DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK

REGIONAL

PLAN OF OPERATIONS

COLOMBIA-PANAMA ELECTRIC INTERCONNECTION

(RS-T1241)

This document was prepared by the project team consisting of: Néstor Roa, Project Team
Leader; Diego Belmonte, Marcelino Madrigal; Carlos Trujillo; Francisco Demichellis;
Caterina Vecco, and Yolanda Galaz (RE2/F12); Alejandro Melandri and José Ramón
Gómez (RE3/F13); Jairo Salgado and Alejandro Fros (COF/CCO); Marcelo Valenzuela
(COF/CPN); and Maristella Aldana (LEG/OPR).
 CONTENTS

EXECUTIVE SUMMARY

I. FRAME OF REFERENCE AND RATIONALE ......................................................................... 1

A. Background ............................................................................................................ 1
B. Colombia’s and Panama’s sector strategy ............................................................ 1
C. The Region’s sector strategy ................................................................................. 2
D. The Bank’s strategy and use of the FIRII Fund.................................................... 2
E. Participation of other agencies and lessons learned ............................................. 3
F. Project strategy....................................................................................................... 3

II. THE PROJECT .................................................................................................................... 4

A. Objectives and description..................................................................................... 4

1. Basic engineering and predesigns ................................................................. 4
2. Environmental and social studies .................................................................. 5
3. Analysis for regulatory harmonization.......................................................... 6
B. Cost and financing ................................................................................................. 6

III. PROJECT EXECUTION ........................................................................................................ 7

A. Beneficiaries and executing agency ...................................................................... 7

B. Project management and execution mechanism................................................... 8
C. Procurement............................................................................................................ 9
D. Monitoring and evaluation..................................................................................... 9

IV. VIABILITY AND RISKS....................................................................................................... 9

A. Institutional, socioeconomic, financial, and environmental and social viability 9

B. Benefits and risks ................................................................................................. 10
 - ii -

ANNEXES

Annex I Logical Framework

Annex II Itemized Budget
Annex III Procurement Plan

APPENDIX

Proposed resolution

BASIC SOCIOECONOMIC DATA

For basic socioeconomic data, including public debt information, please refer to the
following address:

http://www.iadb.org/RES/index.cfm?fuseaction=externallinks.countrydata
 - iii -

INFORMATION AVAILABLE IN THE RE2/FI2 TECHNICAL FILES

PREPARATION:

Declaration of Cancun, 13 December 2005

Mesoamerican Energy Integration Program (PIEM), Mexican government proposal
presented in Cancun on 13 December 2005
Declaration of La Romana, 2-3 June 2006
Declaration of Panama, 11 July 2006
Funding request to the IDB: Basic studies for development of the Colombia-Panama
Electric Interconnection. Fund for the Financing of Technical Cooperation for Initiatives for
Regional Infrastructure Integration. Interconexión Eléctrica S.A E.S.P. (ISA) and Empresa
de Transmisión Eléctrica S.A. (ETESA), June 2006
Electrical Analysis of the Colombia-Panama Electric Interconnection. ISA and ETESA,
June 2006
Colombia-Panama Electric Interconnection. Route for project development, May 2006
Environmental diagnostic of alternatives. Colombia-Panama Electric Interconnection. ISA
and ETESA. Consultoría Colombiana S.A., 2003
Environmental restrictions and possibilities analysis, Colombia-Panama Electric
Interconnection, Colombian segment. Final report, 2 February 2003
Resolutions of Community Commission. Meeting 11 of 6-7 February 2006
Feasibility analysis of the technical cooperation project to support development of the
Colombia-Panama Electric Interconnection Project (RS-T1241), prepared by the IDB
project team, October 2006
(http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=827768)

EXECUTION:

TOR: Basic engineering studies and predesigns

TOR: Environmental and social studies
TOR: Analysis for regulatory harmonization
TOR: Individual consultant, economic and financial evaluation studies
TOR: Panel of experts on environmental and social issues
 - iv -

ABBREVIATIONS

ASEP National Public Services Authority of Panama

CABEI Central American Bank for Economic Integration
CAN Andean Community of Nations
CCHAC Central American Committee for Cooperation on Hydrocarbons
CEAC Central American Electrification Council
CREG Energy and Gas Regulatory Commission of Colombia
ECLAC Economic Commission for Latin America and the Caribbean
ETESA Empresa de Transmisión Eléctrica S.A.
FIRII Fund for the Financing of Technical Cooperation for Initiatives for
Regional Infrastructure Integration
HVAC High voltage alternating current
HVDC High voltage direct current
ISA Interconexión Eléctrica S.A.
PIEM Mesoamerican Energy Integration Program
PPP Puebla-Panama Plan
SICA Central American Integration System
SIEPAC Central American Electric Interconnection System
TOR Terms of reference
 Page 1 of 2

COLOMBIA-PANAMA ELECTRIC INTERCONNECTION

(RS-T1241)
EXECUTIVE SUMMARY

Beneficiary: Interconexión Eléctrica S.A. E.S.P. (ISA), Empresa de Transmisión

Eléctrica S.A. (ETESA), the Energy and Gas Regulatory
Commission of Colombia (CREG) and the National Public
Services Authority of Panama (ASEP). The final beneficiaries will
be Panama, Colombia, and the Central American and Andean
Community nations.

Executing agency: Components 1 and 2 will be executed by ISA and ETESA in their
capacity as coexecuting agencies. Component 3 will be executed by
ASEP.

Financing: IDB: (FIRII) US$1,500,000

Local contribution: US$1,305,000
Total US$2,805,000

Objectives: To contribute to the integration of the electricity markets of the

Andean region and Central America by conducting studies for the
interconnection of Colombia and Panama.

Timeframe: Execution period: 24 months

Disbursement period: 30 months
As a condition precedent to the first disbursement (components
Special
1 and 2), ISA and ETESA will: (i) enter into an agreement on
contractual
specific responsibilities (see paragraph 3.2); (ii) create a binational
conditions:
customer information window (see paragraph 3.2); and
(iii) establish a steering committee of representatives of ISA and
ETESA (see paragraph 3.3). As an additional condition precedent
to the first disbursement (component 3), CREG and ASEP will:
(i) enter into an agreement on specific responsibilities (see
paragraph 3.2); and (ii) establish a steering committee of
representatives from ASEP and CREG (see paragraphs 3.2 and
3.3).

The contract will also state that the ISA-ETESA steering

committee, subject to the Bank’s no-objection and based on the
outcomes of stage 1 of the economic evaluation study, will decide
whether and when to proceed both with the stage 2 basic
engineering and predesign study, and commissioning of the
Page 2 of 1 Executive Summary

environmental and social impact assessments (see paragraph 2.4).

None.
Exceptions to
Bank policy:

Procurement: Conducted in accordance with the applicable Bank policies.

Environmental The operation was reviewed at meetings 16-06 and 31-06 of the
and social review: Committee on Environment and Social Impact on 21 April 2006
and 28 July 2006, respectively. The resulting recommendations
have been incorporated into this plan of operations.

Benefits: Opportunities will be created for the exchange of energy, so as to

optimize energy resources in the two countries and in the Central
American region.

Coordination with Within the framework of the Mesoamerican Energy Integration

other agencies: Program (PIEM), the IDB has maintained a close relationship with
several different agencies in the region’s energy and finance
sectors, such as ECLAC, CABEI, CCHAC, and CEAC.
 I. FRAME OF REFERENCE AND RATIONALE

A. Background

1.1 Interconexión Eléctrica S.A. (ISA) of Colombia and Empresa de Transmisión

Eléctrica S.A. (ETESA) of Panama have been conducting studies since 2001 for the
Colombia-Panama electric interconnection. The project is also part of the priority
activities identified by the Heads of State and Government of the Central American
countries, and of Colombia, the Dominican Republic, and Mexico to ensure the
supply of energy at competitive prices for the region. Based on these studies, a
route1 approximately 614 km2 long has been proposed for the electric
interconnection. The interconnection represents a significant technical challenge,
given the special features of the region, the distance between connection points, and
the condition of the systems. Because of this, high voltage electric power
transmission technologies using both alternating current (HVAC) and direct current
(HVDC) were explored. Bearing in mind the technical advantages and the benefits
associated with cost, routes and environmental management, HVDC technology
was recommended for the project. However, ISA and ETESA have decided to
continue working stage-by-stage as indicated in the studies, confirm the technology
option, complete the predesign and ensure the technology transfer required to make
the most of HVDC. The countries have requested Bank support for these activities.3

B. Colombia’s and Panama’s sector strategy

1.2 Panama’s electricity market. The sector’s service delivery activities and its
regulation and coordination are conducted within a legal and institutional
framework that seeks to meet demand, provide community access to services, and
establish incentives that encourage economic efficiency in service delivery and
energy consumption. In terms of incentives, competition and private sector
participation is encouraged. Empresa de Transmisión Eléctrica S.A. (ETESA) was
established in 1997 as a state-owned company exclusively responsible for planning
the expansion of the transmission network, the construction of new extensions and
reinforcements, and the operation and maintenance of the national interconnected
system. International trade in electricity is subject to Law 6 of 1997 and the rules
set by the regulatory agency.

1.3 Colombia’s electricity market. The Colombian model for the electric power
sector allows for the participation of both the private and public sector in service

1
For details of the route, see the map at: http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=814310.
2
Of this length, 340 km will run through Colombian territory, and the remaining 274 km will run through
Panamanian territory. It is estimated that nearly 55 km (15 km in Colombia and 40 km in Panama) of this
transmission line will run underwater.
3
Panama’s Ministry of Finance gave its no-objection to processing of the technical cooperation operation on
16 May 2006. Colombia’s Ministry of Finance and Public Credit did the same on 7 September 2006.
 -2-

delivery. The Energy and Gas Regulatory Commission of Colombia (CREG) is

responsible for regulating the sector, including international interconnections.
Interconexión Eléctrica S.A. was established in 1967 as a state-owned enterprise
responsible for the generation and transmission of electric power. In 1995, ISA was
split to form two companies, Interconexión Eléctrica S.A. (ISA) and ISAGEN S.A.
E.S.P. ISA was assigned, by way of basic functions, the operation and maintenance
of the transmission network it owned, the expansion of the interconnection network,
as well as the planning and coordination of the system’s operations. Currently, ISA
is a mixed company inasmuch as, to date, a majority of its shares, 59%, are held by
the State, and 28% are owned by the private sector.

C. The Region’s sector strategy

1.4 The region’s sector strategy focuses on promoting integration as a catalyst for
boosting competition and efficiency and thereby stimulating sustainable economic
growth in the region. To achieve this, policies and projects that guarantee
Mesoamerican electric power security are promoted through a diversified, secure,
reliable and environmentally-friendly power supply. In this regard, the
Mesoamerican Energy Integration Program (PIEM), agreed to by the countries in
Cancun in December 2005, ratified in La Romana (Dominican Republic) on
6 June 2006, stressed the importance of “completing pending studies on the
Colombia-Panama interconnection.” In their turn, the countries of the Andean
Region have been making significant progress with regard to integration, promoting
plans that permit the free marketing, export, import and transportation of electricity
among and within the countries of the area. The scope and objectives proposed
have been represented in the CAN decision 536 , adopted in December 2002 by the
Andean Community, which defines the “General framework for the subregional
interconnection of power systems and the intracommunity exchange of electricity.”

D. The Bank’s strategy and use of the FIRII Fund

1.5 The project is consistent with Bank policies for the sector in supporting actions that
form part of the PIEM “Actions Matrix for Central American Energy Integration
and Development.” The PIEM contributes towards the harmonization of regulatory
frameworks and the improvement of regional infrastructure, which forms part of the
strategic guidelines that will lead to the establishment of a harmonized economic
area, as indicated in the regional programming document for Central America
(document GN-2126-2). The project is consistent with the Bank’s country strategy
with Colombia (document GN-2267-1 of 10 September 2003 and its country
strategy update (document GN-2257-10 of 19 May 2005) in promoting
competitiveness, making the economy more dynamic by developing the
infrastructure, broadening markets and strengthening the services offered in the
Panamanian and Central American markets. The operation is also consistent with
the Bank’s country strategy with Panama (document GN-2385-1 of 13 October
2005), which seeks to achieve sustainable economic growth to promote
 -3-

diversification and the formalization of the economy, by creating conditions that

integrate the different sectors and improve competitiveness. In light of the above,
because it is a priority project for the countries and, moreover, is transnational in
nature, and by virtue of the fact that it is a part of the Puebla-Panama Plan’s
Mesoamerican Energy Initiative, the proposed project fulfils the eligibility
conditions of the “Fund for the Financing of Technical Cooperation for Initiatives
for Regional Infrastructure Integration” (FIRII).

E. Participation of other agencies and lessons learned

1.6 Various organizations support the governments of the region that are part of the
PIEM through the Interagency Group comprising the IDB, the Economic
Commission for Latin America and the Caribbean (ECLAC), the General
Secretariat of the Central American Integration System (GS-SICA), the Permanent
Secretariat of the General Treaty on Central American Economic Integration
(SIECA), and the Central American Bank for Economic Integration (CABEI).
Through these cooperation projects, progress has been made and experience
gained in defining the conditions for integration and in making proposals
regarding the transnational electric power systems. The following lessons learned
in relation to regional projects of this kind were taken into account during the
project preparation. The commitment of the most senior country authorities is
very important, and has been secured at the binational and regional levels. Also
important is to simultaneously settle the issues that will shape the regulatory
framework for use of the binational physical infrastructure, so that that it can enter
operation as soon as works are completed. In addition, studies must be performed
in the different preinvestment phases of technically complex environmental or
commercial projects, in order to determine whether they are still economically
and financially viable. Lastly, Central American Electric Interconnection System
(SIEPAC) project experience has shown the usefulness and benefits of having the
management of regional operations come under the responsibility of a single
country office, in constant coordination with the other country offices involved
and with Headquarters.

F. Project strategy

1.7 The aim of the proposed project is to complete the necessary studies to ensure that
the Colombia-Panama electric interconnection project is fully viable and can be
taken to the execution stage. Various aspects of this project are complex in nature.
In addition, the project is binational with great scope for deepening regional
integration, but it also entails challenges commensurate with these expectations. In
order to deal with this complexity, it is recommended that studies be performed in a
coordinated manner, seeking timely feedback and applying crosschecking
techniques to ensure the necessary quality and scope of the analyses. In addition,
flexible coordination mechanisms should be instituted for use among the various
participating entities in both countries and in the Bank.
 -4-

II. THE PROJECT

A. Objectives and description

2.1 The general objective of the proposed technical assistance is to contribute to the
integration of the electricity markets of the Andean region and Central America
through the interconnection of Colombia and Panama. The specific objective is to
finance the technical, environmental, economic, financial and regulatory studies
necessary to implement the Colombia-Panama electric interconnection project. To
achieve the proposed objective, the operation has been divided into three
components:

1. Basic engineering and predesigns

2.2 This component will finance the services of a consultant for the performance of a
study to develop the predesigns for the Colombia-Panama electric interconnection
project. This study will be based on the environmental and electricity studies that
have already been completed. The study will be divided into three phases: The first
phase involves reviewing, analyzing, and supplementing the system’s electricity
planning studies (performed by ISA and ETESA) and will include confirmation of
the alternative technology (HVDC) selected by the companies. The second phase
involves the following activities: (i) conducting detailed electricity studies, to be
used as the basis for the project and equipment specification; (ii) drafting the bidding
document for the Colombia-Panama electric interconnection project, in which the
technology confirmed in phase 1 will be considered so that the general nature of the
project can be defined; and (iii) drawing up the estimated budget for the project. The
third phase involves developing a predesign (design for bidding and contracting) of
the electricity generating plants in Panama II and Cerromatoso that form part of the
existing electricity systems in both countries and the transmission line. As part of
this component, the services of an independent individual consultant will be
contracted to confirm the economic and financial viability of the project. This
economic and financial4 evaluation is divided into two stages. The first seeks to
review the evaluations completed by ISA and ETESA and obtain recommendations
to be incorporated into the engineering, environmental, social and regulatory
harmonization studies, with a view to ensuring the viability of the project. During
the second stage the results of these studies will be incorporated into the evaluation,
and their impact on the anticipated benefits and costs, and the economic and
financial return of the project will be verified.

4
This study will determine the economic and financial return for each country and the project as a whole.
 -5-

2. Environmental and social impact assessment

2.3 This component will finance consulting services for performing an environmental
and social impact assessment (ESIA) that will include an environmental and social
management plan, a resettlement plan and an impact management plan for the
indigenous communities and other ethnic communities in the project area, related
crossborder issues, as well as direct, indirect and cumulative impacts. The criteria
used for the terms of reference are consistent with Colombian and Panamanian
norms, to the Bank’s new Environment and Safeguards Compliance Policy
(OP-703) and to the Operational Policy on Indigenous Peoples (OP-765), Disclosure
of Information Policy (OP-102) and Policy on Involuntary Resettlement (OP-710).

2.4 In particular, the consultants/firms contracted will carry out the following activities:
(i) evaluate the supply of environmental resources and their vulnerability, taking
environmental to mean the integration of the physical, biotic and social elements that
will be affected by the project; (ii) identify and define the critical, sensitive, or
environmentally and socially important ecosystems that must be treated, excluded or
managed in a special way during the development of the project; (iii) identify,
measure and evaluate qualitatively and quantitatively the impact the project will
have on marine and terrestrial ecosystems; (iv) indicate any information gaps that
undermine the reliability of the estimation, measurement or assessment of the
project’s environmental and social impact; (v) design preventive, corrective,
compensatory and mitigating measures to guarantee optimal environmental
management of the project; (vi) consult governmental and private sector plans that
have been drawn up at the national, regional and local level for the areas affected by
the project so as to evaluate their compatibility; (vii) include necessary information
on any natural (marine or terrestrial) resources that will be used, exploited or
affected during the design, construction or operation of the transmission line and
substations involved in the project; (viii) design environmental monitoring and
inspection systems that permit the evaluation of the performance, efficiency and
effectiveness of the environmental and social management plan drawn up for the
construction and operations stages; (ix) draw up a Risk and Contingency
Management Plan on the basis of the identification and evaluation of the natural,
technological and social risks associated with the construction and operation of the
project; (x) evaluate and compare the project’s anticipated environmental impact in
light of the qualitative standards set forth in the national environmental regulations
in force and their compatibility with the international treaties and agreements on the
environment that have been ratified by each country; (xi) develop an impact
management plan in the indigenous regions and areas of interest; (xii) develop a
resettlement plan geared towards managing the labor force and the people who could
be affected by or benefit from the project, which should expressly contemplate the
application of the Bank’s policy on the resettlement and indigenous peoples; and
(xiii) analyze the environmental and social management capabilities of the executing
firms of the project and the application of the lessons learned from similar processes.
This study will be commissioned once stage 1 of the economic and financial
 -6-

evaluation described in component 1 has been concluded. In addition, the resources

of this component will be used to finance the contracting of individual consultants
for an Advisory Panel of Experts to advise ISA and ETESA during the formulation
and development stages of the social and environmental impact study on matters
pertaining to the management of the environmental and social impact evaluation
process.

3. Analysis for regulatory harmonization

2.5 This component will finance the hiring of consulting services to perform of a study
to identify the manner in which the binational harmonization of the applicable
electricity regulations can be achieved in order to facilitate energy exchanges. The
purpose of this study is, among other activities, to: (i) compare the regulatory and
legal framework for electric energy in Colombia and Panama with regard to
international electric power exchanges and taking into account the progress that has
been made in within the Andean Community and Central America; (ii) propose
alternatives for regulatory harmonization, including specific actions to be taken to
implement each one of these alternatives; (iii) indicate, for each alternative, the
corresponding adjustments to be made to the regulatory frameworks of the
Colombian and Panamanian electric power sectors, as well as the pertinent
institutional, legal, commercial and operational adjustments; (iv) in light of the
integration of the different markets of the Andean Community and of Central
America’s MER (regional electricity market), evaluate the economic impact of each
harmonization alternative, especially the impact that the rates will have on the final
user, the impact on market prices in Colombia and Panama, and the economic
impact on the different operators in the markets; (v) make specific recommendations
on the ownership of the line, the development of the project, and the corresponding
remuneration schemes for the interconnection line, as well as the possible effects of
the recommended scheme on the regulatory harmonization actions proposed;
(vi) identify, at the very least, the regulatory adjustments that need to be made to the
electricity market, for transmission, and to permit the import and export of electricity
in both countries; (vii) determine the manner in which energy transactions between
both markets (regional transactions) will be considered in the setting of prices in
both countries; (viii) in the case of transmission, recommend the best scheme for
managing congestion and for establishing transmission prices for the interconnection
project; (ix) propose regulatory adjustments as that may be required in national
markets to allow export and import access; (x) define the legal framework that will
apply in the case of dispute settlement; and (xi) define the tasks that need to be
carried out regarding the coordination of operations and security, protocols and
coordination arrangements in general.

B. Cost and financing

2.6 The total cost of the Bank’s contribution will be US$1.5 million, drawn from FIRII
resources, and the counterpart contribution will be US$1.3 million. The counterpart
 -7-

contribution will cover costs related to: (i) cash contributions for the payment of
consultants; (ii) logistical support for consultants’ visits; (iii) office and team
support; and (iv) the generation of additional information and statistics for the study.

Table II-1. Cost and financing

(in thousands of U.S. dollars)

Local contribution ISA/ETESA

Category IDB Total
In kind In cash Subtotal
1. Basic engineering and predesigns 510 682 - 682 1,192
1.1 Basic engineering and predesign 480 682 - 682 1,162
study
1.2 Economic studies 30 - - - 30
2. Environmental and social studies 726 170 390 560 1,286
2.1 ESIA 590 170 390 560 1,150
2.2 Panel of experts 136 - - - 136
3. Audit 5 5
Subtotal* 1,241 852 390 1,242 2,483
Local contribution CREG/ASEP
4. Analysis for regulatory harmonization 254 63 - 63 317
5. Audit 5 - - - 5
Subtotal** 259 63 - 63 322
Total 1,500 915 390 1,305 2,805
53% 32% 15% 47% 100%
*
For accounting purposes, 50% of the resources will be assigned to ISA and the other 50% to the
ETESA.
**
For accounting purposes, 50% of the resources will be assigned to ASEP and the other 50% to
CREG.

III. PROJECT EXECUTION

A. Beneficiaries and executing agency

3.1 ISA and ETSA will be the beneficiaries of components 1 and 2 and will act as
coexecuting agencies. ASEP and CREG will be the beneficiaries of component 3.
This component will be executed by ASEP. The Bank will sign two Technical
Cooperation agreements, one with ISA and ETESA and the other with CREG and
ASEP.

3.2 As a condition precedent to the Bank’s disbursement of the resources from the
contribution to ISA and ETESA, these companies must first have signed an
agreement between each other based on the technical cooperation agreement that
they signed with the Bank. Also, as a condition precedent to the Bank’s
 -8-

disbursement of the resources from the contribution to ASEP and CREG, these two
entities must first have signed an agreement between each other based on the
technical cooperation agreement that they signed with the Bank. The following will
be defined in each of these agreements: the responsibilities of the parties regarding
the preparation and approval of the final terms of reference of the studies under
their responsibility; the mechanisms for advancing the procurement process in
compliance with the Bank’s policies; the monitoring and management of the
agreements that will be signed; the arrangements for the review and approval of the
consultants’ reports; the status report on the revolving fund in each case; by way of
instructions for the consultants, the internal procedures for giving the Bank
payment instructions, for requesting disbursements from the revolving fund, and
requesting no-objections from the Bank; the commitment to grant access to the
auditors of the Project; the regulations on the functioning of the steering
committees, and the manner in which each party will contribute the resources for
the local contribution. In the secondary agreement that must be signed between ISA
and ETESA, a commitment to create a one-stop binational customer information
window must also be included. The creation of this window is a precondition for
the first disbursement of the resources of the Bank’s contribution to ISA and
ETESA. The window will be responsible for making available to the public the
results of the studies and/or addressing any queries that might arise during any of
the phases of the project cycle.

B. Project management and execution mechanism

3.3 For the execution of components 1 and 2, a steering committee will be established,
comprising delegates of ISA and ETES that have the authority to decide upon the
actions to be taken in the development of the studies. This committee will meet
periodically in order to monitor the technical aspects of the consulting contracts and
to analyze the advantages and timeliness of moving ahead with both the second
phase contemplated in the basic engineering and predesign study and the
contracting of the ESIA, based on the results of phase I of the economic and
financial evaluation study. These decisions must receive the Banks written no-
objection before they are implemented. The establishment of this committee is a
precondition the first disbursement of the resources of the Bank’s contribution to
ISA and ETESA. This committee will also be responsible for receiving and
disseminating the advice of the Advisory Panel of Environmental Experts.

3.4 For the execution of component 3, under the responsibility of ASEP, a steering
committee will be established, comprising delegates of ASEP and CREG that have
the authority to decide upon the actions to be taken in the development of the
studies. Its primary function will be to monitor and discuss the results of the
regulatory harmonization study that has been commissioned. This Committee will
hold alternate meetings in Colombia and in Panama, and on at least two occasions
during the execution of the study. The establishment of this committee is a
 -9-

precondition for the first disbursement of the resources of the Bank’s contribution
to ASEP and CREG.

3.5 The execution period will be 24 months, and the disbursement period will be
30 months. A revolving fund of up to US$60,000 equivalent will be established for
disbursement of the component 1 and 2 resources. A revolving fund of up to
US$15,000 equivalent will be established for disbursement of the component
3 resources.

C. Procurement

3.6 Goods and consulting services will be procured in accordance with the applicable
Bank’s policies (documents GN-2349-7 and GN-2350-7). Annex III contains the
procurement plan for the project. All procurements for the project will be subject to
prior supervision. The contract for the basic engineering and predesign study will
include clauses that allow advance termination, without the firms being subject to
penalties in the event that ISA or ETESA should decide not to proceed with any of
the phases indicated, and will clearly establish how payment should be made for
each phase in the event that all three phases are not completed. During the three
phases there will be an ongoing transfer of technology for ISA and ETESA.

D. Monitoring and evaluation

3.7 The Bank’s Country Office in Panama, in coordination with the Country Office in
Colombia, and the Finance and Basic Infrastructure Divisions of IDB Regional
Operations Departments 2 and 3 (F12, F13), will be responsible for monitoring the
operation. No-objections will be issued in consultation with F12 and F13.

IV. VIABILITY AND RISKS5

A. Institutional, socioeconomic, financial, and environmental and social viability

4.1 The preliminary studies prepared by ISA and ETESA demonstrate the viability of
the interconnection project. With regard to the technical aspects, viable options
have been identified in the electricity studies completed, and with regard to the
economic and financial aspects, the analyses carried out show that there is a high
probability that the project will be a viable one. This viability will be confirmed by
the studies that are to be financed under this project.

4.2 The project team reviewed the scope of the environmental diagnostic of alternatives
(DAA) and the status of the environmental licensing processes in the two countries.

5
A more detailed description of the viability analysis prepared by the team is available for consultation in the
F12 technical files.
 - 10 -

This analysis was used to define the scope of the environmental component and of
the terms of reference. The DAA review revealed that a complete and thorough
analysis had been done. One of the major considerations was the change in the
route originally selected so as to avoid passing through the zone known as
“el Tapón de Darien.”

B. Benefits and risks

4.3 In promoting the physical integration of the electric power systems of Colombia
and Panama, opportunities will be created for the exchange of energy so as to
optimize energy resources and create conditions in which energy costs can be
minimized, supply reliability is increased and greater support is available under
emergency conditions. The main risk of the operation stems from the possibility
that political support may waver. This risk is mitigated because of the regional
support that the project has received within the Mesoamerican context. The studies
that are to be financed include information and consulting activities that contribute
to the community having a better perception of the project. Another risk is the
possibility of the project having an impact on the indigenous and ethnic
communities in the area directly and indirectly affected by the project. The way this
risk is managed could jeopardize the project’s success. To mitigate this risk, the
ESIA include the development of an impact management plan for the indigenous
regions and areas of interest. This study must be designed in compliance with the
policies of the Bank as well as applicable national policies. Lastly, there is a risk of
not achieving sufficient coordination between the multiple stakeholders in the
project. To mitigate this risk, management responsibilities have been set out in
detail in the agreements to be entered into between the parties.
 Annex I
Page 1 of 3

COLOMBIA-PANAMA ELECTRIC INTERCONNECTION

(RS-T1241)

LOGICAL FRAMEWORK

Descriptive Summary Performance Indicators Means of Verification Assumptions

Goal
The Electricity Markets of the Andean 1. Five years after approval of the 1. Energy transaction statistics
region and Central America are integrated operation, energy exchanges are published by Centro Nacional de
through the Colombia-Panama being made via the Colombia- Despacho de Colombia and Empresa
interconnection. Panama electric interconnection, de Transmisión Eléctrica S.A
which is operating under viable (ETESA) of Panama.
environmental, social, economic and
regulatory conditions.
Purpose
Technical, environmental, economic and 1. Two years after approval of the 1. Bidding documents that are drawn 1. There is ongoing political support
regulatory studies necessary to implement operation, the progress made in the up based on the technical study and for the project in both countries
the Colombia-Panama electric project studies permits the works the recommendations of the during the post-execution phases of
interconnection project are performed. execution stage of the economic evaluation, the the project.
interconnection project to be environmental and social studies and 2. Social impacts on indigenous
initiated under wholly viable the regulatory studies. communities in the project area are
conditions. 2. Economic and financial reports from mitigated, anticipated, or
2. One year after approval of the the evaluation consultant. compensated.
operation, the economic and 3. Project financing in both countries is
financial studies have confirmed the guaranteed.
viability of the project, and the
necessary actions are defined for
ensuring that the environmental and
social, the regulatory, and the
predesign studies take into account
the recommendations made in this
evaluation.
Annex I
Page 2 of 3

Descriptive Summary Performance Indicators Means of Verification Assumptions

Components
1. Basic Engineering and Predesign 1. Eighteen months after approval of 1. Progress reports and final report on 1. The management of the studies is
Studies and economic studies the operation, predesign studies have the basic engineering and predesign effectively coordinated between the
completed. been completed and feedback on the studies. two countries.
economic studies has been 2. Report on the economic and
considered. financial evaluation study.
2. By the very latest, eight months after
approval of the operation, the
performance of basic engineering
and predesign studies has been
initiated.
3. Upon conclusion of the first phase
of the basic engineering and
predesign studies, the preliminary
economic and financial evaluation
of the project has been concluded.
This preliminary evaluation will
identify the critical variables to be
taken into account during
subsequent phases of the basic
engineering and predesign studies,
the environmental and social studies,
and the regulatory harmonization
studies.
2. Environmental and social studies 1. Twenty months after approval of the 1. Progress report and final EIA report 1. The management of the studies is
completed. operation, the environmental and 2. Reports from the panel of effectively coordinated between the
social studies for the project have environmental and social experts. two countries, and a single
been completed, with the active communication mechanism is
participation of the panel of established for the project.
environmental and social experts,
both in the definition phase of the
final Terms of Reference (ToR) of
the Social and Environmental
Impact Studies (SEIS), as well as
during the execution phase.
 Annex I
Page 3 of 3

Descriptive Summary Performance Indicators Means of Verification Assumptions

2. By the very latest, eight months after
approval of the operation, the
performance of the SEIS has begun.
3. By the very latest, three months after
approval of the operation, the
experts that will comprise the
environmental and social panel have
been contracted.
3. Regulatory harmonization studies 1. Fifteen months after the approval of 1. Progress report and final report on 1. The management of the studies is
completed. operation, the regulatory regulatory harmonization studies. effectively coordinated between the
harmonization studies have been 2. Report on the economic and regulatory authorities of the two
completed and offer financial evaluation study. countries.
recommendations for maintaining
the economic viability of the project.
2. By the very latest, eight months after
approval of the operation, the
execution of the regulatory
harmonization studies has begun.
 Annex II
Page 1 of 1

COLOMBIA-PANAMA ELECTRIC INTERCONNECTION

(RS-T1241)

ITEMIZED BUDGET
(IN US$ THOUSANDS)

Logistics and Human Resource

Agencies
Colombia Panama
Study (ISA) (ETESA) Consultants Total
Predesign
Human Resources 238.5 177.1 360.0 775.6
Logistical Costs 143.0 123.3 120.0 386.3
Predesign Subtotal 381.5 300.4 480.0 1,161.9
Economic Evaluation and - - 30.0 30.0
Environmental Impact
Human Resources 79.7 52.4 628.0 760.1
Logistical Costs 27.9 10.2 352.0 390.1
EIS Subtotal 107.6 62.6 980.0 1,150.2
Panel of Environmental Experts
and - - 136.0 136.0
Regulation Study (CREG) (ASEP) Consultants TOTAL
Human Resources 19.4 20.8 217.8 258.0
Logistical Costs 11.3 11.1 36.3 58.7
Regulation Subtotal 30.7 31.9 254.1 316.7
Audit - - 10.0 10.0
Total (in US$ thousands) 519.8 394.9 1,890.1 2,804.8

Task Man-months
Basic Engineering and Predesign 62
Economic and Financial Evaluation 40
Environmental and Social Studies 146
Panel of Experts 65
Regulatory Harmonization Studies 34
 Annex III
Page 1 of 7

REGIONAL
COLOMBIA-PANAMA ELECTRIC INTERCONNECTION
(RS-T1241)

PROCUREMENT PLAN

Country: Regional.

Beneficiary: Interconexión Eléctrica S.A E.S.P. (ISA) and Empresa de Transmisión

Eléctrica S.A. (ETESA) are the beneficiaries of Components 1 and 2; and the Energy and
Gas Regulatory Commission of Colombia (CREG) and the National Public Services
Authority of Panama (ASEP) are the beneficiaries of Component 3. Panama, Colombia,
and the Central American and Andean Community countries shall be the ultimate
beneficiaries.

Executing Agency: Components 1 and 2 shall be executed by ISA and ETESA, in their
capacity as co-executors. Component 3 shall be executed by ASEP. Under the operation,
the Bank will sign two technical cooperation agreements: the first with ISA and ETESA,
and the second with CREG and ASEP.

Project Name: Colombia-Panama Electric Interconnection.

Project and Loan Contract Numbers: RS-T1241.

Brief description of the project’s objectives and components: the general objective of
the proposed technical assistance is to contribute to the integration of the electricity
markets of the Andean region and Central America, by interconnecting Colombia and
Panama. The specific objective is to finance technical, environmental, economic and
regulatory studies necessary to implement the Colombia-Panama electric interconnection
project. The operation has been divided into three components: (i) the first component
will finance the performance of a study to be used in developing the predesigns for the
Colombia-Panama electric interconnection project as well as the services of an
independent individual consultant to review the economic and financial evaluation
conducted by ISA and ETESA; (ii) the second component will finance the performance
of an environmental and social impact assessment (ESIA) and the contracting of
individual consultants for an Advisory Panel of Experts to advise the ISA and ETESA
during the formulation and development phases of the ESIA; and (iii) the third
component will finance the performance of a study to identify the manner in which the
binational harmonization of the applicable electricity regulations can be achieved in order
to facilitate energy exchanges.

Estimated date of project approval by the Board of Executive Directors:

October 2006.

Estimated date of signature of the technical cooperation agreements: November

2006.
Annex III
Page 2 of 7

Estimated date of the final disbursement: January 2009.

A. Introduction

Procurements for the proposed project will be carried out in accordance with the
Policies for the procurement of works and goods financed by the Inter-American
Development Bank (document GN-2349-7), of 2006, and the Policies for the
selection and contracting of consultants financed by the Inter-American
Development Bank (document GN-2350-7) of 2006, and with the provisions
established in the loan contract and this procurement plan.

B. Procurement plan

The procurement plan for the PPP (Puebla-Panama Plan) technical cooperation
project referred to as the “Colombia-Panama electric interconnection project”
covering the period of twenty-four (24) months of project execution has been
agreed between the Bank and the following entities: Interconexión Eléctrica S.A
E.S.P. (ISA); Empresa de Transmisión Eléctrica S.A. (ETESA); the Energy and
Gas Regulatory Commission of Colombia (CREG), and the National Public
Services Authority of Panama (ASEP). The plan, which is summarized in
Appendix 1, indicates for each contract the method of selecting consultants, cases
requiring prequalification, the estimated cost for each contract or group of
contracts, the requirement for prior or post review by the Bank and estimated
dates for the publication of specific procurement notices and the completion of
contracts included in this project. The procurement plan will be updated annually
or whenever necessary or as required by the Bank. The detailed procurement plan
is available at:

Empresa de Transmisión Eléctrica S.A. (ETESA)

Contact Person/Department: Representante de la Empresa en el Comité

Directivo para el proyecto de Interconexión Eléctrica Colombia – Panamá.
[Company Representative on the Steering Committee for the Colombia-Panama
Electric Interconnection project].

Address: Edificio Hatillo 1er piso, Torre B, entre Avenida Justo Arosemena y
Avenida Cuba, Ciudad de Panamá, Panamá.

Interconexión Eléctrica S.A E.S.P.

Contact Person/Department: Representante de la Empresa en el Comité Directivo

para el proyecto de Interconexión Eléctrica Colombia – Panamá.
[Company Representative on the Steering Committee for the Colombia-Panama
Electric Interconnection project].

Address: Calle 12 Sur 18-168, Medellín, Colombia

 Annex III
Page 3 of 7

Autoridad Nacional de Servicios Públicos (ASEP), Panama

Contact Person/Department: Administración General [General Management]

Address: Edificio Office Park 1er Piso, Vía España y Fernandez de Córdoba,
Ciudad de Panamá, Panamá.

Comisión de Regulación de Energía y Gas (CREG), Colombia

Contact Person/Department: Dirección Ejecutiva [Executive Management

Division]

Address: Carrera 7 No. 71-52, Torre B, Piso 4, Bogotá, Colombia

The procurement plan is also available on the executing agencies’ respective

websites www.isa.com.co, www.etesa.com.pa, www.creg.gov.co, and
www.ersp.gob.pa.

The following document can also be found on the Bank’s website: Information on
project procurement.

C. Project procurement

A general description of the procurements to be made for the proposed project is

provided below.

Works procurement: Not contemplated.

Goods procurement: Not contemplated.

Procurement of nonconsulting services: Not contemplated.

Procurement of consulting services: Consulting services for the project include:

(i) a study to be used in developing the predesigns for the Colombia – Panama
electric interconnection project; (ii) a review of the economic and financial
evaluation; (iii) the performance of a Social and Environmental Impact Study
(ESIA); (iv) an advisory panel of environmental and social experts; (v) a study for
the bi-national harmonization of the electricity regulation; and (vi) audits.

The consulting firms to be hired for the project will be selected using the standard
request for proposals (RFP) issued by the Bank, or an RFP satisfactory to the
Bank in cases where the standard RFP is not applicable. Individual consultants
will be selected bearing in mind the provisions established in chapter V of the
policy in document GN-2350-7.

Short lists of consultants for consulting services estimated to cost less than the
US$200,000 equivalent per contract may consist entirely of national firms.
Annex III
Page 4 of 7

Operating expenses: Not contemplated.

Others: Not contemplated.

Advance contracting and retroactive financing: Not contemplated. The

selection process for hiring consulting firms or individual consultants for the
studies has been initiated prior to contracting, in compliance with Bank
procedure.

Bank review of procurement decisions

All contracts will be subject to prior review by the Bank.

D. Domestic preference

Not contemplated.
 Annex III
Page 5 of 7

APPENDIX 1

PROCUREMENT PLAN

Country: Regional

Beneficiary: Interconexión Eléctrica S.A E.S.P. (ISA) and Empresa de Transmisión

Eléctrica S.A. (ETESA) are the beneficiaries of Components 1 and 2; and Comisión de
Regulación de Energía y Gas (CREG) of Colombia and Autoridad Nacional de Servicios
Públicos (ASEP) of Panama, are the beneficiaries of Component 3. Panama, Colombia,
and the Central American and Andean Community countries shall be the ultimate
beneficiaries.

Executing Agency: Components 1 and 2 shall be executed by ISA and ETESA, in their
capacity as co-executors. Component 3 shall be executed by ASEP. Under the operation,
the Bank will sign two technical cooperation agreements: the first with ISA and ETESA,
and the second with CREG and ASEP.

Project Name: Colombia-Panama electric interconnection project

Project and Loan Contract Numbers: RS-T1241

Brief description of the project’s objectives and components: the general objective of
the proposed technical assistance is to contribute to the integration of the electricity
markets of the Andean region and Central America, by interconnecting Colombia and
Panama. The specific objective is to finance technical, environmental, economic and
regulatory studies necessary to implement the Colombia-Panama electric interconnection
project. The operation has been divided into three components: (i) the first component
will finance the performance of a study to be used in developing the predesigns for the
Colombia-Panama electric interconnection project as well as the services of an
independent individual consultant to review the economic and financial evaluation
conducted by ISA and ETESA; (ii) the second component will finance the performance
of a Social and Environmental Impact Study (ESIA) and the contracting of individual
consultants for an Advisory Panel of Experts to advise the ISA and ETESA during the
formulation and development phases of the ESIA; and (iii) the third component will
finance the performance of a study to identify the manner in which the bi-national
harmonization of the applicable electricity regulations can be achieved in order to
facilitate energy exchanges.

Estimated date of project approval by the Board of Executive Directors:

November 2006

Estimated date of signature of the technical cooperation agreements:

November 2006

Estimated date of the final disbursement:

January 2009
 Annex III
Page 6 of 7

Source of financing and

Estimated dates
Review percentage
Description of the contract and estimated cost of Procurement Pre-qualification Status
Ref. No. (prior or Comments
the procurement Method (Yes/No)
post) Publication Completion of
IDB % Local/Other %
of notice contract

1. Consulting Services
Study to be used in developing the
Expressions
predesigns for the Colombia - Panama 1st Quarter
1. QCBS Prior 82 18 No 30/06/2006 Proc. of interest
electric interconnection project 2008 received
Estimated cost: US$480,000
Review of the economic and financial
1st Quarter
2. evaluation IC Prior 100 0 No N/A Pend.
2008
Estimated cost: US$30,000
Environmental and social impact study
3rd Quarter 1st Quarter
3. (ESIA). QCBS Prior 60 40 No Pend.
2006 2008
Estimated cost: US$980,000
Advisory Panel of environmental and social
3rd Quarter 2nd Quarter Three
4. experts IC Prior 100 0 No Pend. contracts
2006 2008
Estimated cost: US$136,000
Expressions
Regulatory harmonization study 2nd Quarter
5. QCBS Prior 100 0 No 10/08/2006 Proc. of interest
Estimated cost: US$250,000 2007 received
Audit 3rd Quarter 1st Quarter
6. QCBS Prior 100 0 No Pend.
Estimated cost: US$10,000 2008 2009

NCB: National competitive bidding; ICB: International competitive bidding; QCBS: Quality-and cost-based selection; IC: Individual consulting; DC: Direct contracting; Pend.: pending; Proc.: in process
 Annex III
Page 7 of 7

APPENDIX 2

CAPACITY OF THE EXECUTING AGENCY

AND SUPERVISION OF PROCUREMENT BY THE BANK

Assessment of the executing agency’s capacity to administer procurement

Interconexión Eléctrica S.A. (ISA), Empresa de Transmisión Eléctrica S.A. (ETESA),

and Panama’s National Public Services Authority (ASEP) will be responsible for
carrying out project procurements, and all three have the capacity to do so.

Frequency of procurement supervision

All procurement will be subject to prior reviews by the Bank.

 DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK

PROPOSED RESOLUTION DE-__/06

Regional. Nonreimbursable Technical Cooperation ATN/OC-____-RS and ATN/OC-____-RS

for the Electric Interconnection between Colombia and Panama

The Board of Executive Directors

RESOLVES:

1. To authorize the President of the Bank or such representative as he shall

designate, in the name and on behalf of the Bank, to enter into such agreement or agreements as
shall be necessary with Interconexión Eléctrica S.A. E.S.P. and the Empresa de Transmisión
Eléctrica S.A, on the one hand, and the Comisión de Regulación de Energía y Gas de Colombia
and the Autoridad Nacional de Servicios Públicos de Panamá, on the other, to develop a program
for the electric interconnection between Colombia and Panama, in accordance with the plan of
operations contained in document AT-____.

2. That up to the amount of US$1,500,000, or its equivalent in other convertible

currencies, shall be authorized for the purpose of this resolution, chargeable to the Ordinary
Capital resources of the Bank allocated to the Fund for the Financing of Technical Cooperation
for Initiatives for Regional Infrastructure Integration.

3. That the above-mentioned sum is to be provided on a nonreimbursable basis.

(Adopted on __________ 2006)

LEG/OPR/RGII/IDBDOCS#829377
RS-T1241