Dcmument of

p,00 p.tSC The World Bank

FOR G1f¢CAL USE ONLY

leport No.P-2008-CO

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN TO

EMPRESA NACIONAL DE TELECOMUNICACIONES

WITH THE GUARANTEE OF

THE REPUBLIC OF COLOMBIA

FOR A

FOURTH TELECOMMUNICATIONS PROJECT

May 25, 1977

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CURRENCY EQUIVALENTS

(As of March 1977, and used in this report)

Currency Unit - Colombian Peso (Col$)Col$1 - US$0.0275Col$1,OO - US$27.49Col$1OOOOOO - US$27,495US$1 - Col$36.37

WEIGHTS AND MEASURES

Metric System

EMPRESA NACIONAL DE TELECOMUNICACIONES

FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLYPage 1 of 2

COLOMBIA

FOURTH TELECOMMUNICATIONS PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Empresa Nacional de Telecomunicaciones (TELECOM)

Guarantor: The Republic of Colombia

Amount: US$60.0 million equivalent

Terms: Repayment in 17 years including 3-1/2 years of grace atinterest of 8.2% per annum.

ProjectDescription: The project would provide for: (a) expansion of exchange

facilities primarily in provincial and rural areas by95,000 lines and the connection of about 75,000 additionalsubscribers; (b) installation of microwave radio and multi-plex equipment to increase circuit capacity by about 8,800long distance circuits; and (c) connection of about 2,200rural communities to the telephone network.

Estimated Cost: (US$ Million Equivalent)Local Foreign Total

New Areas Facilities 23.1 24.0 47.1Existing Areas:

Local Facilities 11.3 8.4 19.7Long Distance Facilities 1.8 24.1 25.9

Rural Call Offices 11.3 26.7 38.0Freight and Insurance 5.5 - 5.5

Total Base Cost 53.0 83.2 136.2

Contingencies 13.4 18.1 31.5

Total Project Cost 66.4 101.3 167.7

Percent of Total Cost 40 60 100

This document ha a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be discloed without World Bank authorization.

Page 2 of 2

Financing Plan: ----(US$ Million)----Local Foreign Total

Bank - 60.0 60.0IDB 13.0 16.0 29.0TELECOM 53.4 25.3 78.7

Total Project Cost 66.4 101.3 167.7

EstimatedDisbursements: FY78 FY79 FY80 FY81 FY82

---------(US$ Million)----------

Incremental 6.8 15.7 16.2 14.5 6.8Cumulative 6.8 22.5 38.7 53.2 60.0

Procurement: All goods provided under the project for Bank financingwould be procured through international competitive bid-ding, in accordance with Bank guidelines. All importedgoods provided under the project for IDB financing wouldbe procured through international competitive biddingaccording to IDB guidelines. Other imported goods to befinanced by TELECOM would be procured by negotiationswith suppliers and through competitive bidding. Goodssuch as cables, cable ducts, poles and fittings, whichwould be financed by IDB and TELECOM and are manufacturedlocally would be procured from domestic sources throughcompetitive bidding.

Rate of Return: The project rate of return is estimated at 21%.

Appraisal Report: May 25, 1977.

INTERNATIONAL BANIK FOR RECONSTRUCTION AND DEVELOPMEN'-

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS

ON A PROPOSED LOAN TOEMPRESA NACIONAL DE TELECOMUNICACIONES

WITH THE GUARANTEE OFTHE REPUBLIC OF COLOMBIA

FOR A FOURTH TELECOMMUNICATIONS PROJECT

1. I submit the following report and recommendation on a proposed loanto the Empresa Nacional de Telecomunicaciones, with the guarantee of theRepublic of Colombia, for the equivalent of US$60 million to help finance afourth telecommunications project. The loan will have a term of 17 years,including a grace period of 3-1/2 years, with interest at 8.2% per annum. TheInter-American Development Bank (IDB) would provide additional financing ofUS$29 million, of which US$13 million, is local currency. The IDB loan wouldhave a term of 30 years, including 5 years of grace, with interest at 2% perannum and additional charges of 1-1/2% per annum.

PART I: THE ECONOMY

2. The latest economic report on Colombia (1548-CO) was distributed tothe Executive Directors on May 13, 1977. It assesses current developments andprovides a medium-term perspective of the Colombian economy. Country datasheets are provided in Annex 1.

Background

3. During the past two decades substantial structural transformationhas taken place in the Colombian economy. The country has made impressiveprogress in the transition from a predominantly rural and agricultural economymade up of largely self-contained regions to an urban industrial economy, moreoriented toward international trade. Broadening of the country's productivebase has been accompanied by rapid growth of nontraditional exports (thoseother than coffee) and development of a modern sector which relies to aconsiderable extent on imported inputs. From 1967 to 1975 GDP rose by anaverage 6.4% per annum in real terms, well above the historical average ofless than 5% (1950-67), and real per capita income increased by an averageannual 3.6%. Two mutually dependent phenomena, increased investment andrelaxation of the foreign exchange constraint, have been the major factors inbringing about this acceleration. Merchandise exports have expanded more thanthree-fold since 1967 and, most significantly, nontraditional exports havebecome an increasingly important source of foreign exchange earnings, growingfrom 27% of merchandise exports to about 50% at present. Much of this increasewas the result of both product and market diversification, especially of manu-factured exports, as the share of total exports shipped to Latin Americancountries more than doubled. Despite the substantial progress, Colombia stillremains essentially an underdeveloped country with a limited modern sectorsuperimposed on a large, traditional, and poor base.

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4. When the present Government took office in August 1974, the countrywas faced with several adverse developments -- weakening balance of paymentssituation, impending loss of self-sufficiency in petroleum production, infla-tion, deterioration of public finances, and reduction in public investment --which threatened to interrupt the high growth rate achieved by Colombia inrecent years. The new administration embarked upon an economic stabilizationprogram with the aim of restoring the basis for sustained economic growth.In line with this, it implemented basic reforms of the fiscal, monetaryand price systems.

5. To help strengthen public finances, the new Government implementeda tax reform which covered almost every important component of the tax systemand represented a significant improvement in terms of progressivity and elas-ticity. The Government also made certain changes in the financial system withthe purpose of stimulating private savings and improving the allocationalefficiency of the financial system. The action included a restructuring ofinterest rates, simplification of the complex reserve system, and eliminationof many of the more rigid and cumbersome controls.

6. The Government also took steps to correct major distortions whichexisted in the price system. Price controls on a number of important agri-cultural products were removed. In May 1976, the Government introducedfar-reaching modifications in its petroleum pricing policy which aim atregaining self-sufficiency in production of crude petroleum by improvingincentives for exploration and exploitation. Under the new policy, foreignoil companies are now paid the international price of crude CIF Cartagenafor new petroleum produced in association with the government petroleum cor-poration. (Previously the foreign oil companies received less than US$7 perbarrel for new crude.) The Government is also encouraging incremental produc-tion from existing fields and, in this connection, eliminated the specialpetroleum exchange rate, effectively increasing the price of crude oilby about 20%. Furthermore, retail prices of gasoline have been raised insuccessive steps from US$0.11/gallon in August 1975 to US$0.27/gallon inJanuary 1977, or by almost 150%. The Government proposes to continue thispolicy until the prices of gasoline and other petroleum derivatives approachinternational prices.

7. Economic growth slowed in 1975 (from 6% in 1974 to about 5%) andunemployment increased, reflecting both the impact of the stabilizationmeasures adopted at the end of 1974 and the effects of the world recession.Towards the end of the year the economy began to recover, stimulated byincreased exports, larger agricultural output and heightened industrialactivity. The recovery continued in 1976 with real GDP growing by about 6%.During 1974-76 National Government savings increased substantially; due tothe 1974 Tax Reform, tax revenues increased by over 40% a year while nominalGDP grew at an annual rate of about 30%. Private savings mobilized throughthe financial system also increased rapidly, growing by almost 50% a yearduring 1974-76. Mloreover, the balance of payments turned favorable in 1975as a result of the sharp increase in world coffee prices and expansion of

non-coffee agricultural exports. The favorable balance of payments perfor-mance continued in 1976 with foreign exchange reserves reaching almostUS$1,150 million, sufficient to cover over 5 months' imports. With increasedexport earnings, the public debt-service ratio declined from 17.0% in 1974 to11.7% in 1975 and about 11.4% in 1976. However, despite strengthening of theGovernment's monetary and fiscal policies (which had reduced inflation from27% in 1974 to 18% in 1975), the rate of inflation increased to 26% in 1976.Colombia, through a combination of domestic policies and fortuitous externaldevelopments, has come through the period of world recession and economicadjustment with a strong foreign exchange reserve position and a rapidlyrecovering domestic economy.

Recent Economic Performance

8. The economic forces have continued to be favorable. Coffee pricesare high and the balance of payments remains strong; foreign exchange reservesstood at more than US$1,400 million at the end of the first quarter of 1977,the highest level in Colombia's history. The increased demand generated bythe higher incomes of the coffee producers has been a powerful stimulus to theeconomy. Real GDP growth in 1977 is projected at 7%. As a result, urban un-employment, down from about 13% in 1974 to about 9% by end-1976, is expectedto decline further.

9. The inflow of foreign exchange from coffee sales has, however, ledto a resurgence of inflation and this has prompted the Government to continueto give priority to short-term management of demand. Several measures havebeen taken. Legal reserve requirements have been increased and limitationson private external borrowing have been established. Import duties have beendrastically reduced to shift part of the inflationary pressures to the exter-nal sector. Fiscal management was quite restrictive in 1976; the Treasuryaccounts had a surplus, which was used for repayment of the Government'sshort-term domestic debt. Almost two-thirds of coffee earnings are beingkept from increasing the monetary base by measures adopted recently. /1 TheGovernment's liberalized import policy will (although with a lag) increase thesupply of goods, thus dampening pressure on domestic prices. Nevertheless,inflationary pressures are likely to persist. Even after the sterilizationmeasures taken, the record coffee export receipts will add to the monetaryexpansion. Furthermore, current price and cost trends (the Government isattempting to hold wage increases in the public sector to 18%, but privatesector wages will probably increase substantially more) as well as "corrective"adjustments in public-service prices make substantial deceleration of price

/1 The measures are: 15% of payments to coffee producers to be made inthree-year compulsory savings certificates; an increase in the coffeeretention tax from 23% to 46%, and investment of a substantial portionof this tax, including the four percentage points received by the CoffeeFederation, in Government bonds.

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increases unlikely during 1977. However, the rate of inflation is expectedto decline over the medium term as the Government remains strongly committedto reducing inflation and its monetary, fiscal and trade measures begin totake effect. Although the reserves being built up during the "coffee boom"strengthen Colombia's longer-term prospects, the rapid increases in liquidityadd to the difficulties of short-term economic management and illustrate thespecial problems facing economies with a heavy reliance on a single exportcommodity. Although inflation needs to be brought under control, the economyseems now poised for a period of rapid growth.

Development Strategy and Prospects

10. The Government's development strategy is embodied in the 1975-78development plan. The plan aims at creating the conditions necessary for sub-stantially reducing unemployment through increased capital accumulation in theprivate sector, improvement in the efficiency of the price system in order toencourage more labor-intensive production techniques and expansion of publicinvestment. The plan places increased emphasis on the need to strengthenpublic sector institutions; particularly, public enterprises are in the futureto earn a satisfactory rate of return on their revalued assets and financialintermediaries are to maintain the real value of their capital. In terms ofpublic investment, the main thrust will be on providing adequate economicinfrastructure to stimulate rapid growth and employment in industry and agri-culture, as well as on socially oriented projects to help eradicate rural andurban poverty. Within infrastructure, special priority has been assigned tothe development of domestic energy sources to help reduce the country'simpending dependence on imported energy. Also, the Government continues tostress agriculture because it is in the rural areas where the greatest con-centration of poverty exists and in agricultural activities where increases inemployment can be most quickly achieved. Commercial agriculture is to receivesupport due to its strong contribution to export as well as employment growth.A substantial portion of public expenditures is being reoriented towardnutrition and primary education programs which affect the productivity of thepoorest 50% of the population. Policies for promoting decentralization ofindustry away from the largest cities have been adopted to accelerate inte-gration of more backward areas into the modern sector of the economy.

11. Colombia's strong balance-of-payments prospects for the immediatefuture should make it possible in 1977 for the country to resume the high rateof growth of GDP (6-7%) achieved in the early 1970s. Export prospects for thenext several years are excellent, as world coffee prices remain strong andeconomic growth is resuming in the industrialized countries. With the contin-uation of appropriate incentives, minor exports should grow very rapidly onceagain. Manufactured exports--textiles, chemicals, pharmaceuticals, mechanicaland electrical equipment, and paper products--are over the long-term expectedto lead this recuperation, along with non-coffee agricultural exports. Giventhe improved outlook for coffee, Colombia is likely to maintain a favorabletrade balance throughout the late 1970s. Under these circumstances an annualgrowth rate of GDP of about 7.4% is expected to be accompanied by a 10% annualincrease of imports in real terms. In light of favorable external economic

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conditions and domestic policies the marginal savings rate over this periodis projected to be about 30% and public sector savings are projected to beabout 8% of GDP. However, Colombia's public sector investment program callsfor a high level of expenditures if both economic and social objectives are tobe fulfilled. Capital expenditures are expected to be about 10% of GDP.Consequently, Colombia will continue to require substantial capital inflowsto bridge the savings/investment gap of the public sector.

12. Colombia is expected to require gross capital inflows of US$4.2billion during the five-year period 1977-82, of which almost US$350 millionwill be disbursed from commitments made through the end of 1976. To attain

this level, annual gross capital inflow will have to increase from US$421million in 1976 to US$990 million in 1982. Direct foreign investment isexpected to provide only a small part (8%) of the required capital inflow,with approximately 50% being provided by official multilateral and bilateralsources and the remainder by suppliers', financial and other credits fromprivate sources.

13. Colombia's public external debt repayable in foreign currencyamounted to US$3.3 billion at the end of 1976, or about US$2.6 billion excludingundisbursed commitments. The Bank Group's share of this external debt (dis-bursed only) as of the end of 1976 was about 28% and is expected to declineto about 25% by 1982. Service on this debt was about 11.4% of exports of goodsand non-factor services in 1976, and is projected to remain at that level,assuming recovery of minor exports and the favorable outlook for coffee overthe next few years. Balance-of-payments prospects beyond 1980 will depend toa significant extent on the results of petroleum exploration and on progressmade in implementation of several resource-based export projects currentlyunder preparation. The Bank's share of public debt service in 1976 was about26% and is expected to decline marginally to 25% by 1982. With the maintenanceof sound economic and financial policies, Colombia should have no difficultysecuring or servicing the external capital it needs.

PART II: BANK GROUP OPERATIONS IN COLOMBIA

14. The proposed loan, the 66th to be made to Colombia, would bring thetotal amount of Bank loans to Colombia to US$1,421.4 million (net of cancel-lations). Of this amount, US$1,040.4 million is now held by the Bank; IDA madeone credit of US$19.5 million for highways in Colombia in 1961. Disbursementshave been completed on 43 loans and the IDA credit. IFC has made effectiveinvestments and underwriting commitments of US$51.2 million in 23 enterprisesand now holds US$28.5 million. Annex II contains a summary statement of Bankloans and the IDA credit as of March 31, 1977 and IFC investments as ofApril 30, 1977. The Annex also contains summaries on the execution of the22 on-going projects.

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15. Since FY68, Bank lending in Colombia has become more diversified andhas been concentrated on production-oriented programs and activities whichcarried social as well as economic benefits. Eight of the eleven agriculturalloans have been made since then, six of the nine loans for industry, all threeloans in the education sector and all six loans for water supply and sewerage.This compares with only seven loans since FY68 in the power and transportsectors.

16. Bank lending to Colombia in FY76 consisted of one loan for develop-ment finance companies totalling US$80 million. The FY77 program includesthe recently approved Integrated Rural Development and Second AgriculturalCredit Projects, the proposed Fourth Telecommunications Project, a proposedSeventh Highway Project and a proposed small-scale industry project. Workis also under way in nutrition and health, development finance companies, slumimprovement, power, water supply and sewerage, mining, small farm developmentand agricultural extension for possible consideration by the Executive Directorsduring the next two years.

17. In lending to Colombia, the Bank tries to assist the Government inachieving four major objectives. These objectives are interdependent and com-plementary. One objective is to spread the benefits of growth more widelythan before and, more particularly, to attack directly the problem of ruralpoverty. A second objective is to help Colombia expand output, includingexports, by supporting projects that directly or indirectly make large contri-butions to production and employment. A third objective is to support programsthat will bring about improvements in the management of the economy and, par-ticularly, that will help to strengthen public institutions and financialintermediaries. A fourth objective is to transfer sufficient external re-sources to complement Colombia's domestic savings and provide the necessaryfunds for maintaining an adequate level of economic and social investments ina framework of sound domestic finances and a viable balance of payments.

18. The operations of external lenders in Colombia are shown in Annex I.While IBRD, IDB, and AID provided about 75% of total external financing toColombia in the 1961-72 period, their share has decreased since then toapproximately 40%. Like the Bank, IDB and AID have given increased emphasisto social projects. For instance, the IDB has assisted projects in low costhousing, rural development, agrarian reform, university education, watersupply, and land erosion. AID has supported programs in education, urbandevelopment and small farm development. More recently, it has moved to smallproject loans aimed chiefly at improving the distribution of income. It isexpected to phase out its aid program in Colombia in the current year.

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PART III: THE TELECOMMUNICATIONS SECTOR

Background and Organization

19. Colombia is a country of about 24 million people distributed in anumber of distinct regions which, for the most part, are divided by mountainridges. In the west, there are the densely populated centers isolated fromeach other by high mountain chains, while in the east, there are numeroussparsely populated districts, in the Llanos and Amazon Regions. In theseconditions, adequate transport and communication play a vital role in facil-itating and coordinating the flow of goods and services. The Government, inits 1975-78 development plan, has given high priority to regional integrationand development. Consistent with this, it is expanding the country's infra-structure, including communication facilities, to help bring about morebalanced regional growth and, in this way, give far more people in the countryan opportunity to participate in the production process.

20. Telecommunications services in Colombia have developed in diverseways. Local telephone services have been legally and practically the domainof municipal and state governments. As a result there have been as many as61, and currently are 48, independent entities providing telephone services.Long distance telephone and international telephone and telegraph serviceswere initially operated by foreign companies under Government concessions,while the national telegraph system was operated by the Ministry of Communica-tions itself. In 1947, the Government created the autonomous Empresa Nacionalde Telecomunicaciones (TELECOM) to operate and develop long distance services.TELECOM subsequently obtained control and sole responsibility for operatinginternational telegraph and telephone services as well as domestic telegraphservice. TELECOM has been responsible for telex services since their initia-tion. Also in recent years, TELECOM has acquired responsibility for some ofthe local telephone services, principally in rural and semi-urban areas.

21. The Ministry of Communications exercises regulatory control over thesector. It is responsible for sector policy, licensing and regulation of thevarious entities operating in the sector. The National Planning Departmentdecides upon investment priorities within the sector and approves the invest-ment plans proposed by the different agencies. The sector's tariffs areestablished by the National Tariff Board (NTB), which is chaired by the Chiefof the National Planning Department. The Ministry of Communications partici-pates in NTB whenever revisions to telecommunication tariffs are being consid-ered. After NTB approves the level and structure of tariffs, the entitiescan introduce tariffs up to the level approved. The sharing of long-distancetelephone revenues between TELECOM and each of the telephone entities isbased on contracts between TELECOM and each of the entities.

Existing Telecommunication services

22. The number of telephone subscribers has more than doubled in thelast ten years. As of December 31, 1975, Colombia had an installed capacity

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of 968,000 _ires and 830,000 subscribers' connections. With 5.5 telephonesper 100 pcpula:_on as of January 1976, Colombia compares favorably with othermiddle income countries. /1 However, the four largest cities, with less than30% of tne Dccilation account for nearly 80% of the total, while the distribu-tion of services to small urban and rural areas is limited in number as wellas quality. Only approximately 500 of the 4,500 rural communities have accessto telephone services. There is at the same time a very large unfilled demand(presently estimated at about 250,000 lines) which together with extensive useof existing lines by non-subscribers has resulted in a large amount of conges-tion and substantial subscriber dissatisfaction. Long distance networkssimilarly suffer from traffic congestion; however, largely as a result of theprevious Bank loans, the reliability and quality of the service has improveddrastically.

23. Colombia is well served by telegraph, telex and international tele-phone facilities. The 1,600 telegraph offices are spread throughout thecountry so that all towns with a population of more than 3,000 have telegraphfacilities. The number of telex network subscribers has grown in recentyears, 5% annually during 1968-73 and 12% since then. It is expected thatsubscribers will number about 4,600 by 1978. TELECOM plans to continue meet-ing the entire demand for telex services. International telephone servicesare also of a high quality with a total traffic of almost 4,000 calls a day.

Sector Problems

24. Despite the rapid increase in both the quantity and quality of thevarious telephone services, the local and internal long distance systems areinadequate to satisfy the present economy's needs. Demand forecasts haverepeatedly been exceeded and congestion has become the rule rather than excep-tion. In many of the municipally operated exchanges, there has been virtuallyno growth during the past five years and no planning for future needs. InTELECOM's local exchanges as well, which currently cover only 5% of the sub-scribers, demand greatly exceeds supply. TELECOM, however, has prepared along-range plan and aims to fill nearly the entire demand in its exchanges by1982.

25. The fragmentation of the operations of the 48 telecommunicationentities has been largely responsible for the inadequacies of the system.Most of the local entities do not have the capacity to manage their operationseffectively, let alone plan and implement an expansion program. Furthermore,many have substantial financial difficulties as a result of poor financialdiscipline, excessive use of short-term financing and inadequate tariffs.Procurement practices are unsatisfactory and result in excessive costs. Tohelp overcome this problem, the Government has assumed many of the normal

/1 For comparison, the number of telephones per 100 population in a selectedgroup of countries was as follows (January 1976): Argentina 9.7, Brazil3.1, Mexico 4.8, Costa Rica 5.6, and Malaysia 2.4.

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functions of the entities but with limited success. The Government, there-fore, iequested Bank assistance to complete a sector study to propose a courseof action (Telecommunications Sector Colombia (Report No. 663-CO), May 16,1975). The sector study commented adversely on the fragmentation of telecom-munication operations in Colombia and recommended, as a long-term objective,that they should be consolidated into a single entity. The sector study alsosuggested that procurement of all telecommunications equipment should becentralized and that the structure and level of existing telephone tariffsshould be revised to compensate for the cost of rendering the service. Thesector study found wide disparities in the rates charged by the differentlocal telephone companies.

The Bank Role

26. The Bank in its three previous loans to TELECOM aimed at (a) streng-thening the institution; (b) extending telephone facilities to smaller townsnot yet serviced; and (c) installing and extending high quality long-distancetelecommunication facilities within Colombia. The Fourth Project would con-tinue to support these objectives and would assist the Government in itsefforts to improve efficiency in the sector, particularly through the incor-poration of local telephone entities into TELECOM. The project would helpexpedite this process in two ways: by encouraging municipalities wishing toexpand telephone services to sell their enterprise to TELECOM and by allowingTELECOM to utilize the investment for expansion as equity participation forobtaining at least a controlling share in some of the municipal companies.This approach is expected to promote development of the sector, with a conse-quent reduction in operating costs from standardization and consolidation ofoperations. The consolidation of the sector would also help establish uniformtariffs throughout the country. Furthermore, it would permit bulk procurementof the many investment items required by the small entities through interna-tional competitive bidding with significant savings in equipment costs.

PART IV: THE PROJECT

Background and Objectives

27. The proposed project follows three loans to TELECOM totalling US$46million between 1967 and 1974. The first loan (499-CO) of US$16 million,which is fully disbursed, was made to help finance the establishment of abasic long distance network and for the expansion and improvement of nationaland international telecommunications services. The second loan to TELECOM(740-CO) of US$15 million, approved in 1971 and nearly fully disbursed,financed the expansion of long distance facilities and the installation ofnew local networks. Under the loan, TELECOM also retained technical andfinancial consultants to assist in improving its operations. TELECOM, withits own resources, has continued to use the consultants to further developits management and financial systems for a much larger and spread out organ-ization. The third loan (1073-CO) of US$15 million, approved in 1975, consists

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of further expansion of local and long distance service as well as assistancefor the purchase of telex equipment. Nearly one half of the loan has beendisbursed and all contracts have been awarded.

28. The first two projects achieved their primary objectives of assistingin the development of a high quality internal long distance system, helpingTELECOM expand modestly its services to rural areas and, most important, devel-oping and strengthening an institution capable of operating and expandingColombia's telecommunications network. The third project is continuing withthat program and should be completed by December 1978.

29. A Project Performance Audit Report of the first project (499-CO)was distributed to the Executive Directors on July 19, 1976. While thereport commented favorably on the project, it pointed out the need to hastenthe speed of project execution and to improve TELECOM's efforts in collect-ing overdue accounts receivable. Project execution has improved significantlysince the first project and accounts receivable have been reduced. Further-more, current billings are now being collected without delays. In early 1977,TELECOM obtained majority control over two municipal entities, and is negotia-ting to purchase a third, all of which have had large overdue payments. Forthe remainder of the overdue accounts receivable, largely of Governmententities and municipal telephone companies, TELECOM has agreed to prepare byFebruary 28, 1978, a plan satisfactory to the Government and the Bank, toexpedite collection of overdue receivables and to ensure continued promptcollection of current billings in the future. (Section 5.09 of the LoanAgreement).

30. The proposed project aims at assisting TELECOM in the expansion ofits domestic operation and in managing effectively exchanges previously runby about 32 entities. Specifically, the project is designed to: (a) integ-rate a significant percentage of the smaller telephone entities into theTELECOM system to improve services and efficiency; (b) provide access totelephone service in rural areas; (c) upgrade and expand the long distancenetwork; and (d) expand local networks to meet part of the existing demandfor local connections.

31. Negotiations were held in Bogota in April 1977 with a Colombiandelegation led by Dr. Gabriel Turbay Marulanda, Director General of PublicCredit, Ministry of Finance. A project appraisal report entitled "Colombia:Fourth Telecommunications Project" (No. 1464a-CO dated May 25, 1977) is beingcirculated separately to the Executive Directors. The main features of theloan and project are summarized in the Loan and Project Summary and inAnnex III.

Project Description, Cost and Financing

32. The project consists of: (a) the expansion of existing exchangefacilities by 95,000 lines primarily in small towns and rural areas; (b) con-nection of about 75,000 subscribers; and (c) installation of microwave radioand multiplex equipment to increase circuit capacity by about 8,800 internal

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long distance circuits. A portion of the long distance circuits are to meetthe increased demand resulting from the provision under the project, and withthe assistance of the Inter-American Development Bank (IDB), of public tele-phone service to about 2,200 rural communities in 21 departments where suchservice is lacking or deficient.

33. The cost of the project is estimated at about US$167.7 million(Col$7,937.4 million). Foreign exchange expenditures are estimated at aboutUS$101.3 million (Col$4,768.0 million), or 60% of the total project cost. Thecost estimates are based on prices paid by TELECOM in recent contracts updatedto December 1976. The price contingencies amount to 23% of total projectcosts and are based on estimates of the yearly price increases. Since theequipment needs of the project are based on detailed forecasts and engineering,no physical contingencies have been provided. A 5% contingency was providedfor civil works to allow for variations in quantities.

34. The proposed Bank loan of US$60 million would cover about 36% oftotal project costs and about 59% of foreign exchange costs. Of the remainingUS$41.3 million in foreign exchange costs, the IDB is providing US$16 million,in a loan already approved, and TELECOM the remaining US$25.3 million. The IDBwill also finance the equivalent of US$13 million in Colombian pesos of localcurrency costs. TELECOM will provide the remaining US$53.4 million of localcurrency costs.

Project Execution and Organization

35. TELECOM would implement the proposed project. Its staff would pre-pare engineering designs and bid documents, evaluate bids and draw up equip-ment contracts. TELECOM would also lay, joint and commission all distributioncables and would supervise construction of cable ducts constructed by localcontractors. All installation and maintenance of equipment would be carriedout by TELECOM's technical staff. Where new technologies are involved,TELECOM would install equipment with the support of the manufacturer's special-ist staff. TELECOM would carry out acceptance tests of all installed equip-ment. TELECOM's management is experienced and capable of handling all of theabove activities.

36. TELECOM is managed by a Board of Directors appointed by the Presidentof the Republic with the Minister of Communications as the ex-officio Chairmanof the Board. Day-to-day operations, of course, are the responsibility of thePresident, also appointed by the President of the Republic, with the assis-tance of five vice presidents (engineering, operations, integration, indus-trial relations and finance). As of December 31, 1976, TELECOM had a totalof about 13,000 staff, of which about 9,000 were being used in telephone oper-ations and about 4,000 in telegraph and telex operations. The existing staffis considered adequate for the level of operations. Pay scales are attractiveand staff turnover is low. TELECOM has no difficulty recruiting qualifiedprofessional, technical and administrative staff. During the project period,TELECOM would recruit 4,000 additional staff, of which 1,000 would be tech-nical and financial staff, about 2,000 operational and administrative staffand about 1,000 telegraph operating staff. TELECOM operates several trainingcenters to prepare new staff.

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Integration of Local Telephone Services

37. Following on the recommendations of the May 1975 sector study,TELECOM, with the agreement of the Government, has been purchasing smallerlocal telephone companies. The project would support this effort and wouldprovide the necessary equipment for the exchanges of local telephone entitiesto be acquired by TELECOM. The cost of this equipment will be TELECOM's pay-ment for taking at least a controlling interest in some of the local telephonecompanies. TELECOM intends to purchase 26 smaller companies, which would thenbe fully integrated into the TELECOM system, and to obtain controlling equityinterests in six additional companies. During negotiations, TELECOM hasgiven assurances that the acquisition of about 26 local entities would becompleted by the end of 1980 and that the Bank will be consulted on the termsof each contract (Section 3.01 (b) of the draft Loan Agreement). In addition,TELECOM has agreed to enter into agreements setting out arrangements, satis-factory to the Bank, regarding capitalization, organization, management andfinancial and tariff policy, for the acquisition of majority interest in aboutsix local telephone companies in which it will obtain a controlling interest(Section 3.01(c) of the draft Loan Agreement).

Financial Performance

38. TELECOM's past operating results have been satisfactory and itsfinancial position is sound. In 1974 and 1975 TELECOM generated a commendable67% of the financial resources needed for its investment program. Under theThird Telecommunications Project (Loan 1073-CO) TELECOM is required to achievean annual rate of return of at least 11% on the value of net fixed assets inservice calculated on the peso equivalent of the dollar value of the assets.TELECOM has exceeded this requirement: the rate of return in 1974 was 11.6%,in 1975, 13.6% and in 1976 was provisionally 18.4%.

39. Forecasts of income and financial position suggest that TELECOM'srate of return would vary from 18.5% in 1977 to 13% in 1982. The operatingratio during 1977-82 is projected to be between 79 and 83%. Both of theseresults would be satisfactory.

40. TELECOM's debt-equity ratio was 53/47 in 1976 and is projected toincrease to 70/30 by 1980 and to decline to 64/36 by 1982, when the proposedproject would be completed. The ratio is high but is acceptable for aGovernment Corporation which is not required to pay out dividends. TELECOMproposes to adjust its tariffs to help obtain a substantial portion of thefunds it requires for investment and debt service during the project period.The tariff increases will not unduly burden the subscribers and the economy.TELECOM's tariffs include monthly rental charges of US$1 equivalent forbusiness and US$0.75 for residential subscribers, with a call charge ofUSJO.5 per three minutes for all subscribers. Subscribers also pay a one-timeinstallation charge of almost US$10.50, a guarantee deposit of about US$22 andan additional non-interest bearing deposit. Though these rates are low inrelation to other countries, TELECOM's tariff level has been adequate to

- 13 -

maintain its required rates of return. TELECOM has undertaken to maintaintariffs adequate to enable it to obtain at least a 16% rate of return calcu-lated on the peso equivalent of the US dollar value of net plant in serviceduring 1977-80. TELECOM currently obtains the bulk of its income from longdistance services. It is estimated that long distance tariff increases ofabout 10% per year would be required to achieve the 16% rate of return. Forthe years following 1980, it would review this requirement with the Bank butin no case would it be set below 11% (Section 5.05 of draft Loan Agreement).

41. TELECOM's ratio of internally generated funds to debt service wasa favorable 3.6 in 1976. During the period of project execution internallygenerated funds are expected to amount to at least 2.1 times debt servicerequirements. This performance is acceptable and reflects a satisfactoryfinancing plan. In the future, TELECOM would seek Bank concurrence beforeincurring long-term debt, if the debt service coverage would fall below 1.5,and would inform the Bank promptly upon acquiring any short-term debt inexcess of US$500,000 equivalent (Section 5.04 of draft Loan Agreement).TELECOM has also agreed to seek Bank concurrence before proceeding during theproject period with capital expenditures (not required by the Telecommunica-tions Development Program) which exceed US$1,000,000 or 10%, whichever isgreater, of the previous year's total capital expenditures (Section 5.06 ofdraft Loan Agreement).

Procurement and Disbursement

42. All goods financed under the Bank loan would be procured throughinternational competitive bidding in accordance with Bank guidelines. Otherimported goods outside of Bank financing would be procured: (a) throughnegotiations with existing suppliers where additions to existing equipmentwarrant standardization; and (b) through competitive bidding for other newequipment. Goods such as cables, cable ducts, poles and fittings, whichare manufactured domestically, would be procured through competitive bidsfrom domestic suppliers and financed with TELECOM's funds and part of theproceeds of the IDB loan. Since none of the Bank-financed goods are currentlyproduced in Colombia, the matter of bidding preferences does not arise.

43. Disbursement would be for the FOB prices of the imported equipmentand the foreign costs of its installation. TELECOM is required by Governmentregulations to utilize Colombian ships for transport and to insure goods withColombian insurance companies, and therefore, pays for insurance and freightwith local currency. Any unused balance of the loan would be used to financeadditional equipment, similar to that already procured under the loan, afterconsultation with the Bank. Disbursement for expenditures on telephone linesin exchanges currently operated by independent local enterprises would beconditioned upon TELECOM's signing of contracts for the acquisition of fullownership or a controlling interest in the local enterprises (Schedule 1, 2(d)of the draft Loan Agreement).

- 14 -

Justification and Risk

44. The proposed project would help meet a sizeable unfilled demand fortelecommunication services, particularly in unserved, predominantly ruralareas. The project would facilitate the timely delivery of goods and ser-vices and would contribute to improved efficiency in industry, commerce, agri-culture and the service sector. The project would also assist in institutionbuilding by promoting consolidation of the sector and rationalization ofColombia's telecommunication facilities. The rate of return on the projectdefined as the discounted rate which equalizes the stream of expected revenuesattributable to the project with capital and operating costs is 21%. Theproject rate of return is estimated to be 19%, when foreign exchange is shadowpriced 20% higher than the official rate (a figure calculated from tariffs onimports and subsidies on exports). The incremental returns, however, under-estimate the benefit to subscribers in business, industry and agriculture, andalso do not include the estimated revenues from the additional lines that willundoubtedly be connected sometime in the future over and above those includedin the immediate project but for which this project builds the capacity. Withan unfavorable combination of main parameters, sensitivity analysis suggeststhat the rate of return of the project would not be less than 11%.

45. The project is technically feasible and offers limited risk. Theonly possible risk is that it may take TELECOM some time to adjust to itsnew role as a major provider of local telephone services. However, withTELECOM's successful performance in recent years, and proven ability torecruit and train qualified staff, there is reason for optimism that the highstandards of efficiency will be maintained.

PART V: LEGAL INSTRUMENTS AND AUTHORITY

46. The draft Loan Agreement between the Bank and Empresa Nacional deTelecomunicaciones, the draft Guarantee Agreement between the Republic ofColombia and the Bank, as well as the Report of the Committee provided forin Article III, Section 4 (iii), of the Articles of Agreement and the textof a draft Resolution approving the proposed loan, are being distributed tothe Executive Directors separately.

47. Special conditions of the loan are listed in Section III of AnnexIII. A special condition of disbursement for expenditures on telephone linesfor exchanges currently operated by independent telephone companies would bethat TELECOM has entered into purchase contracts for a full or controllingequity interest in such enterprises (Schedule 1, paragraph 2(d) of the draftLoan Agreement).

48. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

- 15 -

PART VI: RECOMMENDATION

49. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

Attachments

May 18, 1977

PAIlrX IPage 1 of 4 padea

COLOMBIA - SOCIAL INoICirTORS DATA SHEETLAND A8EA (THOUJ KN2

I 1I0LAaO fTHOU 4N21 ---- - ----- -COLOMBIA REFERENCE COUNTRIES IIS701)nTAL 1138.9 HOST RECENTAGRIC. f27.8 1960 1970 ESTIMATE TURKEY BRAZIL MEXICO

GNP PER CAPITA (US$) 210.0 340.0 550.0 480.0 540.0 700.0

POPULATION AND VITAL STATISTICS

POPULATION (MID-YR. MILLIONI 15.4 20.6 23.8 35.7 92.8 50.4POPULATION DENSITY

PER SQUARE KM. 14.0 18.0 21.0 46.0 11.0 26.0PER sQ. KM. AGRICULTURAL LAND .. 92.0 W.O 67.0 66.0 52.0

VITAL STATISTICSCRUOE BIRTH RATE I/THOU, AVI 46.1* 44.3 40.6* 40.6 38.4 43.8CRUDE OEATH RATE I/THOU. AV) 14.7 11.0 8.8 14.4 9.9 10.2INFANT MORTALITY RATE ItTHOU) 100.0/8 0.O8 *- 145.0 110.0 68.5LIFE EXPECTANCY AT BIRTH IYRS) 54.T7 58.5 60.9 54.4 59.7 61.0GROSS REPRODUCTION RATE 3.2 3.2 3.1 2.6 /a.b 2.6 3.1

POPULATION GROWTH RATE (T)TOTAAL 2.9 2.9 2.9 2.5 2.9 3.4URBAN 6. 0/b 5.5/b 4.9

4.9Lj S.0 4.8

URBAhN POPULATION It OF TOTAL) 53.0/c 60.0 63.0 38.5 56.0 58.7AGE STRUCTURE (PERCENT)

D tO 14 YEARS 46.6C 46.6 44.1 41.8 42.0 46.215 TO 64 YEARS 50.44 50.4 52.7 53.9 55.0 50.165 YEARS ANO OVER 3.0 3.0 3.2 4.3 3.0 3.7

AGE DEPENDENCY RATIO 1.0c 1.0 0.9 0.9 0.8 1.0ECONOMIC DEPENDENCY RATIO 1.8at 1.6/c 1.61a i.1Ld 1.5 2.0

FAMILY FLANNINGACCEPTORS ICUMULATIVE, THOU) 0.5 306.9 955.1 .. 250.0 55.5USERS (I OF MARRIF[ WOMENI .. .. 31.0 8.2 1.6

EMPLOYMFNT

TOTAL LABOR FORCE (THOUSAND) 5100.0/c 6200.0 6800.0 14500.0/. 29600.0 13000.0LABOR FORCE IN AGRICULTURE (IS 47.0ke 39.0 .. 67.0 44.0 40.0UNEMPLOYED (I OF LABOR FORCE) 8. O e 7..0 14.3 4-qf

INCOMF DISTRIBUTION

S OF PPIVATE INCCME REC-D 8Y-HIGHEST 51 OF HOUSEHOLDS 41.2/cf 31.9/A .. 32.8 S 35.0/a 37.8HIGHEST 20r OF HOUSEHOLDS 67.7/cf 60.17i *- 60.6 62.0/a 63.2LOWEST 20S OF HOUSEHOLDS 2.17e f 3.5 .. 2.9

3.0/n 4.2LOWEST 40S OF HOUSEHOLDS 6.8/c.f 1O.1 .. 9.4 o10.0o7 10.2

DISTRIBUTION OF LAND OWNERSHIP

r OWNFD BY TOP 105 OF OWNERS .. .. 80.0 /b 53.0 45.0 37.1S OWNEn BY SMALLEST 10 OWNERS .. .. 0.2 0.9 1.5 0.3HEALTH AND NUTRITICN

POPULATION PER PHYSICIAN 2400.0 2110 .0 2100.0/c 2250.0 1910.0 1480.0POPULATION PUP NURSING PEPSON 3520.011 .. 1450.0/ 1770.0A 3220.0/b 1620.0POPULATION PER HOSPITAL BED 580.0 430.0 460.0Z 500.0 260.0 960.0PFR CAPITA SUPPLY OF -CALORIES (I OF RFOUIREMENTS) 94.0 97.0 95.0/d 110.0 109.0 110.0PPOTEIN (GRAMS PER DAY) 50.0 5L.0 51.0/d 78.0 64.0 65.0-OF WHICH ANIMAL AND PULSE 28.0/h 29.0/e ..

22.0/ 39.0 28.0/a

CEATH RATE I/THOUI AGES 1-4 16.3 8.4 .. 15.0 .b 9.8

EDUCATICN

AOJUSTED ENROLLMENT RATIOPRIMARY SCHOOL 77.0 102.0 114.OLs 111.0 87.0 106.0SFCONDARY SCHOOL 12.0 z3.0 28.0LS 28.0 28.0 23.0YEARS OF SCHOOLING PROVIDECIFIPST AND SECOND LEVEL) 11.0 11.0 11.0 11.0 13.0 12.0VOCATIONAL ENROLLMENT(t OF SECONOARY) 31.0/i 20.O/f 21 0 /c,e 14.0 17.0 24.0ACULT LITFRACY PATE IS) *- 73.0 74.0 /e 55.0j 68.0 76.0

HOUSING

PERSONS PER ROOM (URBAN) .. .. .. 1.9 1.0 2.2OCCUPIED DWELLINGS WITHOUTPIPED WATER IS) 59.OLC.1 .. .. 64.0 13.0/c 61.0bACCESS TO ELECTRICITYIS OF ALL DWELLINGS) 47.0 /c . .. 41.0 48.0 59.0RURAL DWFLLINGS CONNECTEDTO ELFCTRICITY I) B.O /C .. .. 18.0 8.0 28.0

CCNSUMPTION

RADIO RECEIVERS (PER THOU POP) 139.0 105.0 120.0 89.0 60.0 276.0PASSENGER CARS (PER THOU POP) 7.0/. 11.0 14.0 4.0 25.0 24.0ELECTRICITY (KWH/YR PER CAP) 244.0 414.0 499.0 247.0 491.0 567.0NEWSPRINT (KG/YR PER CAPI 2.4 2.8 1.8 0.7 2.7 3.2

SEE NOTES AND DEFINITIONS ON REVERSE

dailika I _ _

NCOrES Page 2 of 4 Pates

Ulnless otherwise noted, date for 1960 refer to soy year between 1959 and 1961, for 1970 between 1968 and 1970, and for Moot Recent Estimate between1973 end 1975.

aofficial estimoates based on registrations, sbo orude birth rote for 1960 no 39, average orude birth rate for 19b1-70 as 36 end for 1971-74 as 31.s.~Mexico bss been seleoted as a. objective country b.ounse Colombia is now in tbe stege of economic development that Mexico wee in ten years ego. Both

cowecria sin at aGDP growth roc. of about 7 percen t and at a susacileduotioo of ans,plmoyent.

COLOMBIA 19b0 /a Registered only; /b 1951-64; /e 1964, /d 5ogoca only; /n 1963; If Econonsicelly active population, /A 1965;/b 1961-63; /i Total secondary includes teacher trsining at the third level; /I. Water piped inside.

1970 I Rate baoed on burial permits, /b 1964-70; Ic Ratio of population under 15 and 65 sod over to total labor force,/d iconomucally active population; Ie 1964-66;, /f Total secondary includes teacber training at the third level.

MOST RClENT ESTIMATE: Ia Ratio of population under 15 and 65 and over to total labor fo-.; lb 1971; /c 1972; Id 1969-71average, Ia Total secondary includes teacher training at the third level.

TURKEY 1970 /a Excludes 17 Eastern provinces; lb 1965-67; Ic 1965-70; Id Ratio of population under 15 and 65 sod over to labor forceage 15 years and over; I. 15 yers and over, excludes unempLoyed; If Regiotered only; /I Disposable incom,e;lb Including assistant moroe. and midwives; If 1964-66; ji Persons six years old and over who tell the census takers thatthey can read and writs.

BRiAZIL 1970 Ia icvm-ically active Population, lb Hospital personnel1; Ic Inside only.

HEXlICO 1970 Ia 1964-66; lb InRide only.

R9, January 7, 1977

OEPFINITIONSI OF SOCIAL INDICATORS

toed Are (thou .2 Populatiox n pre s toei. pearso - Population divided by -ober of practicingTotal- Toc-I -faca area compr iuieg land urea sod island astore. male and femle graduate nurses, "trained" or "cartifiad" norse , andAnccr- Moot recent estimate of agricultural area used temporarily or pat-- auoiliary pereonoe with training or experiaxce.nontly for cropo, pa-turee, narkot 4 hitches gardeno or to lie fallow. Population par hoapita1 bed - Population divided by nombec of hospital bedu

available in public and private general and spcialisad hospital andGNP cot vacua- 1uS$) - GNP par capita asti,uuteu occurren.t ncket prices. rehabilitation ceniars, ..ocludes nuroiga bh-.s ande rablish .eets for

calculated by nam nonvarios method as world Sank Asluo (1973-75 basis); custodial and prev-tive care.1960, 1970 nd 1975 d.t.. ~~~~~~~~~Per capita supply of calories (% of reguiressents) - Computed from, eergy

equivalent of set fond supplies available is country per capita per dsy,

populatio and vital -ccci vilable aupplisa capeise dosostic productiom, imports loss exports, sodPopulati-c (vid--a nillion) so of July firni it soc avatlblo, uverace ohangea to stock, ret eupplixo -nclde animal fxed, seede, quantities usedof ru cod-year esi-t-ce 1 l'60, 1970 and 1975 dare. in fond proceso.teg and loes.. in distribution; reurmn s wre esti-aced

by FA0 base.d ox physiological nee ds for a.e.a a ctivity and health conid-

Population denity P-pe nvore Inc - Mid-year population par square kilcometer ering envirosoxenta1 tompersture, body weighto, age and ass distributions of

(100 beotares) of total area population, and allowing lot for waste at household level.Population doosiry-per esuare knc of Anric. land - Computad us above fnr Per ..pit. supply of protein (era- par days - Protein contest of par .. pita

aiiocrlelnd only. net supply of food per day,; set supply nof fond is defined as aOve; require-nento for all coontries established by USDA Econaic Resea.rch ServIces

Vital oaitc provide fur a niniua allowance of 60 gras of total protein per day, andCrude birth rate Per tbowand. Avrae - .dnul live births per tboouand of 20 gran of animal aed pulse protein, of which 10 gras should he animalold-yea population, ton-year oritluotic overages ending ix 1960 and 1970, protein, these standards are lowr chsn those of 75 gras of .tota prosicand fiv-yea overge ending in 1975 for 000 trecent estinste. and 25 gras nof animal protein. as enserage for the world, pruposed by FAT,

Crude death rote per conoand avrg-Anoux 1 deaths per thousand of old-year in the Third world Pond Suroey.popula~tion ; ton-year arithmetic averages ending in 1960 and 1970 and fiva- Per capita protein anpply frns anima an.d pulse - Protein supply of foodye- atavrage en ding J. 1975 for soot -ecet ectimte. derived from animals and pulses in grams par day

Infan- oclt rate (Ichno) - Annual deaths of infanto under one year of age Deth roat i/thou) agee 1-4 - Annual dooths per thousand in age group 1-4Per thousnd lIve birtho. years, tx children in this oga gronp, suggested ax an indicetor of

,ife euo uc t hitch (yre) - A-erag. comber of yasre of ILts rasining at na1-triti.n.birth,noly five-year av-rae ending In 1960, 1970 and 1975 for develop-ing c..uncriec id-ntion--ouoropcdoction race - Average vushe of live daughters. . .u..c wIll hear Adjusted enrollment rutix - primary school - Enrol1ment of all ages as per-

iv hoc oura reproductive peciod if ho e-pe-iences presen.t age-specific tentage of primary school-age pupulatiox, includes children aged 6-11 yearsfertilcty rates .. ou...ly fiv-yea overagon endtng in 1960, 1970 and 1975 hut adjusted for different longths of primary eduction; for oowntries withfor deu-Iaping covntries. univer-1 education, enrollment esy ecee..d 1007,. olce sax pupils are halow

Pop,.I,iato ,r-,J, rat (%) - total - Comp-ad annual groth cocoa of mid-year or above the official aehool ege.populatioc fcc 1950-60, 1960-70 and 1970-75. Adjusted sorollmet rotin - secondary school - Computed aa shone, o.oondory

Ppopulaion growth rote (7.) - urban - Computed likh growth taco of total education requires at least four years of approved primaory instructine,popoloti-c; difforct definitic-of nO bchn srou may affect camp-rbiliry of provides gasses1, voca.tional or teac.her traoinig instructions fur pupiludata among t ooutrlu. of 12 tx 17 years of age; correpondence courses are generally sec luded.

Lrttn pnpalotion (7, of total) - Raiio of urban to total population; different Years f schooling provided (first and second levels) - Total yeers ofdefinitions of urban areas may affect cn,parability of data amog countries. ochcoling; at secondary level, voctiona1 instruction may be partially o

completely excluded.

Auc structure (portont) - Children (0-14 yearn), working-age (15-hi years), Vocational enroIllmet (7, of .econdary) - Vonstioa1 institutions includeand recitd (A5 year and over) an Perc..niageu of mid-your population, technical, industrial or ocher progr-os which operate independentlyora

Ago epedeii" rtio- Rati oaf PoPulation under 15 and 65 and over to thoue dapamonents of eacodary in-tit,,ti...of agno1 I) lraugh 64 Adult literacy rate (7.) - Literate odo1ts (able ca red and write) as per-

TuvnoIcic,cedec ai - Ratio of population under 1) a,,d 6) and over to centago of toita adult populati-o aged 1) yoars and over.the labor foru in age group af i5-64 year.-

,oo lv-pIno in-aceptoro hcaniv ..to) - Cuomlativo number of accop..r. Housingof dii-ct aldvices odor -upicxo of ostiona1 family planning progr- Person pert com lurbon) - Aceral -ober of perona per roo in occpiedni-c in-npti-c cneventiomal dwellings in irban ara,dwellings enclude no-permanent

(avil placinc-uern(7 o marred cmeo)- Pecceotagos of married women of ocructuras and unnoc..pied parcu.child-Scorng age (15-44 ors h - coo 1 horr-at-Il d-vic- to all married Occ..pied dwellixnu without piped cater (%) - C-ups-d covetional d-e1-cos

cacoi sn age grop. - urban and rura areas withoat inoldo or outside poped cacer fa-ilicienas .porcecrage of all occupied dwellings.

imp) vy.. t sora in electricity (t of all dwellings) - Conoen ti-Io dwelligs ith[Luc1 labor form (thooc-dl - Lconamica11v atios perucos , including a-nd electricity In living quarcero as percent of total duel1ingo in -han and

orcenoo,d noepl-ved but nouludung bo...ecines, etudeecs, et , definitiaxa rura orea..-v -ar ou --urr ee ore cur comparble Rura dwellings connected to electricity_(21) - Computed as above for rta;

Labor force in uriculctr- IT) - Airic.tulira labor force (-c raiing, foretry, dwellings only.Scoring and fiubsng) su perton-cgc of total labor force.

I1-l-ocoed_(, ~oflaborfre - Uenopl-yed ato usc ally defined an person cho ConuompLionar able a-d illing to cake a job, nut of a job on o given day, remained ant Rodio receivers (per thou pop) - All types of rece ivers For rudio brod-aorci a jok, and cocking work foros pecf, fed ninimia period oat exteeding one tc gecerI public par thousand of population .oncludes -nlicecud r--ev-rtok, cay non be coputable be itencoutr(o due to different dofc-itiono in coun tries and in yoaea when tgiroicof radio sets wa cneffectof u-opio-ed and o-rc- of data, e.g., employment offic.eoratiotlnu. sample data for recent years may not he comparble sinc . ost c.. untrie- abolished

Auvos opuiu ory toep1oYe-cinucrnc- licening.P....eoxaccacr (pear thoc poel - Pse...eger oars camprico not crs seatin

boone lsnratctnpercentage of prcv to-namo (both in cash and kind) lass tha neight persons, socludesoblacc heoroes and oilitaryr--ced by rihcknt 5,, richest 20%, pooreu 20%, and po-eti 407, of house- vehicles.h.1llo flectricity (kwh/yr par ese) - Annual conainption of industrial. nonneecial.

public aend private 1eletricity in kilowatt honres per capita, generall1y

SDAi-b,, t-, af land w-er p- p-Pecentages of land owed by wea lthiest 107% based on produccion data, witbout alwnefor losese in grids but allowand poor-t 1ST. of land ownrs ing far imports and emports of electricity

Rewsprint (kg/yr per cap) - Per .apits a.-u-I consomPtio is kilogras

±cal ithaud N_u-iri-o estimated from domestic production pluu net imports of newesprlntfoplaroc er hynria -Population divded by nioc, of practiciso

phyn-c-ot qualI,f(ed fro a nedital uckooI at unvestylee

ANNEX, I~

ragc 3 of 4 pages

ECONO3MIC DEVEILOPMBNT

(In Millions of U1S DOllars)

Actual Estimated Proiected Average Annual Growth Rates As percent of COP1967-b9Average 1974 1975 1976 1977 1982 (1967-69)-74 1974-76 1976-82 1974 1976 1982

1976 Prices and Exchange Rates

National Accounts

Cross Domestic Product 9,785 14,405 15,061 15,900 t7.063 24,459 6.7 5.2 7.4 100 0 100.0 100.0Gains fcon Terms of Trade (+ -751 -390 -458 -715 -141 - - - 2.7 - 0.6Cross Domestic Incomne9,3 1405 463 15,900 17,778 24.318 7. 67 7.3 97 3 100.0 99 4

Imnport (Incl. NFl) 1,491 2,323 2,229 2,436 2,806 4,325 7.7 2.5 10.0 16.1 15.3 17 7Exports " (.mport Capacity) 1j419 2,114 2.249 2,781 3,6 4,6 6.9 14.7 7.8 14 7 17.5 17.8Resource Cap 72 209 -20 -345 -859 -35 1-9.4 - - 1.5 2.2 0 1

Consumption Expenditures 7,445 11,429 12,389 12,513 13,451 18.012 7.4 4.6 6.3 79.3 78.7 73.6Invet.ent 1 (Inc. Stocks) 2,101 3,268 2,526 3,145 3,383 6,291 7.6 -3 3 12.3 22 7 19.8 25 7

Domestic Savings 1,589 2,586 2,214 3,441 4,327 6,306 8.5 15.4 10.6 20.0 21.6 25.8National Savings 1,865 2,853 2,353 3,387 3,986 6,187 7. 3 6.1 10.6 19 8 21.3 2 5. 3

Merchandise Trade Annual Data at Current Prices As Percent of Total

TmportsCapital Goods 290 525 540 655 834 1,753 10.4 11.7 17.8 34.8 36.1 32.3Intermediate Goods (Earl. Fuels) 254 811 758 872 1,087 2,437 21.4 3.7 18.7 53.7 48.1 45 0Fuels and Related Materials 3 6 14 73 153 716 12.3 500.0 46.3 0.4 4.0 13.2of Which: Petroleum(- (- (14) (73) (153) (716) - - (46.3) ) (4.0) (13 2)

Consumption Goods 61 167 168 214 267 515 18.3 13.2 15.8 11.1 11.8 9 Total Merch. Imports (FOB) 608 1.509 1,480 1,814 2,341 5,421 16.4 9.6 20.0 100.0 100,0 100.0

ExportsPrimary Products (E..d. Fuels) 418 1,001 1.179 1,683 2,716 4,137 15 7 29.7 16.2 67.0 74 6 7 2 8Fuels and Related Materials 71 95 87 87 102 214 5.0 -4.3 16.2 6.4 3.8 3.6of Which: Petroleum (56) (4) (- (-)(-(- (-35.5) - - (0.3) (-(-

Manufactured Goods 117 398 428 -488 569 1.333 22.5 10.7 18.2 26.6 21 6 23 4Total Merch. Exports (FOB) 606 1,494 1,694 2,258 3,387 5,684 16.2 230 176.6 100.0 t00 0 100.0Tosrism and Border Trade - - - - - ---- ---

Merchandise Trade IndicesImport Price Index 21.2 72.4 74.5 100.0 141.5 151.1Import Price Index 34.0 90.0 93.0 100.0 108.9 157.4Terms of Trade Index 62.3 80.4 80.1 100.0 129.9 96.0Exports Volume Index 126.6 92.2 100.7 100.0 106.0 166.6

Value Added by Sector Annual Data at 1976 - Prices and Exchange Rates Average Annal Growth Rates A. Percent of Total

Agriculture 2 ,9 51 3,828 4,080 4,239 4,451 5,745 4.4 5.2 5. 2 29.6 26 5 23.3Industry and Mining 2,444 3,811 3.877 4,518 4,925 7.759 7.7 8.9 9 4 28 5 28 3 31 S erices i.439 5,74 6.055 7.228 7,3 11.112 4.4 12.2 7.4 42.9 45 2 45 2Total 9,834 13,385 14,012 15,985 17,110 24,616 5.3 9.3 7.-5 100.0 1O00.0 100.0

Public FinanceAnnual Data at Current Prices As Percnt of tS]P

(Central Government)Current Receipts 41) 1,194 1,402 1,551 1,924 2,944 19.4 13.9 11.3 9.5 9.9 9 6Current Expenditures 262 640 702 734 933 1,428 16.0 7.1 11.7 5.1 4.7 4.6Budgetary Savings 151 554 700 817 991 1,516 24,2 21.5 10.9 4.4 5.2 5.0Other Public Sector Savings 434 150 394 334 390 810 -16.2 49.0 15,9 1 2 2.1 2.6Public Sector Investment -612 1,189 1,382 1,496 1,753 2,995 11.7 12.2 12.3 9.L4 9.5 9.7

Selected Indicators 1965-70 1970-73 1973-76 1976-82 Detail on Public SectorInvest.ent Program and F-sasr-g A_s 7. _of Total.

(Calculated from 3-year averaged data) 1975-76 1977-82Average ICOR 3.17 3.02 3.22 2.93 Social Sectors 3 3 . 38 2Import Elasticity 1.16 0.28 0.32 1.42 Agric.1t.re 10.2 12 0Margioal Dometic Savings Rate 0.20 0.12 0.23 0.33 Industry and Mining 9 5 17Marginal National Savings Rate 0.14 0.17 0.24 0,33 Power 6.3 99

_____________________________________________________________________________________TTransportandndos-susatalons 20.2 14 other 20.1 15 5

Labor Force and Output per Worker Total Labor Force Total Expenditurs 1f0 0 .0 100 0Is Millions %' of Total Growth Rate

1964 1973 1964 1973 1964-73Financing

Agriculture 2.427 2.057 47.3 30.2 -1.9Industry 0,958 1.212 18.7 17.8 2.7 public Sector Savings 62 7 68 5Service 1.749 3.542 34.0 52.0 8.2 Foreign ProSect Aid 13 4 24.6Total 5,134 6.812 100,0 100.0 3.2 Other 23.9 6.9

Total Financing 100.0 100 0V1.slu Added per Worker (1976 Prices and Exchange Rates)________________________________

In US Dollas- 7, of Average Growth Rate1964 1973 1964 1973 1964-73

Agriculture 903 1,517 66.4 88.4 5.9Industry 1,837 2,552 135,2 148,6 3.7Servic 1,3 1.4 127.3 90.0 -1.2Total 1,359 1,717 100.0 100.0 2.6

ANNEX IPage 4 of 4

BALANCE OF PAYOIN?TS. EXTERNAL ASSISTANCE AND DEST

(A-.u-. Re Millio- of ES Dolar at Curren Prices)

1971 1977 1973 1971. 1975 3976 1977 1919 1909 790(1 q~ t9c 12

Expr -sUr XFSt 971 1.207 1.548 18505 2.100 2 .N7I 1.999 4.547 4 648 (137 lAn)3 6.929oero(Intl La`t 1.285 12l6 1.424 2.072 2,082 2,,36 3.5 3j613 jani ,jaj0 5j903 A 77

B.I.- (X-M~~ -111 -29 124 -214 1o 345 9135 9134 411 17 -40 57

-174 -197 -215 -192 -241 -21N -275 -292 -327 -371 -399 -430Pcnftt 1~~~~ ~ ~~~~~ ~~-701 U?3) (-741 (-60) (-66) (-821 (-100) 7-117) (-137) 7-16A) 1-172) (-1AR)Oebcr 71047~~~~~~~~~-lb (-124) (-1411 7-1321 7-175) (-17b) (4175) (-175) t179A1 UlF7) 7-227) 7-2507Ittottot Irooufoen (Not) ~~~~34 35 35 5) 47 IO0 112 125 138 1 52 167 184culufler 00 Current Account ~~-453 -191 -54 -351 -126 187 772 767 222 -707 -2772 -191

F'cnat Direc 1---scoo 40 17 23 36 41 45 32 39 57 49 74 72

P.,ltc 941L1 tourItinburuccot 2 22 3 51 417 364 3AT 376 412 510 583 4)5 799 917

-Rocornento ~~~~ ~~~~ ~~-92 -96 -172 cli11 .11j -181 -173 -215 -250 -290 -5A6 -677Ne Ducce- cc 135 251 285 113 249 195 239 303 333 337 41) 440

tlchrt cOLT L.unoD1.4 urenett 145 139 60 50 76 - -- - - - --Re,un- t -79 -04 -50 -N _-_07 -

N(cc Ru' roocs 54 2 -N -11 -------

(oP- o -ruc.nnc 135 20 -45 -29 13 133 - - - - - -

Change tt. 1cc Acuecucs 1~ ~ ~~~2 -164 -213 019 -11 -584 -1,041 -1.809 -412 -200 -201 -321

offleso ttcnt aod.C. D.-1c ----- Obt and Debt tulEasa

Ser"Ice 1971 7972 1973 1974 797-5 1976Publ,Ic &A. ma-- Public Dsbn

tRD 153 74 142 8 8A so Au.a..rd..gen1DA- - - - Oisbursed 1.335 6 1,410.0 1.93 0 5 2,11l 4 2,347 A 2,507 5

kithr- uluusc 42 41 29 64 - 26 Tabc 49-2 5 7 9 78 3 103 7 11723 13691.cvor,nnencu ~~~~ ~~~~ ~~~iII 114 60 51 65 131 Rapoyasnus caSoppltern ~~~ ~~~ ~~ ~ ~~35 37 )1 65 75 32 Public Ssbc 92 0 95 9 131 9 218.4 134 4 I1409

Icicoc Rak38 94 190 58 752 162 Tots1 PbolioBonus - - ~~~ ~ ~ ~ ~ ~~ ~~~~~~~~~~~~~41 - - lobs lorlc 141.2 153.8 2101 0 315 1 24467 317 S

jtnbl- ~Lu.ne. u. -9 1 4 1 - AubseDbTn-1 Poblir 941.T Louc 378 358 5 21 234 391 431 S-rclc (Usc) 133 1 155 1 126.6 119 4 709 0 140 0

S-eric (Usc) 374.) 308 9 337 0 43) 7 354 7 477 B

Ou...o,,dir,o 12/31176 lurden o epers

EnoruI DSIt 04 only Percen Public eoSen 14 5 12.7 13 6 16.9 tl 7 11 4tgcncl InTc-: Cr. aa SoI Sarl 28 2 25.6 21 8 23 3 1469 It72W-rld 17047k 8 27. In-etDeb: DncITD 22.3 7. PI.. Forign In."

Other tlllcrl 4. 8.4 Inc.a 35 3 31 6 24 5 24 A 2( 0 70.1Cotecetosoct ~~~~~977.3 08.2

S,ppllnes 169.4 66Acoosg TeesoPru.oc Bunks 435.7 13 0 Public Debt3.,d. 48,6 1.9 Enoe-n- 2. Prn

Public Dobus n.o.i. 31,4 1.2 Soar 0061D 3 9 420 4 5 3 5 3 6 (

Total Etblce MILT 2,no 7540,0 IDC.0 Yeer D04B 7 4 69 9P,2 17 9 63 7 7

IBR"D lbt Outatendiecand Diebursd 90 9 4153 4 1045 1 617 6)33 706 9IiRT s7;Pblit

Dtebl 4 29 2 27 1 26 1 24 5 265 9 7713RD 00 PblicBebc Sa bi 19 4 30 9 2089 2364 32.3 25 B

IDA Debt Oustcsadsegandlbobttrsed ~~~~1(4 209 230 27a 225 223

IDA 00 1 Publlc Orbt%D1 14 I3 12 71 75 C~IDA as % PublIc Debt

s_,_ ~~~02 03 02 - 2 20

ANNEX IIPage 1 of 7

THE STATUS OF BANK GROUP OPERATIONS IN COLOMBIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of March 31, 1977)

(US$ million)Loan Amount (less Cancellation)Number Year Borrower Purpose Bank IDA Undisbursed

Fully disbursed loans and credits 667.3 23.5 /1 --

575 1968 Interconexion Electrica, S.A. Power 18.0 .3680 1970 Colombia Roads 32.0 3.9681 1970 Interconexion Electrica, S.A. Power 52.3 .5682 1970 Empresas Municipales de Cali Water Supply 18.5 .7738 1971 Empresas Municipales de

Palmira Water Supply 2.0 .3740 1971 Empresa Nacional de

Telecomunicaciones Communications 15.0 .3741 1971 Empresa de Acueducto y

Alcantarillado de Bogota Water Supply 88.0 31.6849 1972 Instituto Colombiano de

la Reforma Agraria Irrigation 5.0 4.5860 1972 Instituto de Fomento

Municipal Water Supply 9.1 4.6874 1973 Empresas Publicas de Medellin Power 56.0 23.7903 1973 Banco de la Republica Industry 60.0 9.4920 1973 Colombia Education 21.2 13.5926 1973 Ferrocarriles Nacionales Railways 25.0 4.6971 1974 Colombia Pre-Investment

Studies 8.0 6.71071 1975 Banco de la Republica Industry 5.5 1.41072 1975 Instituto Nacional de Fomento

Municipal Water Supply 27.0 24.21073 1975 Empresa Nacional de

Telecomunicaciones Communications 15.0 8.21118 1975 Colombia Rural Settlement 19.5 17.01163 1975 Colombia Agriculture 21.0 20.81223 1976 Banco de la Republica DFC 80.0 73.9

1352 1977 Colombia RuralDevelopment 52.0 52.0 /2

1357 1977 Banco de la Republica AgriculturalCredit 64.0 64.0 /2

Total 1361.4 23.5 366.0Of which has been repaid 310.7 1.2

Total now outstanding 1050.7 22.3 366.0

Amount sold 28.7Of which has been repaid 18.4 10.3Total now held by Bank and IDA 1040.4 22.3

TOTAL UNDISBURSED 366.0

/1 Includes exchange adjustment of US$4.0 million./2 Not yet effective.

ANNEX IIPage 2 of 7

B. STATEMENT OF IFC INVESTMENTS (as of April 30, 1977)

Type of Amount in US$ million

Year Obligor Business Loan Equity Total

1959 Laminas del Caribe, S.A. Fiber-board 0.50 - 0.501960-1965 Industrias Alimenticias

Noel, S.A. Food products 1.98 0.08 2.061961 Envases Colombianos, S.A. Metal cans 0.70 - 0.701961-1968 Morfeo-Productos para el

Hogar, S.A. Home furniture 0.08 0.09 0.171961 Electromanufacturas, S.A. Electrical

equipment 0.50 - 0.50

1962 Corporacion Financiera DevelopmentColombiana financing - 2.02 2.02

1962-1963 Corporacion Financiera Development - 2.04 2.04Nacional financing

1963-1967 Compania Colombiana de Textiles 1.98 0.15 2.131968-1969 Tejidos, S.A.

1964-1970 Corporacion Financiera de DevelopmentCaldas financing - 0.81 0.81

1964-1968 Forjas de Colombia, S.A. Steel forging - 1.27 1.27

1966 Almacenes Generales de Warehousing 1.00 - 1.00Deposito Santa Fe, S.A.

1966 Industria Ganadera Livestock 1.00 0.58 1.58Colombiana, S.A.

1967-70-74 ENKA de Colombia, S.A. Textiles 5.00 2.61 7.611969 Compania de Desarrollo de Tourism - 0.01 0.01

Hoteles y Turismo, Ltda.(HOTURISMO)

1969-1973 Corporacion Financiera del Development - 0.45 0.45

Norte financing1969 Corporacion Financiera del Development - 0.43 0.43

Valle financing1970 Promotora de Hoteles de Tourism 0.23 0.11 0.34

Turismo Medellin, S.A.1970-1977 Pro-Hoteles, S.A. Tourism 0.80 0.25 1.051973-1975 Corporacion Colombiana de Housing - 0.45 0.45

Ahorro y Vivienda1974 Cementos Boyaca, S.A. Cement 1.50 - 1.501975 Cementos del Caribe, S.A. Cement 3.60 - 3.60

1976 Las Brisas Mining 6.00 - 6.001977 Promotora de la Interconexion

de los Gasoductos de laCosta Atlantica S.A. Utilities 13.00 2.00 15.00

Total Gross Commitments 37.87 13.35 51.22Less cancellations, terminations,

repayments and sales 17.63 5.04 22.67

Total commitments now held by IFC 20.24 8.31 28.55

Total undisbursed 19.00 1.23 20.13

ANNEX IIPage 3 of 7

C. PROJECTS IN EXECUTION /1

1. Ln No. 575 Electric Power (Interconnection); US$18 million, December 1968.Effective date: February 25, 1969Closing Date: original - February 29, 1972

current - July 31, 1977

The original project was completed and commercially operationalin 1971. The Bank agreed that an undisbursed balance could be used to financea 220 kv transmission line, Guatape - Barrancabermeja. The cost of the lineis estimated at US$7.2 million of which about US$4.1 million represents theforeign component. Work on the line is almost fully completed.

2. Ln No. 680 Highways VI; US$32 million, June 1970.Effective date: March 29, 1971Closing date: original - November 30, 1974

current - November 30, 1978

The largest component of the project, the paving program, hasexperienced considerable cost increases and delays. As of this writing, sevensections in the program are still under construction and about 200 km still tobe paved. Project completion is now expected for 1979. The other componentsof the project were completed with much less delay. The Ministry of PublicWorks has taken several steps to hasten project execution and strengthen theperformance of contractors.

3. Ln No. 681 Chivor Hydroelectric Power; US$52.3 million, June 1970.Effective date: September 1, 1970Closing date: June 30, 1977

The project has experienced considerable delay and project costsare expected to be 35% higher than originally estimated. Work is now proceed-ing satisfactorily and the first generating units are expected to be put intoservice in mid-1977.

4. Ln No. 682 Cali Water Supply and Sewerage; US$18.5 million, June 1970.

Effective date: September 2, 1970Closing date: original - June 30, 1974

current - June 30, 1977

As of March 31, 1977, about 96% of the loan amount was disbursed.Disbursements were delayed due to a late project start, but the entire projectis now under execution, and it is expected that construction activities willbe finished by mid-1977.

/1 These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the understand-ing that they do not purport to present a balanced evaluation of strengthsand weaknesses in project execution.

ANNEX IIPage 4 of 7

5. Ln No. 738 Palmira Water Supply and Sewerage; US$2 million, May 1971.Effective date: December 29, 1971Closing Date: original - March 1, 1975

current - March 1, 1977

As of March 31, 1977, about 85% of the loan amount was disbursed.Disbursements were delayed due to initial management and fiscal problems. Afinancial crisis in early 1973 was resolved through higher tariffs and tightbudget control. The Bank is now awaiting proposals from the company as to theuse of about US$300,000 still undisbursed which will not be needed for theoriginal project.

6. Ln No. 740 Telecommunictions II; US$15 million, May 1971.Effective date: August 16, 1971Closing Date: June 30, 1977

Contracts for all Bank-financed goods have been signed and technicaland financial consultants have been retained. Due to initial delays in theprocurement of project equipment, some of the project's works will be completed18 months behind original schedule.

7. Ln No. 741 Water Supply (Bogota II); US$88 million, May 1971.Effective date: August 16, 1971Closing Date: June 30, 1978

Disbursements up to March 31, 1977 amounted to 64% of this loan.Slow progress in the construction of the vital Palacio - Rio Blanco Tunnel isthe main reason for the project's delay; the original contractor was replacedby another firm which has already made an impressive start. The progress ofthe project, however, is endangered by serious financial problems which arecurrently the subject of consultations with the Government and the Borrowerconcerning necessary corrective measures, including further tariff increases.

8. Ln No. 849 Irrigation (Atlantico II); US$5 million, June 1972.Effective date: November 14, 1972Closing Date: March 31, 1978

The project is the second and final phase of a scheme to developabout 17,000 ha of seasonally inundated land for agricultural production.Work is continuing satisfactorily on project roads and a main drainage canal;the final two main drainage canals are scheduled to be completed during 1977.Land clearing, tertiary drainage works and allocation to farmers are behindschedule, but improved in 1976. The organization and settlement of farmerswithin the project areas and the technical assistance and farm credit oper-ations are not yet satisfactory. At Government request, the Bank has agreedto cancel US$2.8 million of the original amount of the loan.

ANNEX IIPage 5 of 7

9. Ln No. 860 Medium-Size Cities Water Supply and Sewerage Project; US$9.1million, October 1972.

Effective date: March 7, 1973Closing Date: original - September 30, 1976

current - September 30, 1978

As of March 31, 1977, about 50% of the loan amount was disbursed.Disbursements were delayed due to initial project management problems, butprogress of works has since accelerated.

10. Ln No. 874 Guatape II Hydroelectric Power Project; US$56 million,January 1973.

Effective date: March 13, 1973Closing Date: December 31, 1978

The progress of the work is generally satisfactory except fordelays in the resettlement of El Penol and Guatape villages, which meansthat filling the Santa Rita reservoir cannot be started before mid-1978,three years behind schedule. This would be likely to lead to an energydeficit in the interconnected system from 1978 to 1981. The revised projectcost estimate is substantially above appraisal estimates, mainly due to highercosts of the works at El Penol and Guatape. The Borrower experienced seriousfinancial problems but as a result of a series of tariff increases, thecompany is projected to achieve the covenanted rate of return in 1977. Finan-cial gaps, however, remain to be met if the investment program is to be com-pleted on schedule.

11. Ln No. 903 Development Finance Companies V; US$60 million, May 1973.Effective date: November 9, 1973Closing Date: June 30, 1977

The loan is fully committed. Disbursements are still behind sched-ule, but in view that the loan is fully committed, they should be completed bythe Closing Date.

12. Ln No. 920 Education III; US$21.2 million, July 1973.Effective date: January 10, 1974Closing Date: original - June 30, 1977

current - December 30, 1979

Project implementation had been suspended in mid-1975 pending rede-finition of sector priorities by the Government. Implementation has resumedrecently after the Bank agreed to reallocate part of the loan to finance ruralprimary schools instead of rural secondary schools as originally proposed. Asthe number of primary school graduates increase, the primary schools willgradually become secondary school centers.

ANNEX IIPage 6 of 7

13. Ln No. 926 Sixth Railway Project; US$25 million, August 1973.Effective date: December 6, 1973Closing Date: original - June 30, 1976

current - December 31, 1977

The operation of the railway has improved and for the first timesince 1974 the 1976 traffic approximately equalled the previous year's level(in terms of ton-kms it was slightly higher). The financial condition of therailway, however, continued to deteriorate as tariff increases have not keptpace with cost increases. In 1976, operating ratio of 137 did not meet theappraisal target of 104. As a result, the railway has requested financialsupport from the Government. Track rehabilitation work and procurement haveimproved, but derailments and availability of rolling stock continues to bepoor.

14. Ln No. 971 Preinvestment Studies Project; US$8 million, March 1974.Effective date: June 27, 1974Closing Date: December 31, 1978

The Bank has approved 26 sub-projects. Commitments under the Bankloan are proceeding at a satisfactory rate.

15. Ln No. 1071 Small-Scale Industry; US$5.5 million, January 1975.Effective date: May 20, 1975Closing Date: June 30, 1978

After a slow start due to a change of management in CorporacionFinanciera Popular, the beneficiary institution, commitments moved well andare now on schedule. The second tranche was released by the Bank in view ofthe satisfactory performance of CFP. It is expected that the loan will befully committed by June 30, 1977.

16. Ln No. 1072 Second Multi-City Water Supply and Sewerage Project; US$27million, January 1975.

Effective date: April 14, 1975Closing Date: June 30, 1980

This loan became effective on April 14, 1975 but there have beensubstantial delays in making the eight subloans effective. The last subloan(Barranquilla) was made effective on September 9, 1976. After a slow start,disbursements are beginning to increase.

17. Ln No. 1073 Telecommunications III; US$15 million, January 1975.Effective date: April 14, 1975Closing Date: December 31, 1978

This loan became effective on April 14, 1975 and US$6.8 million hasbeen disbursed. Contracts for all Bank-financed goods have been awarded.

ANNEX IIPage 7 of 7

18. Ln No. 1118 Caqueta Rural Settlement Project; US$19.5 million, June 1975.Effective date: April 1, 1976Closing Date: October 31, 1979

This loan became effective on April 1, 1976 after a six-month delay.Since then, implementation has proceeded rapidly and some of the lost timeregained. Road and bridge construction is well ahead of schedule (79 km havebeen completed). School construction, however, is behind schedule, while thecredit program is proceeding well.

19. Ln No. 1163 Cordoba 2 Agricultural Development Project; US$21 million,September 1975.

Effective date: March 30, 1976Closing Date: December 31, 1980

A few months after effectiveness, the Government decided to giveresponsibility for project execution to another agency. This decision delayedthe initiation of the project. Implementation is now proceeding satisfactor-ily, but still behind schedule.

20. Ln No. 1223 Sixth Development Finance Companies Project; US$80.0 million,March 1976.

Effective date: September 1, 1976Closing Date: June 30, 1980

This loan is proceeding satisfactorily and according to schedule.

21. Ln No. 1352 Integrated Rural Development Project; US$52.0 million,December 1976.

This loan was signed on January 7, 1977 and has not yet becomeeffective.

22. Ln No. 1357 Second Agricultural Credit Project; US$64.0 million, December1976.

This loan was signed on February 4, 1977 and has not yet becomeeffective.

ANNEX IIIPage 1 of 2

COLOMBIA

FOURTH TELECOMMUNICATIONS PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Time taken to prepare project: 1 year

(b) Agency which prepared project: TELECOM

(c) First presentation to Bank: November 1975

(d) First mission to review project: June 1976

(e) Departure of appraisal mission: October 1976

(f) Completion of negotiations: May 10, 1977

(g) Planned Date of Effectiveness: September 20, 1977

Section II: Special Bank Implementation Actions

None

Section III: Special Conditions

1. During negotiations, assurances were obtained that:

(a) TELECOM would prepare by February 28, 1978 a detailed plan,agreed to by the Government and the Bank, for improvingTELECOM's collection performance (paragraph 29).

(b) TELECOM would obtain Bank concurrence before committingitself during the project period to any capital expendi-ture exceeding certain limits not required for TELECOM'sprogram defined in its 1976-82 plan (paragraph 41).

ANNEX IIIPage 2 of 2

(c) Bank approval would be obtained before TELECOM incurslong-term debt unless its maximum debt service in anyfuture year is covered 1.5 times by the net revenues ofthe preceding fiscal year or of a later 12-month periodprior to the incurrence of the debt (paragraph 41).

(d) TELECOM would inform the Bank promptly upon the incurrenceof short-term debt in excess of US$500,000 equivalent(paragraph 41).

(e) TELECOM would maintain adequate tariff levels to enablethe maintenance of at least a 16% rate of return calculatedon the peso equivalent of the US dollar value of net plantin service for the years 1977-80 and will maintain there-after a rate of return of at least 11% (paragraph 40).

(f) TELECOM would complete the acquisition of about 26 localentities included under the project by December 31, 1980, andwould consult with the Bank prior to finalizing the acquisitionof the entities (paragraph 37).

(g) TELECOM would enter into agreements, with major arrangementssatisfactory to the Bank, for the acquisition of majorityinterest in about six local telephone companies (paragraph 37).

2. TELECOM has agreed that disbursements for expenditures on telephonelines for exchanges operated by independent local telephone entitieswould be made only after contracts had been entered into by TELECOMfor the purchase of full or controlling equity interest of thoseenterprises (paragraph 43).

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N A R I N A OF DECEMBRN197

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E C O7UOU6RRES { oop oC A Q U E T A UNDER FOURTH PROJECT ASSOCIATION

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y- INTERNATIONAL BOUNDAIIES N