, including (i) the El Colegio hydroelectric plant with an initial capacity of 150 MW, (ii) the addition of about 33 MW at the Zipaquira thermal plant, (iii) the second stage of the Guatavita Reservoir, (iv) related transmission and distribution facilities, (v) interest during construction, and (vi) expansion of the transmission and distribution facilities of CAR in the towns near Bogota. INTEREST RATE: 5-3/4h per annum. CCMMITMENT CHARGE: 3/4 of 1% per annum. TERM AND AMORTIZATION: PART III - 25 years, including 4 years of grace. Semi-annual installments from February 1, 1966 to February 1, LEGAL INSTRUMENTS AND LEGAL AUTHORTTY 8. A draft Loan Agreement between EEEB and the Bank (No. 1) and a draft Guarantee Agreement between the Republic of Colombia and the Bank (No. 2) are attached. 9. The draft Guarantee Agreement is in the usual form, and includes a provision of funds covenant (Section 2.02) and a rate covenant (Section 3.07). 10. The draft Loan Agreement follows closely the previous Loan Agreement with EEEB (246 CO). Provisions of special interest are:

4 - 3 - a. Section 2003(b) would permit withdrawals for expenditures in the currency of the Guarantor for engineering services. b. Part 8 of the project would provide for the extension of transmission and distribution facilities in the areas served by CAR, an autonomous corporation set up to develop the resources of the Sabana de Bogota. Withdrawals for this part of the project would be made only after EEEB and the Bank had agreed on the program to be undertaken by CAR and the Bank had approved the financial and administrative arrangements entered into between EEEB and CAR for carrying out part 8 of the project (Section 2.03). 11. Execution of the Loan Agreement has been authorized by EEEB's Board of Directors. In April 1962 the Colombian Congress enacted a law authorizing the Government to incur or guarantee new external debt up to $350 million for economic development and related purposes. Authorization to guarantee the proposed loan would be covered by this law. 12. The report of the Committee provided for under Article III, Section 4(iii) of the Articles of Agreement of the Bank is attached (No. 3). PART IV - APPRAISAL OF THE PROPOSED LOAN Justification of the Project 13. A detailed appraisal of the project (T.0307a) is attached (NOe4). 14. The capital city of Bogota, with about 1.2 million inhabitants, is Colombiats principal manufacturing, administrative and commercial center. For the past several years, electric power supply in Bogota has fallen behind demand, with consequent restrictions on residential and industrial consumption. Restrictions are expected to continue until late 1962, when the Salto II hydroelectric and the Zipaquira thermal plants are put into service. Even so, electric power sales have increased at an average annual rate of about 13% over the pest ten years, and are expected to continue increasing at about the same rate over the next ten years. 15. The project is the second stage of an expansion program which will enable EEEB to satisfy Bogota's growing power demand until The project,expected to be completed at the end of 1965, would increase present generating capacity by 183 knw to 428 VW. The second 33 MW thermal addition at Zipaquira, scheduled for completion in December 1963, will avoid a power shortage before completion of the first 50 MW unit of El Colegio in early 1965, 16. Along with the increase in generating facilities EEEB will need to make the substantial improvements and additions to its transmission and distribution facilities included in the project. The proposed loan would also include up to $1.7 million to be relent by EEEB to CAR (Corporacion Autonoma Regional de la Sabana de Bogota y los Valles de Ubate y Chiquinquira), an autonomous agency recently established to develop the water and agricultural resources of the plateau North and West of Bogota.

5 - 4 - This amount would be used for construction of transmission lines to and distribution facilities in several important towns in the region serviced by CAR. A reliable source of power from EEEB will help in the development of the region. 17. The unit cost of the first stage (150 MW) of the El Co'Legio development is equal to about $265 per kw capacity for firm hydro power. This would be reduced to about $190 per kw when the total 300 MW are installed. No alternative source of thermal power would be as economical. 18. The proposed loan would include $3.0 million to cover part of the local currency costs of engineering on the project. The principal engineering consultant on the project is a Colombian firm, Ingetec, Ltda. Its services are competitive in quality and price with those of competent non-colombian engineering firms whose services are normally financed by the Bank. The encouragement of competent local engineering firms is in the interest of developing countries as well as the Bank. The loan would cover the engineering expenditures incurred for the project in local currency during the period , when EEEB is experiencing a shortage of internally generated funds, and would also cover the foreign exchange costs of engineering during the entire construction period. 19. EEEBts rate of return on net fixed assets (including work in progress) is presently 11% and is expected to average from 9% to 10% over the seven-year period During this period, internal cash generation is expected to cover more than 40% of total construction expenditures. Debt service coverages are also satisfactory. Borrower 20. Empresa de Energia Electrica de Bogota was created in February 1959 with a life of 99 years. It is an autonomous entity, owned by the Municipality of Bogota, with financial and administrative independence. Under a trust agreement between the Municipality and the Colombian banks from which loans had been obtained, four of the seven directors of EEEB are presently appointed by the lending banks. The other directors, including the Chairman, are appointed by the Mlunicipality. In December 1959, the Municipal Council of Bogota adopted a resolution providing that upon the expiration of the trust agreement, now scheduled to take place in 1968, the Board of Directors of EEEB shall consist of the Mayor of Bogota, two members elected by the Council, three members chosen by the Council from lists submitted by associations representative of banks, commerce and industry of Bogota, and one member chosen by the President of the Republic. This resolution continues in effecto Arrangements for financing 21. The total cost of the project is estimated at the equivalent of $74h1 million of which $50 million would be covered by the proposed loan. The local currency costs of the project (exclusive of $3 million for local costs of engineering services to be covered by the proposed loan)

6 amount to $24.1 rmillion and would be met from EEEB's ow'm resources and from foreign and local borrowings of approximately $10 million equivalent. Commitments for these borrowings have been obtained by EEEB and completion of contractual arrangements is a condition of effectiveness of the proposed loan. Procurement 22. All major contracts for the project are to be let through international competitive bidding. Economic Situation 23. A report on the "Current Economic Position and Prospects of Colombia" (R-61-11) was distributed on February 1, A Bank mission was in Colombia in January-March 1962 to appraise Colombia's development program and is now completing its report. 24. A major objective of the development program is to obtain a 5*6% annual increase in Gross Domestic Product during the decade of the 1960's, in comparison with an average increase of less than 4% during The growth of per capita product, which has been relatively small in recent years, would be about 2.5% annually. Investment would rise substantially, increasing from 18% of Gross Domestic Product in to 26% in Nearly two-thirds of the increase would be financed from additional internal public and private savings, supplemented by increased external resources. Import-substitution would be accelerated and non-coffee exports would be expanded. 25. Considerable progress has been made during the past two years in establishing the basis for accelerated development. Both private and public investment has expanded and plans have been developed for further acceleration of public investment in both the economic overhead and the social fields. The Government has not, however, taken the measures in the financial field which the development program requires, and in 1961 most external credit disbursements were for emergency balance of payments purposes instead of for specific projects or specific purposes forming part of an overall program. 26. During 1961 total bank credit expanded rapidly (26%) and there was a current account deficit of more than $100 million in the balanpe ofpayments, leading to a drawing of $65 million from the IVF and a $45 million loan from the U.S. Government through the Export-Import Bank. Additional emergency assistance has been obtained from the U.S. Government and banks in 1962, and Colombia is continuing to draw from the Fund under a $10 million standby arrangement. Some measures are being taken to bring the balance of payments under better control. Advance import requirements have been substantially increased as a means of reducing the current pressure of demand for imports. Reserve requirements have been raised. The Government is now restricting budget expenditures and planning additional tax measures in an effort to reduce the budget deficit.

7 , Much more will have to be done to raise taxation and to reduce pressure on the balance of payments if the development program is to go forward successfully. The prospects for such action being taken are fairly good, now that the continuity of the coalition Government is virtually assured. If the necessary self-help measures are taken, it should be possible for Colombia to secure the external capital which the development program will require. 28. At the end of 1961 Colombia's external public debt amounted to $h26 million. Since then Colombia has contracted $72 million of loans for balance of payments purposes. Service payments on existing debt amount to about $75 million in 1962, or approximately 12% of current foreign exchange earnings, and are scheduled to decline to $45 million in 1966 when amortization of the proposed loan would start. However, Colombia can be expected to wish to incur substantial additions to her external debt to finance her proposed development program. The extent to which she will be able to do so will depend upon her following adequate policies designed to reduce balance of payments pressures and to restrain domestic credit expansion. Prospects of Fulfilment of Obligations 29. The project has been planned and is being supervised by experienced Colombian and foreign consultants, and should be efficiently executed. EEEB has agreed to strengthen its technical staff and appoint an officer for financial planning. The management is qualified to carry out the construction of the project and to operate the expanded power system. 30. The market prospects for the additional power to be produced by the project, the increase of rates already granted, together with the commitments received on local currency financing arrangements, and the tariff and financial covenants contained in the proposed Loan and Guarantee Agreements, afford assurances that funds will be available to complete the project and to service the proposed loan. 31. The transfer of debt service into foreign exchange,together with Colombia's other foreign exchange obligations, should not impose an undue burden on the Colombian economy. PART V - COMPLIANCE WITH ARTICLES OF AGREEMENT 329 I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

8 - 7 - PART VI - RECOf'IMENDi TIONS 33. I recommend that the Bank make a loan to Empresa de Energia Electrica de Bogota, with the guarantee of the Republic of Colombia, in an amount in various currencies equivalent to $50 million, for a term of 25 years, with interest (including commission) at 5-3/4% per annum and on such other terms as are specified in the attached draft Loan and Guarantee Agreements, and that the Executive Directors adopt a Resolution to that effect in the form attached (No. 5). Washington, D.C. May 15, 1962 Eugene R. Black President