Guavio hydro power report project
Report No: ; Type: Report/Evaluation Memorandum ; Country: Colombia; Region: Latin America And Caribbean; Sector: Electric Power & Other Energy
                                    Adjustment; Major Sector: Electric Power & Other Energy; ProjectID: P006770


    Colombia: Guavio Hydro Power Project (Loan 2008-CO)

    The Implementation Completion Report (ICR) on the Colombia Guavio Hydro Power Project (Loan 2008-CO,
    approved in FY81) was prepared by the Latin America and the Caribbean Regional Office. The Bank loan for
    US$359 million equivalent was approved on May 28, 1981. The loan was fully disbursed. The final closing date
    was June 30, 1990, two years after the original closing date of May 30, 1988. Cofinancing was provided by the
    Inter-American Development Bank and commercial banks. The ICR does not include any comments from the
    cofinanciers or the borrower, but includes the borrower's own evaluation of the project.

    The objectives of the project were to: (i) provide new capacity to meet Empresa de Energ¡a de Bogot 's (EEB) and
    the National System's forecast power demand; (ii) improve EEB's maintenance practices; and (iii) promote
    Government efforts to improve overall sector organization and access to local financing. The project comprised the
    following components: (i) the construction of the 1000 MW Guavio hydroelectric plant, including transmission lines
    to Bogot ; (ii) a regional load dispatch and telecommunications center for EEB; (iii) environmental studies; and (iv)
    studies and training for improved maintenance and operation of EEB's generating plants.

    The physical objective of the project has been met, albeit after long delays and at a high cost. The Guavio hydro
    plant was commissioned in December, 1993, six years behind the original schedule, mainly due to ineffective project
    management, the lack of a satisfactory resettlement plan at the time of appraisal, problems with resettling a much
    larger population than estimated at appraisal, EEB's financial difficulties, a landslide and adverse geological
    conditions. The plant can generate 5,200 GWh of firm electricity, as forecast at appraisal, but is limited to 4,400
    GWh annually due to insufficient demand. The load dispatch and telecommunications center was built. The studies
    and training for improved maintenance and operations were completed, and also the environmental studies, but the
    ICR provides no indication of the extent to which they led to improvements. The ICR also has no information on the
    manner in which the third objective, to improve overall sector organization and access to local financing, was
    pursued and the extent to which it was met. Overall, the project experienced a 95 percent cost overrun, due to
    increased interest during construction and higher than expected costs in all categories. As a result, EEB is in serious
    financial difficulties and the economic rate of return, estimated at 15 percent at appraisal, was reestimated at 8
    percent by the ICR and is likely to be even lower due to methodological inconsistencies in the estimate.

    The EEB rates project outcome as highly satisfactory from the "conceptual standpoint", but very unsatisfactory from
    the financial standpoint. In agreement with the ICR, the Operations Evaluation Department (OED) rates the outcome
    as highly unsatisfactory and sustainability as likely, in light of the recent decision to lease the plant to a private
    operator to help pay the debt of the Guavio plant. The institutional development impact is rated as negligible.

    The Bank's performance is rated as unsatisfactory. In spite of its long standing involvement with the power sector in
    Colombia, risks were high and were not realistically evaluated at appraisal: (i) the EEB's implementation capacity, as
    experienced from the difficulties with Loan 1807- CO, was not consistent with the magnitude of the project; (ii)
    despite EEB's acceptable financial standing at appraisal, previous years had shown a deteriorating trend which
    continued during implementation and contributed to the delays of the project; (iii) no resettlement plan had been
    prepared, and the population displaced by the project (1774 families) turned out to be seven times what had been
    expected at appraisal; and (iv) the institutional framework, which did not provide incentives for improved
    performance by the enterprise, was not realistically appraised.
A major lesson here is the need to realistically and rigorously evaluate the risks associated with the project, including
the level of commitment of the borrower, the implementation and financial capacity of the borrower, and the
economic, social and environmental risks of resettlement. The OED review on Colombia: The Power Sector and the
World Bank, 1970-1987 (Report No. 8893) contains other major lessons and shows that the Guavio project was a
major element in the severe over-investment crisis which plagued the country's power generation development and
may have further weakened the borrower's commitment to the project in the mid-1980s.

The ICR is unsatisfactory. It should have included more on EEB's finances, the leasing arrangements for the project,
and the extent to which the institutional and environmental objectives have been met. The project may be audited.