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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 March 31, 1998
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
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(Exact name of registrant as specified in its charter)
Nova Scotia 13-2691133
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Av. Hernando Siles 5635
Obrajes, La Paz, Bolivia
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(Address of principal executive offices) (Zip Code)
(Bolivia) 591-2-782474
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(Registrant's telephone number, including area code)
N/A
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(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 ______
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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 May 11, 1998, there were
4,202,575 outstanding shares.
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COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A.
BOLIVIAN POWER COMPANY LIMITED
TABLE OF CONTENTS
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Part I - Financial Information Page
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Item 1. Financial Statements
Balance Sheets - March 31, 1998
(unaudited) and December 31, 1997 3
Statements of Income - Three
Months Ended March 31, 1998 and
1997 (unaudited) 5
Statements of Cash Flows -
Three Months Ended March 31, 1998
and 1997 (unaudited) 6
Notes to Interim Financial
Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II - Other Information
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Item 6. Exhibits and Reports on Form 8-K 15
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<TABLE>
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PART I. FINANCIAL INFORMATION
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Item 1. FINANCIAL STATEMENTS
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BALANCE SHEETS
March 31, 1998 and December 31, 1997
(in U.S. Dollars)
(amounts in thousands, except share data)
(Unaudited)
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March 31, 1998 December 31, 1997
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A S S E T S
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Utility Plant
In service
Production $ 105,426 $ 85,329
Transmission 11,538 10,833
Construction work in progress 43,607 54,466
General Property 5,437 5,434
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166,008 156,062
Less accumulated depreciation 40,692 39,750
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Net utility plant 125,316 116,312
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Current assets
Cash and cash equivalents 4,334 1,453
Temporary investments at fair market value
(includes restricted collateral deposits
of $1,591 in 1998 and $3,410 in 1997) 19,486 66,227
Accounts receivable, net 7,716 7,489
Materials and supplies 2,342 3,004
Prepaid expenses 929 1,003
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Total Current Assets 34,807 79,176
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Other assets 3,114 2,906
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$ 163,237 $ 198,394
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SHAREHOLDERS' EQUITY AND LIABILITIES
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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
Unrealized loss on temporary investments (14) (14)
Earnings reinvested 8,195 6,557
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Total Shareholders' Equity 77,921 76,283
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Provision for severance indemnities 3,597 3,649
Long-term debt 67,604 70,964
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71,201 74,613
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Current liabilities
Accounts payable 4,835 6,058
Current portion of long term-debt 4,683 2,647
Dividends payable - 34,965
Taxes on income 2,773 2,269
Other taxes 1,630 1,361
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Other 194 198
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Total Current Liabilities 14,115 47,498
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Contingencies and commitments - -
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Total Shareholders' Equity and Liabilities $163,237 $198,394
========================= ===========================
See accompanying notes to interim consolidated financial statements.
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<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Three Months Ended March 31, 1998 and 1997
(in U.S. Dollars)
(amounts in thousands, except share and per share date)
(Unaudited)
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Three Months Ended March 31,
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1998 1997
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Operating revenue $ 6,257 $ 5,703
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Operating expenses
Operations 2,230 2,381
Maintenance 419 467
Depreciation 956 790
Taxes 218 202
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Total operating expenses 3,823 3,840
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Operating income 2,434 1,863
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Other income
Interest capitalized 1,261 586
Other, principally interest income 385 630
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Total other income 1,646 1,216
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Income before interest charges and taxes 4,080 3,079
Interest charges 1,902 368
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Income before taxes 2,178 2,711
Tax provision 540 750
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Net income $ 1,638 $ 1,961
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Average common shares outstanding 4,202,575 4,202,575
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Earnings per common share $ 0.39 $ 0.47
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Dividends per common share $ - $ 5.00
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</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
(in U.S. Dollars)
(amounts in thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31, 1998 March 31, 1997
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Cash flows from operating activities
Net income $ 1,638 $ 1,961
Adjustment to reconcile net income to
cash provided by (used in) operating
activities
Depreciation 956 790
Provision for indemnities 119 135
Interest capitalized (1,261) (586)
Other - Net (208) (18)
(Increase) Decrease in accounts receivable (227) 1,092
Decrease in materials and supplies 662 182
Decrease in prepaid expenses 74 26
(Decrease) in accounts payable (1,223) (1,846)
Increase in taxes payable 773 993
(Decrease) Increase in other liabilities (4) 3
Indemnities paid (171) (78)
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Net cash provided by operating
activities 1,128 2,654
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Cash flows from (used in) investing
activities
Utility plant additions (8,709) (6,275)
Net Decrease in temporary
investments 46,741 24,937
Other-net 9 484
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Net cash provided by investing
activities 38,041 19,146
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Cash flows from (used in) financing
activities
Payment of long term debt (1,323) -
Payment of dividends (34,965) (21,013)
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Net cash (used in) financing
activities (36,288) (21,013)
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Net Increase in cash and cash
equivalents 2,881 787
Cash and cash equivalents at beginning of
period 1,453 3,024
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Cash and cash equivalents at end of period $ 4,334 $ 3,811
==================== ===================
Suplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 641 $ (218)
See accompanying notes to interim consolidated financial statements.
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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)
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, 1997, which are included in the Company's Form 10-K
for such year (the "1997 10-K"). Results of operations for interim periods are
not necessarily indicative of annual results of operations. The Balance Sheet
at December 31, 1997 was extracted from the audited annual financial statements
in the 1997 10-K and does not include all disclosures required by generally
accepted accounting principles for annual financial statements.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
(in US 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 1997
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.
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EXPANSION AND MODERNIZATION PROJECTS
a) Under the terms of the Concession, the Company is 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 increased generation
capacity as required by the Concession (the "Zongo Project"). The Zongo
Project is expected to add approximately 65 MW to the Company's generating
capacity and is expected to be completed in mid-1999.
b) Under the terms of the Concession, the Company has the right to expand its
facilities in the Miguillas Basin (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 has invited certain selected contractors to submit
their bids for an engineering, procurement and construction contract by late
May 1998. Based on the terms of these bids and on the availability of long-
term debt and equity sources to provide financing, the Company will make a
decision as to whether or not it should proceed with the Miguillas
Expansion.
c) In September 1997 the current Government regulatory board, the
Superintendency of Electricity, granted the Company a non-exclusive
provisional license to perform the necessary studies for the installation of
gas-fired generation facilities in Puerto Suarez in Santa Cruz on the
Brazilian border (the "Puerto Suarez Project"). The license grants the
Company the right to perform studies in order to generate and sell
electricity in Puerto Suarez and surrounding areas and to sell electricity
in the Brazilian market. The Company is currently conducting those studies
in cooperation with three other companies. The Puerto Suarez project is at a
very preliminary stage, and there can be no assurance that the Project will
be undertaken.
FINANCING EXPANSION AND MODERNIZATION PROJECTS
The Company estimates that in 1998 and 1999 approximately $44 million will be
required for completion of the Zongo Project and for the Company's regular
capital expenditure program. The Company estimates that during 1998 and 1999 it
will be required to spend approximately $28 million to complete the Zongo
Project generation facilities, $9 million to complete the Zongo Project
transmission facilities and approximately $7 million of its regular capital
expenditure program.
The Company intends to fund the Zongo Project and its regular capital
expenditure program with borrowings from financial institutions or possible
equity financing, equipment financing, and from internal cash generation. At
March 31, 1998, $18 million of loan proceeds under the CAF Agreement was
available for this purpose. See "Liquidity and Capital Resources" below.
During 1997 and in the first quarter of 1998, the Company expended $39 million
and $8.7 million respectively, on the Zongo Project. The capital
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requirements discussed above do not include possible funding requirements of the
Miguillas Project and the Puerto Suarez Project referred to above.
REGULATION AND RATE SETTING
The 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 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.
Until the Company's distribution activities were divested in January 1996, the
Company applied for periodic adjustments in its distribution rates in order to
provide for an annual return of 9% on its Rate Base. In December 1995, when it
was apparent that the Company would no longer be engaged in the distribution of
electricity, the Company applied for new generation rates and in February 1996
the Superintendency of Electricity granted this request, effective retroactively
to January 1, 1996. Based on such rates, the Company's return in 1996 was
9.15%.
The Company subsequently held discussions with the Superintendency of
Electricity with a view to establishing the criteria which will govern the
Company's future requests for rate adjustments. In this connection, on October
30, 1996 the Company presented to the Superintendency of Electricity the
Company's analysis of what likely will be the required rate adjustments during
the period of 1996 through 2001.
On February 5, 1997, the Superintendency of Electricity issued a Resolution
granted the Company an 18.2% rate increase as from February 1, 1997, 21.3% in
1999 and 19.5% in 2000. The Resolution also provides for annual reviews of
rates in order to correct any shortfall or excess in the Company's actual rate
of return during the period 1997 through 2001. Based on the increase granted by
the Superintendency of Electricity on February 5, 1997 and due to favorable
generation output and careful cost control, the Company earned
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a 9.5% return on its Rate Base in 1997, although this calculation has not yet
been agreed to with the Superintendency of Electricity.
In addition, pursuant to the annual reviews of rates called for by the
Resolution issued by the Superintendency of Electricity on February 5, 1997, on
October 31, 1997 the Company presented to the Superintendency of Electricity a
rate case study for the period of 1998 through 2002. This rate case study
requests rate increases of 20.9% in 1998, 20.7% in 1999 and 2.8% in 2002, with
no increases required in 2000 and 2001. The Superintendency of Electricity has
not ruled on the Company's rate increase request. On January 30, 1998 the
Superintendency of Electricity issued a resolution which maintains the Company's
current rates until March 31, 1998 and on this date, the Superintendency of
Electricity issued a further resolution maintaining the Company's current rates
until May 31, 1998. The Company expects that a final resolution on its rate
case study will be issued in the near future but cannot predict the outcome of
its discussions with the Superintendency of Electricity on this matter.
The Company's rates are indexed to the U.S. dollar so that they are
automatically adjusted on a monthly basis to reflect changes in the exchange
rate between the Boliviano and the U.S. dollar, thereby mitigating the effect 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% on
any financing approved by the regulatory authority. 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
Three months ended March 31, 1998 as compared to
Three months ended March 31, 1997
Sales in the first quarter of 1998 were 253,462 MWh, an increase of 1% when
compared to MWh sales in the first quarter of 1997. This increase is due to the
fact that the Company's overall generation also increased by 1% in 1998 when
compared to 1997. Operating revenue increased by 10% in 1998 when compared to
1997, principally due to a rate increase granted to the Company as from February
1, 1997 and to a more favorable mix of MWh sales by category.
Operating expenses did not vary significantly in absolute amounts in the first
quarter of 1998 when compared to the first quarter of 1997. Expenses in the
Company's Bolivian branch remained relatively stable, but there has been a
decrease in expenses incurred by the Company's Head Office, as certain fees paid
in 1997 to the Company's former shareholders in the amount of U$218,000 are not
recurring in 1998. In addition, the depreciation charge increased by 21% due to
the addition of new facilities to the rate base. As a result, operating income
in the first quarter of 1998 increased 30% over the first quarter of 1997.
Interest capitalized during construction increased significantly in the first
quarter of 1998 when compared to the first quarter of 1997 because as from
January 1, 1998 the Company
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is capitalizing interest on work in progress at the rate stipulated in the CAF
Agreement (approximately 10.2%), instead of the rate stipulated by the Bolivian
Electricity Code (6%).
Interest charges increased significantly in the first quarter of 1998 when
compared to the first quarter of 1997 because of the accrual on long-term debt
related to the CAF Agreement. Monthly charges on this loan are approximately
$525,000.
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 25% in the first quarter of 1998 differs from the
abovementioned statutory rate because the Company has income and expenses
outside Bolivia which are not subject to or deductible against Bolivian taxes.
Net income in the first quarter of 1998 was $1,638,044 or $.39 per common share
compared to net income of $1,961,083 or $.47 per common share for the first
quarter of 1997. This decrease was primarily due to the higher interest charges
referred to above.
LIQUIDITY AND CAPITAL RESOURCES
In the first three months of 1998 and 1997 the Company incurred capital
expenditures of $8.7 million and $6.2 million, respectively. These expenditures
related primarily to contracts for purchase of equipment and civil works related
to the Zongo Project and to routine replacement and upgrading of equipment and
existing facilities. The Company funded these expenditures from internally
generated funds and from proceeds received from the sale of its distribution
subsidiaries and in 1998 from funds received under the CAF Agreement.
At March 31, 1998, the Company had purchase commitments with suppliers for the
purchase of equipment for the Zongo Project and its routine capital expenditure
amounting to approximately $2.9 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 a special dividend 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 $61,700,000. If the Company elected to borrow any
additional amounts under the CAF Agreement, it would be required to prepay a
corresponding amount of other indebtedness currently outstanding.
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
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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.
The Company estimates that during 1998 and 1999 approximately $44 million will
be required for completion of the Zongo Project and the Company's regular
capital expenditure program. The Company estimates that during 1998 and 1999 it
will be required to spend approximately $28 million to complete the Zongo
Project generation facilities, $9 million to complete the Zongo Project
transmission facilities and approximately $7 million on its regular capital
expenditure program.
The Company intends to fund the Zongo Project and its regular capital
expenditure program with the borrowings from CAF, possible equity financings,
equipment financing, and from internal cash generation. At March 31, 1997, $18
million of loan proceeds under the CAF Agreement was available for this purpose.
During 1997 and in the first quarter of 1998 the Company expended $39 million
and $8.7 million, respectively, on the Zongo Project.
In order to update its data processing facilities, the Company is currently in
the process of acquiring a software package which the Company expects will
satisfy the Company's current information requirements and will render such
facilities ready for the year 2000. The Company believes that the change of the
century issue will be adequately addressed and that it will not have any
significant impact on the Company's financial condition or results of operation.
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 6.7% in 1997
and 2.45% in the first quarter of 1998. 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
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automatically adjusted on a monthly basis to reflect changes in the exchange
rate between the Bolivian currency and the U.S. dollar.
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PART II - OTHER INFORMATION
---------------------------
Item 6 Exhibits and Reports on Form 8-K.
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(a) No exhibit is filed with this report.
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
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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: May 14, 1998
