Second Bogota power distribution project
    Report No: ; Type: Report/Evaluation Memorandum ; Country: Colombia; Region: Latin America And Caribbean; Sector: Distribution &
                              Transmission; Major Sector: Electric Power & Other Energy; ProjectID: P006790

December 29, 1995

Colombia: Bogota Power Distribution II Project (Loan 2634-CO)

The Implementation Completion Report (ICR) on Colombia Bogota Power Distribution II project (Loan 2634-CO
approved in FY86) was prepared by the Latin America and the Caribbean Regional Office with Part II provided by
the Borrower. The loan for US$171 million was partially disbursed. US$56.7 million was canceled, and the loan
closed on September 30, 1993, nine months after the original closing date. This was the seventh Bank loan to
Empresa de Energia de Bogota (EEB).

The project's objectives were to expand electricity distribution and extend service to low-income areas of Bogota;
reduce electricity losses and theft; and improve the operational effectiveness and efficiency of the EEB.

After almost six years of disappointing project implementation and negligible institutional development, the Bank
suspended disbursement and then closed the loan upon request by EEB. The ICR estimates that EEB will complete
the physical components of the original project by the end of 1996, five and a half years after the planned completion
date (a 100 percent time overrun). Lack of counterpart funds slowed down implementation of physical components—
funds for the Guavio hydroelectric plant always took priority over distribution works. Compliance with Bank
procurement guidelines was poor and delayed the availability of equipment and services— misprocurement also
occurred. Additional service was provided to about 10 percent of the low-income population of Bogota, but only
about 60 percent of the planned expansion of the distribution system was achieved. EEB did not comply with any of
the major loan covenants. In 1993 energy losses were still high (22 percent vs. a 13 percent target), as were the
receivables (43 percent of annual sales vs. a 17 percent target), and from 1989 to 1992 EEB could not service its
debt. Moreover, the project's economic rate of return of nine percent is lower than the 12 percent at appraisal.

The ICR rates the project outcome as unsatisfactory and its institutional development impact as partial. Its
sustainability is rated as likely. The Operations Evaluation Department also rates the project outcome as
unsatisfactory, but its institutional development as negligible and its sustainability as uncertain pending the
successful application of the recently enacted electricity law, which aims at a business orientation for Colombian
power utilities and separation of power generation from distribution functions.

Bank performance was unsatisfactory: the choice of project objectives and appraisal of EEB's capacity to implement
them were unrealistic. Bank's efforts to steer project implementation in the right direction were thwarted by EEB's
lack of autonomy and frequent changes of top management imposed by the Mayor of Bogota. The Bank should
have taken remedies early on.

Two important lessons learned are: (i) projects should include only those institution-building objectives for which an
enabling sector framework is already in place; and (ii) adherence to Bank procurement guidelines should be agreed
upon prior to lending.

The ICR is inadequate. It presents a fair account of project implementation and results. However, it does not
include information on the future operation of completed components nor the completion mission's Aide-Memoire.

This project may be audited together with other completed power operations (for example, the Guavio hydroelectric
project) to investigate the consequences for EEB of the power sector reform underway in Colombia.