<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to_______________
Commission file number 1-12554
COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A. --
BOLIVIAN POWER COMPANY LIMITED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nova Scotia 13-2691133
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Av. Hernando Siles 5635
Obrajes, La Paz, Bolivia
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Bolivia) 591-2-782474
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. On August 11, 1999
were 4,202,575 outstanding shares.
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COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A
Bolivian Power Company Limited
TABLE OF CONTENTS
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Balance Sheets - June 30, 1999
(unaudited) and December 31, 1998 3
Statements of Income - Three and Six
Months Ended June 30, 1999 and
1998 (unaudited) 4
Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998 (unaudited) 5
Notes to Interim Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
----------------------------
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PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. FINANCIAL STATEMENTS
- ------- --------------------
BALANCE SHEETS
June 30, 1999 and December 31, 1998
(in U.S. Dollars)
(amounts in thousands, except share data)
(Unaudited)
---------
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------------ -----------------------
A S S E T S
-----------
<S> <C> <C>
Utility Plant
In service
Production $ 157,358 $ 110,454
Transmission 25,547 12,770
Construction work in progress 5,662 55,278
General Property 6,166 6,157
------------------ -----------------------
194,733 184,659
Less accumulated depreciation 45,664 43,278
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Net utility plant 149,069 141,381
------------------ -----------------------
Current assets
Cash and cash equivalents 1,675 4,477
Temporary investments at fair market value
(includes restricted collateral deposits
of $300 in 1999 and $1,591 in 1998) 6,345 9,236
Accounts receivable, net 7,756 8,610
Materials and supplies 1,742 1,440
Prepaid expenses 2,155 1,707
------------------ -----------------------
Total Current Assets 19,673 25,470
------------------ -----------------------
Other assets 2,875 2,745
------------------ -----------------------
$ 171,617 $ 169,596
================== =======================
SHAREHOLDERS' EQUITY AND LIABILITIES
------------------------------------
Shareholders' equity
Common shares, without par value
(13,066,803 authorized, 4,202,575
issued and outstanding) $ 55,247 $ 55,247
Additional capital 14,493 14,493
Earnings reinvested 16,423 11,721
------------------ -----------------------
Total Shareholders' Equity 86,163 81,461
------------------ -----------------------
Provision for severance indemnities 3,192 3,838
Long-term debt 64,875 68,700
------------------ -----------------------
68,067 72,538
------------------ -----------------------
Current liabilities
Accounts payable 7,052 7,393
Current portion of long term-debt 7,650 6,303
Taxes on income 1,677 1,560
Other taxes 998 331
Other 10 10
------------------ -----------------------
Total Current Liabilities 17,387 15,597
------------------ -----------------------
Contingencies and commitments - -
------------------ -----------------------
Total Shareholders' Equity and Liabilities $ 171,617 $ 169,596
================== =======================
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
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CONSOLIDATED STATEMENTS OF INCOME
Three Months and Six Months Ended June 30, 1999 and 1998
(in U.S. Dollars)
(amounts in thousands, except share and per share data)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1999 1998 1999 1998
------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Operating revenues 7,713 $ 5,740 $ 15,705 $ 11,997
Operating expenses
Operations 2,280 2,270 4,473 4,500
Maintenance 388 555 794 974
Depreciation 1,438 1,046 2,466 2,002
Taxes 277 210 550 428
------------------ ------------------ ----------------- ------------------
Total operating expenses 4,383 4,081 8,283 7,904
------------------ ------------------ ----------------- ------------------
Operating income 3,330 1,659 7,422 4,093
------------------ ------------------ ----------------- ------------------
Other income
Interest capitalized 873 1,079 2,234 2,340
Other, principally
interest income 220 468 270 853
------------------ ------------------ ----------------- ------------------
Total other income 1,093 1,547 2,504 3,193
------------------ ------------------ ----------------- ------------------
Income before interest
and tax 4,423 3,206 9,926 7,286
Interest charges 1,705 1,894 3,443 3,796
------------------ ------------------ ----------------- ------------------
Income before taxes 2,718 1,312 6,483 3,490
Tax provision 720 292 1,781 832
------------------ ------------------ ----------------- ------------------
Net income $ 1,998 $ 1,020 $ 4,702 $ 2,658
Average common shares
outstanding 4,202,575 4,202,575 4,202,575 4,202,575
================== ================== ================= ==================
Earnings per common share $ .48 $ .24 $ 1.12 $ .63
================== ================== ================= ==================
Dividends per common share - - - -
================== ================== ================= ==================
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1999 and 1998
(in U.S. Dollars)
(amounts in thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 1998
------------------------------------------
<S> <C> <C>
Cash flows from (used in) operating activities
Net income $ 4,702 $ 2,658
Adjustment to reconcile net income to
cash provided by (used in) operating
activities
Depreciation 2,466 2,002
Provision for indemnities 149 243
Interest capitalized (2,234) (2,340)
Other - Net (130) (374)
Decrease (Increase) in accounts receivable 854 (942)
(Increase) Decrease in materials and supplies (302) 1,082
(Increase) in prepaid expenses (448) (222)
(Decrease) Increase in accounts payable (341) 1,234
Increase (Decrease) in taxes payable 784 (1,976)
(Decrease) in other liabilities - (17)
Indemnities paid (795) (262)
--------------- ---------------
Net cash provided by operating activities 4,705 1,086
--------------- ---------------
Cash flows from (used in) investing activities
Utility plant additions (7,898) (14,196)
Net Decrease in temporary investments 2,892 49,522
Other - net (23) 176
--------------- ---------------
Net cash (used in) provided by investing activities (5,029) 35,502
--------------- ---------------
Cash flows from (used in) financing activities
Payment of long term debt (2,478) (1,323)
Payment of dividends - (34,965)
--------------- ---------------
Net cash (used in) financing activities (2,478) (36,288)
--------------- ---------------
Net (Decrease) Increase in cash and cash equivalents (2,802) 300
Cash and cash equivalents at beginning of period 4,477 1,453
=============== ===============
Cash and cash equivalents at end of period $ 1,675 $ 1,753
=============== ===============
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized) $ 1,219 $ 1,456
Income tax $ 1,533 $ 2,223
</TABLE>
See accompanying notes to interim consolidated financial statements
5
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COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A.
BOLIVIAN POWER COMPANY LIMITED
NOTES TO INTERIM FINANCIAL STATEMENTS
(in U.S. Dollars)
(Amounts in thousands, except share and per share data)
(Unaudited)
1) The unaudited Interim Financial Statements, which reflect all adjustments
(consisting only of normal recurring items) that management believes
necessary to present fairly results of interim operations, should be read
in conjunction with the Notes to Financial Statements (including the
summary of significant accounting policies) included in the Company's
audited Financial Statements for the year ended December 31, 1998, which
are included in the Company's Form 10-K for such year (the "1998 10-K").
Results of operations for interim periods are not necessarily indicative of
annual results of operations. The Balance Sheet at December 31, 1998 was
extracted from the audited annual financial statements in the 1998 10-K and
does not include all disclosures required by generally accepted accounting
principles for annual financial statements.
2) On August 10, 1998 a challenge to the Company's concession was filed under
administrative process by Eduardo Belmonte, a private citizen of Bolivia,
before the Superintendency of Electricity. The Company's concession is
being challenged for alleged non-compliance with the terms of the
concession, primarily in relation to timing for submission of a reasonable
execution plan for the Miguillas Expansion to the Superintendency of
Electricity - see Managements' Discussion and Analysis of Financial
Condition and Results of Operations, Expansion and Modernization Projects -
and the timing of the conversion process of the Company's concession into a
license, as required by the Bolivian Electricity Law. The challenge is
seeking the termination of the Company's concession.
The Company believes that this action is without merit as the Company has
fulfilled its obligations with respect to the submission of an execution
plan for the Miguillas Expansion to the Superintendency of Electricity and
has taken appropriate actions on a timely basis to convert the Company's
concession into a license.
On November 13, 1998 the Superintendency of Electricity ruled that this
action was unfounded. Upon appeal, the Superintendency of Electricity again
confirmed its original decision on December 21, 1998. The claimant
thereafter appealed to the General Superintendency. On March 1, 1999, this
Superintendency confirmed the previous rulings of the Superintendency of
Electricity.
On April 5, 1999, the claimant appealed the administrative decision of the
General Superintendency to the Bolivian Supreme Court. While the Company
believes that such appeal is without merit, the Company cannot predict the
final outcome of this matter. An adverse outcome could have a material
adverse effect on the Company's financial condition.
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- -------
CONDITION AND RESULTS OF OPERATIONS
(in U.S. Dollars)
The following should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the 1998
10-K.
GENERAL
The Company operates its electric generation business under a 40-year concession
(the "Concession") from the Bolivian Government which was granted in 1990 and
subsequently amended in December 1994 and March 1995.
In December 1994, a new Electricity Law was enacted which required the Company
to separate its generation, transmission and distribution activities. In order
to comply with the new Electricity Law the Company formed a new subsidiary,
Electricidad de La Paz S.A. ("ELECTROPAZ"), which held the Company's La Paz
Division distribution assets and which was divested, together with two other
Company subsidiaries, Empresa de Luz y Fuerza Electrica de Oruro S.A ("ELF") and
Compania Administradora de Empresas ("CADE"), on January 11, 1996.
On February 2, 1995 a 40 year distribution concession (the "Distribution
Concession") for the cities of La Paz and El Alto and surrounding areas was
granted to the Company by a Supreme Resolution of the Bolivian Government.
Pursuant to the provisions of the Distribution Concession, the Company
transferred the Distribution Concession to ELECTROPAZ in December 1995.
The Company has entered into an Electricity Supply Contract with ELECTROPAZ
dated June 6, 1995 which, as amended, provides that the Company shall sell to
ELECTROPAZ, and ELECTROPAZ shall purchase from the Company, all of the
electricity that the Company can supply, up to the maximum amount of the
electricity required by ELECTROPAZ to supply the requirements of its concession
area. The Electricity Supply Contract expires in December, 2008.
The Company also sells power on a wholesale basis to ELF, which distributes
electricity to the city of Oruro and surrounding areas. On January 10, 1996, the
then Government regulatory board, Direccion Nacional de Electricidad, granted
ELF a 40-year concession for the distribution of electricity in the City of
Oruro. On February 26, 1996 the Company and ELF entered into a long-term
Electricity Supply Contract on terms substantially similar to the Electricity
Supply Contract between the Company and ELECTROPAZ.
EXPANSION AND MODERNIZATION PROJECTS
Under the terms of the Concession, the Company was obligated to expand its
hydroelectric generating capacity in the Zongo Valley. This expansion consists
of adding generation facilities, modernizing existing facilities and
constructing transmission lines to transmit the
7
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increased generation capacity as required by the Concession (the "Zongo
Project"). The Zongo Project was completed in May 1999 and added 65 MW to the
Company's generating capacity.
Under the terms of the Concession, the Company has the right to expand its
facilities in the Miguillas Basis (the "Miguillas Expansion") which, if
completed, would add over 200 MW of generation capacity. In accordance with its
obligations under the Concession, in late 1995 the Company presented to the
Government a technical-economic feasibility study for the Miguillas Expansion.
The Company actively pursued the development of the Miguillas Expansion during
1998; in May 1998 bids were received from certain selected contractors for an
engineering, procurement and construction contract. Financing alternatives were
also explored. However, the Miguillas Expansion was put on hold due to an action
filed on August 10, 1998 before the Superintendency of Electricity by a private
Bolivian citizen, seeking the termination of the Company's concession, and to
certain other factors. See note 2 to the Company's Interim Financial Statements.
The Company is also involved in the development of a gas-fired generation
facility - the Bulo - Bulo project - near Cochabamba for the domestic market in
Bolivia and is also pursuing the development of a gas-fired generation facility
- - the Puerto Suarez Project - in Puerto Suarez on the Brazilian border in
Bolivia for the export of electricity to the Brazilian market.
FINANCING EXPANSION AND MODERNIZATION PROJECTS
The Company estimates that during 1999 and 2000 approximately $17 million will
be required for completion of the Zongo Project and for the Company's regular
capital expenditure program. In the first six months of 1999 the Company spent
approximately $6 million to complete the Zongo Project generation facilities and
$3.6 million to complete the Zongo Project transmission facilities.
Approximately $7 million will be required for its regular capital expenditure
program.
The Company has funded the Zongo Project and its regular capital expenditure
program with borrowings from Corporacion Andina de Fomento ("CAF"), equipment
financing, the proceeds it received in 1996 from the sale of its former
distribution subsidiaries and from internal cash generation. During 1998 and in
the first six months of 1999, the Company expended $28 million and $ 9.6
million, respectively, on the Zongo Project. See "Liquidity and Capital
Resources" below. The capital requirements discussed above do not include
possible funding requirements of the Bulo - Bulo Project, the Miguillas
Expansion and the Puerto Suarez Project referred to above.
During 1998, NRG Energy Inc. and Nordic Power Invest AB, the indirect beneficial
owners of 96.6% of the Company's outstanding common stock, created a separate
jointly - owned entity to provide, among other things, development services on
behalf of the Company. On October 9, 1998 this new entity, Cobee Development
LLC, now Cobee Energy Development LLC ("CDLLC"), entered into an agreement with
the Company pursuant to which CDLLC agreed to provide development services to
the Company in connection with the Miguillas and Puerto Suarez projects. Under
the agreement, in return for the provision of such services by CDLLC, the
Company agreed that, in the event there is a financing
8
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closing in connection with either of the projects, it would reimburse CDLLC's
development expenses and pay CDLLC a development fee out of the financing
proceeds associated with the project. The agreement expires on December 31, 1999
unless the parties terminate it prior to, or extend it beyond, that date.
REGULATION AND RATE SETTING
The Bolivian Electricity Law and the Sectorial Regulatory Law, both enacted in
1994, created a new Government agency, known as the Superintendency of
Electricity, which is responsible for performing the regulatory functions
previously performed by the then Government regulatory board, Direccion Nacional
de Electricidad.
The Company's Concession provides that until December 2001 the Company shall be
entitled to the rate of return established under the old Electricity Code.
Thereafter, until December 2008 the Company shall be entitled to the rate of
return provided under the old Electricity Code or, at its option, to price and
sell its generated power under the marginal cost pricing system established
under the new Electricity Law. Thereafter, the Company shall be subject to the
marginal cost pricing system established under the new Electricity Law. The new
Electricity Law provides that rates will be determined on an unregulated,
competitive marginal cost basis, similar to systems operating in Argentina,
Chile and the United Kingdom, rather than the present regulated rate of return
basis.
Since 1990, the Company's rates have been set in accordance with the old
Electricity Code, which provides for a 9% rate of return on the Company's Rate
Base (approximately the depreciated book value of the Company's utility plant
and equipment plus an allowance for materials not exceeding 3% of tangible
assets and an allowance for working capital of 12.5% of gross revenues) and for
adjustments in the rates to compensate for shortfalls or excesses in the rate of
return in prior years.
The generation rates granted to the Company by the Superintendency of
Electricity in February 1996 - subsequent to the divestiture of the Company's
distribution activities - enabled the Company to earn a 9.15% return in 1996.
Based on a further rate increase granted to the Company in February 1997, the
Company's return in such year was 9.5%.
On October 31, 1997 the Company presented to the Superintendency of Electricity
a rate case study requesting rate increases of 20.9% in 1998 and 20.7% in 1999
with no increases required in 2000 and 2001. On August 28, 1998, the
Superintendency of Electricity issued a resolution granting the Company rate
increases of 14.3%, 12.3% and 15.4% as from September 1, 1998, May 1, 1999 and
November 1, 1999, respectively. The Company was not in agreement with certain
issues taken into account by the Superintendency of Electricity in the
determination of these rate increases, as the increases granted do not enable
the Company to obtain, both in 1998 and 1999, the 9% rate of return to which it
is entitled. The Company therefore filed a petition with the Superintendency of
Electricity requesting a review of certain aspects of the determination of the
above-mentioned rates.
In addition, as the Company's return in the year 1998 was 6.3%, on January 14,
1999 a further rate case study was filed by the Company with the Superintendency
of Electricity, in which the Company requested a 23% rate increase as from
January 1, 1999, over and
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above the increases already granted and which are described in the previous
paragraph. On July 9, 1999 the Superintendency of Electricity turned down the
Company's request for such rate increase and issued a resolution confirming the
Company's prevailing rates which were established in the resolution dated August
28, 1998. The Company has filed an appeal under administrative process
challenging the resolution issued by the Superintendency of Electricity, but at
this time the Company cannot predict the final outcome of this matter. The
Company believes that due to the lack of a rate increase as requested in its
filing dated January 14, 1999, it will not obtain in 1999 the 9% rate of return
to which the Company is entitled.
The Company's rates are indexed to the U.S. dollar so that the Company's rates
are automatically adjusted on a monthly basis to reflect changes in the exchange
rate between the Boliviano and the U.S. dollar, thereby providing the Company
with protection from effects of fluctuations in the exchange rate. The Company
is also entitled to include in its rates an amount equal to the excess of the
rate of interest paid over 6% of any financing approved by the Government. In
approving the CAF Agreement, the Government approved the inclusion of this
excess in the rate base of the interest on only $55.6 million of borrowings
under the CAF Agreement.
RESULTS OF OPERATIONS
Six months ended June 30, 1999 as compared to
Six months ended June 30, 1998
Sales in the first six months of 1999 were 457,184 MWh, a decrease of 1.3% when
compared to 1998, despite the fact that the generating facilities of the Zongo
Project have been completed and are already on-line. These sales decrease is
attributable to a decrease in overall generation because one of the Company's
power plants has been off-line since December, 1998 due to severe damage caused
by a mud and rockslide during a heavy rainstorm. Operating revenue increased by
31% in 1999 when compared to 1998 due to:
a) rate increases granted to the Company in September 1998 and May 1999; and
b) the accrual of $1.5 million for business interruption insurance coverage
relating to outage of the power plant referred to above, of which $1 million has
already been reimbursed to the Company.
Except for a 23% increase in the depreciation charge due to the addition of new
facilities to the rate base, operating expenses did not vary significantly in
the first six months of 1999 when compared to 1998.
As a result of the above, operating income in the first six months of 1999
increased by 81% over the same period of 1998.
The Company's statutory income tax rate is 34.375%, which is comprised of an
income tax rate of 25% relating to the Bolivian branch profits and a 12.5%
withholding tax relating to net branch profits after the 25% income tax. The
effective tax rate of 27.5% and 23.8% 1999 and 1998 differ from the above-
mentioned statutory rate because the Company has income and expenses outside
Bolivia which are not subject to or deductible against
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Bolivian taxes. The tax charge increased in 1999 when compared to 1998 due to
the Company's improvement in operating performance, which gave rise to an 85.8%
increase in the Company's net income before taxes.
Net income in 1999 was $4.7 million of $1.12 per common share compared to net
income of $2.7 million or $.63 per common share in 1998.
Three months ended June 30, 1999 as compared to
Three months ended June 30, 1998.
Sales in the second quarter of 1999 were 204,610 MWh, a decrease of 2.5% when
compared to 1998, despite the fact that the generating facilities of the Zongo
Project have been completed and are already on-line. This sales decrease
occurred because one of the Company's power plants has been off-line since
December, 1998 due to severe damage caused by a mud and rockslide during a heavy
rainstorm. Operating revenue increased by 34.4% in 1999 when compared to 1998
due to:
a) rate increases granted to the Company in September 1998 and May 1999; and
b) the accrual of $0.8 million for business interruption insurance coverage
relating to outage of the power plant referred to above.
Except for a 37.5% increase in the depreciation charge due to the addition of
new facilities to the rate base, operating expenses did not vary significantly
in the second quarter of 1999 when compared to 1998.
As a result of the above, operating income in the second quarter of 1999
increased by 100% over the same period of 1998.
The Company's statutory income tax rate is 34.375%, which is comprised of an
income tax rate of 25% relating to the Bolivian branch profits and a 12.5%
withholding tax relating to net branch profits after the 25% income tax. The
effective tax rates of 26.5% and 22% in 1999 and 1998 differ from the above-
mentioned statutory rate because the Company has income and expenses outside
Bolivia which are not subject to or deductible against Bolivian taxes. The tax
charge increased in 1999 when compared to 1998 due to the Company's improvement
in operating performance, which gave rise to a 107% increase in the Company's
net income before taxes.
Net income in 1999 was $2 million or 0.48 per common share compared to net
income of $1 million of $0.24 per common share in 1998.
LIQUIDITY AND CAPITAL RESOURCES
In both the first six months of 1999 and 1998, the Company incurred capital
expenditures of $10 million. These expenditures related primarily to contracts
for purchase of equipment and civil works related to the Zongo Project. The
Company funded the expenditures from internally generated funds, from borrowings
under the CAF Agreement and from proceeds received in 1996 from the sale of its
distribution subsidiaries, as explained below.
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At June 30, 1999 the Company had purchase commitments with suppliers for the
purchase of equipment for the Zongo Project and its routine capital expenditure
amounting to approximately $ 1.4 million. The Company has sufficient liquid
assets to meet its purchase commitments as well as its other current operating
obligations and to perform necessary maintenance of its facilities.
The Company paid special dividends of $5 per share (an aggregate of $21,012,875)
in January 1997 and $8.32 per share (an aggregate of $34,965,424) in January
1998. The Company has no present plan to pay any additional dividends.
On August 13, 1997 the Company entered into the CAF Agreement pursuant to which
the Company has borrowed $75 million. Under the Credit Agreement, the Company is
now prohibited from declaring or paying any dividend or making any distribution
on its share capital or purchasing, redeeming or otherwise acquiring any shares
of capital stock of the Company or any option over the same, unless (i)
immediately prior to declaring and paying such dividend or distribution the
Company is in compliance with all material obligations under the loan documents,
(ii) after making such payment or distribution, the Company is in compliance
with certain financial ratios described below, (iii) the Debt Service Coverage
Ratio (as defined in the CAF Agreement) for the four fiscal quarters most
recently ended is not less than 1.25/1 and (iv) a default or event of default
has not occurred and is not continuing, provided that the Company may, at any
time that no default or event of default has occurred and is continuing,
declare or pay dividends to the extent of the Unrestricted Dividend Balance (as
defined in the CAF Agreement).
The CAF Agreement imposes on the Company the following obligations, among
others: (1) not to allow the Leverage Ratio (as defined in the CAF Agreement)
to exceed 0.60/1; (2) to maintain the Tangible Net Worth (as defined in the CAF
Agreement) of at least $65 million or, except as may result from payment of the
special dividend paid in January 1998, allow a cumulative reduction of Tangible
Net Worth (as defined in the CAF Agreement) in excess of 15% over any period of
four consecutive fiscal quarters; (3) to maintain a Current Ratio (as defined in
the CAF Agreement) of at least 1.00/1; and (4) not to allow the Collateral Value
Ratio (as defined in the CAF Agreement) to fall below 1.25/1 at any time.
In January 1996, the Company received $57.5 million of the aggregate Purchase
Price of $65.3 million of the Company's three subsidiaries, Electropaz, ELF and
CADE. The balance of the Purchase Price, $7.8 million, was deposited in an
escrow account pending the satisfaction of certain conditions. In February and
July 1996 and November 1997, $6 million, $1.4 million and $0.4 million,
respectively, of the amount deposited in escrow were released to the Company.
The Company and Iberdrola had also agreed to an additional $513,000 as an
adjustment to the purchase price, which was paid to the Company in December
1996.
The Company estimates that during 1999 and 2000 approximately $17 million will
be required for completion of the Zongo Project and the Company's regular
capital expenditure program. In the first six months of 1999 the Company spent
$6 million to complete the Zongo Project generation facilities and $3.6 million
to complete the Zongo Project transmission facilities. Approximately $7 million
will be required for its regular capital expenditure program.
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The Company has funded the Zongo Project and its regular capital expenditure
program with the borrowings from CAF, equipment financing, the proceeds it
received from the sale of its distribution subsidiaries and from internal cash
generation. During 1998 and the first six months of 1999, the Company expended
$28 and $9.6 million, respectively, on the Zongo Project.
EFFECT OF INFLATION
Bolivia has suffered in the past from hyperinflation. However, since 1987 the
Bolivian government has been successful in containing inflation and, therefore,
the Company believes that inflation will not have a material adverse effect on
results of operations in the near future. The inflation rate was 4.4% in 1998
and 0.4 % in the first six months of 1999, respectively. The effect of inflation
and currency devaluation on the Company's results is mitigated by indexing the
Company's rates to the U.S. dollar so that the Company's rates are automatically
adjusted on a monthly basis to reflect changes in the exchange rate between the
Bolivian currency and the U.S. dollar.
YEAR 2000 READINESS PROGRAM
In 1998, the Company initiated its Year 2000 Readiness Program and began a
formal review of computer-based systems and devices used in its business
operations. To this end and in order to update its data processing facilities,
the Company has acquired and has installed a software package that will satisfy
the Company's current information requirements and which will render such
facilities ready for the year 2000. The total cost related to the acquisition
and installation of this software was approximately $0.5 million; this
expenditure has been capitalized and is being depreciated over the assets'
estimated useful lives.
The Company is also taking reasonable steps to evaluate the impact of this
matter on its operational equipment, principally on meters, communication
equipment and control protection devices. The Company believes that the
assessment and testing process will be completed in the near future, although
continuing testing of equipment might be necessary.
The Company is actively evaluating and tracking Year 2000 readiness of external
third parties with which it has a material relationship. Such third parties
include vendors, customers, governmental agencies and other business associates.
While the Company cannot control the Year 2000 readiness of third parties, the
Company is attempting to assess the readiness of third parties and any potential
implications to the Company. Alternate suppliers of critical products, goods and
services are being identified, where necessary.
The Company believes that the change of the century issue is being adequately
addressed and that it will not have any significant impact on the Company's
financial condition or results of operations. The Year 2000 issue is expected to
affect the systems of various entities with which the Company interacts,
including customers and suppliers. However, the Company cannot reasonably
estimate the potential impact on its financial condition and operations if
certain third parties do not become Year 2000-ready on a timely basis, and there
can be no guarantee that the failure of such third parties to become Year 2000-
ready will not have an adverse effect on the Company's financial condition or
operations.
13
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1 Legal Proceedings
- ------ -----------------
On August 10, 1998 a challenge to the Company's concession was filed
under administrative process by Eduardo Belmonte, a private citizen of
Bolivia, before the Superintendency of Electricity. The Company's
concession is being challenged for alleged non-compliance with the
terms of the concession, primarily in relation to timing for
submission of a reasonable execution plan for the Miguillas Expansion
to the Superintendency of Electricity - see Managements' Discussions
and Analysis of Financial Condition and Results of Operations,
Expansion and Modernization Projects - and the timing of the
conversion process of the Company's concession into a license, as
required by the Bolivian Electricity Law. The challenge is seeking the
termination of the Company's concession.
The Company believes that this action is without merit as the Company
has fulfilled its obligations with respect to the submission of an
execution plan for the Miguillas Expansion to the Superintendency of
Electricity and has taken appropriate actions on a timely basis to
convert the Company's concession into a license.
On November 13, 1998 the Superintendency of Electricity ruled that
this action was unfounded. Upon appeal, the Superintendency of
Electricity again confirmed its original decision on December 21,
1998. The claimant thereafter appealed to the General Superintendency.
On March 1, 1999, this Superintendency confirmed the previous rulings
of the Superintendency of Electricity.
On April 5, 1999, the claimant appealed the administrative decision of
the General Superintendency to the Bolivian Supreme Court. While the
Company believes that such appeal is without merit, the Company cannot
predict the final outcome of this matter. An adverse outcome could
have a material adverse effect of the Company's financial condition.
Item 6 Exhibits and Reports on Form 8-K
- ------ --------------------------------
a) The following exhibit is filed with this report.
Exhibit 27 - Financial Data Schedule.
b) No report on Form 8-K was filed during the quarter for which this
report is filed.
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Compania Boliviana de Energia
Electrica S.A. - Bolivian
Power Company Limited
-----------------------------
/S/ ROLAND C. GIBSON
-----------------------------
ROLAND C. GIBSON
Vice President - Finance
Authorized Signatory and
Principal Financial and
Accounting Officer.
Date: August 11, 1999
15
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