<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 September 30, 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
- --------------------------------------------------------------------------------
(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 November 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
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Balance Sheets - September 30, 1998
(unaudited) and December 31, 1997 3
Statements of Income - Three and Nine
Months Ended September 30, 1998 and
1997 (unaudited) 4
Statements of Cash Flows -
Nine Months Ended September 30, 1998
and 1997 (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 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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2
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PART I. FINANCIAL INFORMATION
------------------------------
Item 1. FINANCIAL STATEMENTS
--------------------
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
(in U.S. Dollars)
(amounts in thousands, except share data)
(Unaudited)
---------
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
ASSETS
------
<S> <C> <C>
Utility plant
In service
Production $108,510 $ 85,329
Transmission 11,756 10,833
Construction work in progress 53,278 54,466
General Property 5,599 5,434
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179,143 156,062
Less accumulated depreciation 42,602 39,750
-------- ---------
Net utility plant 136,541 116,312
-------- ---------
Current assets
Cash and cash equivalents 1,344 1,453
Temporary investments at fair market
value (includes restricted collateral
deposits of $1,069 in
1998 and $3,410 in 1997) 9,918 66,227
Accounts receivable, net 8,256 7,489
Materials and supplies 2,048 3,004
Prepaid expenses 1,187 1,003
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Total Current Assets 22,753 79,176
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Other assets 3,164 2,906
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$162,458 $198,394
======== =========
<CAPTION>
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
Unrealized loss on temporary
investments (14) (14)
Earnings reinvested 9,547 6,557
-------- ---------
Total Shareholders' Equity 79,273 76,283
-------- ---------
Provision for severance indemnities 3,752 3,649
Long-term debt 63,134 70,964
-------- ---------
66,886 74,613
-------- ---------
Current liabilities
Accounts payable 6,441 6,058
Current portion of long term-debt 7,847 2,647
Dividends payable - 34,965
Taxes on income 906 2,269
Other taxes 934 1,361
Other 171 198
-------- ---------
Total current liabilities 16,299 47,498
-------- ---------
Contingencies and commitments - -
-------- ---------
Total Shareholders' Equity and Liabilities $162,458 $198,394
======== =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
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CONSOLIDATED STATEMENTS OF INCOME
Three Months and Nine Months Ended September 30, 1998 and 1997
(in U.S. Dollars)
(amounts in thousands, except share and per share data)
(Unaudited)
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30 NINE MONTHS ENDED SEPT. 30
1998 1997 1998 1997
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues $ 5,092 $ 4,674 $ 17,089 $ 15,850
---------- ---------- ---------- ----------
Operating expenses
Operations 2,437 2,320 6,937 7,248
Maintenance 653 366 1,627 1,256
Depreciation 1,136 816 3,138 2,423
Taxes 178 170 606 578
---------- ---------- ---------- ----------
Total operating expenses 4,404 3,672 12,308 11,685
---------- ---------- ---------- ----------
Operating income 688 1,002 4,781 4,165
---------- ---------- ---------- ----------
Other income
Interest capitalized 1,171 760 3,511 1,994
Other, principally
interest income 232 279 1,085 1,617
---------- ---------- ---------- ----------
Total other income 1,403 1,039 4,596 3,611
---------- ---------- ---------- ----------
Income before interest
and tax 2,091 2,041 9,377 7,776
Interest charges 1,805 360 5,601 1,097
---------- ---------- ---------- ----------
Income before taxes 286 1,681 3,776 6,679
Tax provision (46) 416 786 1,841
---------- ---------- ---------- ----------
Net income $ 332 $ 1,265 $ 2,990 $ 4,838
========== ========== ========== ==========
Average common shares
outstanding 4,202,575 4,202,575 4,202,575 4,202,575
========== ========== ========== ==========
Earnings per common share $ 0.07 $ 0.30 $ 0.71 $ 1.15
========== ========== ========== ==========
Dividends per common share -- -- -- 5.00
========== ========== ========== ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(In U.S. Dollars)
(amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT. 30, 1998 SEPT. 30, 1997
--------------------- --------------------
<S> <C> <C>
Cash flows (used in) operating activities
Net income $ 2,990 $ 4,838
Adjustments to reconcile net income to
cash provided by (used in) operating
activities
Depreciation 3,138 2,423
Provision for indemnities 371 491
Interest capitalized (3,511) (1,994)
Other - Net (258) (2,698)
(Increase) Decrease in accounts receivable (767) 255
Decrease in materials and supplies 957 1,537
(Increase) in prepaid expenses (184) (158)
Increase (Decrease) in accounts payable 383 (1,367)
(Decrease) in taxes payable (1,790) (2,569)
(Decrease) in other liabilities (27) (23)
Indemnities paid (269) (221)
-------- --------
Net cash provided by operating activities 1,033 514
-------- --------
Cash flows from (used in) investing activities
Utility plant additions (20,440) (25,400)
Net Decrease in temporary investments 56,308 43,595
Other-net 585 843
-------- --------
Net cash provided by investing activities 36,453 19,038
-------- --------
Cash flows from (used in) financing activities
Payment of long-term debt (2,630) (1,323)
Payment of dividends (34,965) (21,013)
-------- --------
Net cash (used in) financing activities (37,595) (22,336)
-------- --------
Net (Decrease) in cash and cash equivalents (109) (2,784)
Cash and cash equivalents at beginning of period 1,453 3,024
-------- --------
Cash and cash equivalents at end of period $ 1,344 $ 240
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized) $ 2,090 $ 897
Income tax $ 2,223 $ 4,372
</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)
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.
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 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.
7
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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. In May 1998, the Company received bids from certain selected
contractors for an engineering, procurement and construction contract for
the first stage of the Miguillas Expansion which would add approximately 160
MW of generating capacity, principally for the domestic market, and which is
expected to be completed in early 2003 if the Company decides to proceed
with the Miguillas Expansion. The Company is currently evaluating and
negotiating the terms of these bids, with a view of commencing construction
in early 1999. The Company is also very active in exploring the financing
alternatives for the Miguillas Expansion, and will make a decision as to
whether or not it should proceed with the Miguillas Expansion in the near
future.
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 the province of Santa
Cruz on the Brazilian border (the "Puerto Suarez Project"). The license
grants the Company the right to perform studies regarding the feasibility of
generating and selling electricity in Puerto Suarez and surrounding areas
and selling electricity for export to the Brazilian market. The Company is
currently conducting those studies in cooperation with three other
companies. The Puerto Suarez Project is at a preliminary stage, and there
can be no assurance that the Project will be undertaken.
d) The Company is also performing studies for other hydroelectrical and thermal
projects within Bolivia. These studies, however, are at a very preliminary
stage and there can be no assurance that the projects that are the subject
of these studies will ultimately be undertaken.
8
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FINANCING EXPANSION AND MODERNIZATION PROJECTS
The Company estimates that from 1998 through 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 in such years 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 borrowings from financial institutions or possible
equity financing, equipment financing, the proceeds it received from the sale of
ELECTROPAZ, ELF and CADE, and from internal cash generation. At September 30,
1998, $9 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 nine months of 1998, the Company expended $39 million and $22 million,
respectively, on the Zongo Project.
The Company is also currently engaged in discussions with Corporacion Andina de
Fomento ("CAF") for loans of up to $170 million for the construction of the
first stage of the Miguillas Expansion and expects to conclude its discussions
with CAF in the near future if acceptable financial terms can be reached. The
total cost of the first stage of the Miguillas Expansion is expected to be
approximately $300 million and the Company is exploring additional sources of
long-term debt and equity financing for this project.
The capital requirements discussed above do not include possible funding
requirements of the Puerto Suarez Project and other studies 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
9
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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%.
In addition, 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 is not in agreement with certain
issues taken into account by the Superintendency of Electricity in the
determination of these rate increases and believes that the rate increases
granted will not enable the Company to obtain, both in 1998 and 1999, the 9%
rate of return to which it is entitled. The Company has therefore filed a
petition with the Superintendency of Electricity requesting a review of certain
aspects of the determination of the above-mentioned rates but cannot predict the
final outcome of this filing.
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
the financing which has already been approved by the regulatory authority. In
approving the CAF Agreement, the Government approved the inclusion of this
excess in rates of the interest on only $55.6 million of borrowings under the
CAF Agreement.
RESULTS OF OPERATIONS
Nine months ended September 30, 1998 as compared to
Nine months ended September 30, 1997
Sales in the first nine months of 1998 were 620,755 MWh, an increase of 1.7%
when compared to MWh sales in the first nine months of 1997. Operating revenue,
however, increased by 7.8% in 1998 when compared to 1997, principally due to a
more favorable mix of MWh sales by category.
Operating expenses in the Company's Bolivian branch remained relatively stable
in the first nine months of 1998 when compared to 1997, but there has been a
decrease in expenses incurred by the Company's Head Office, as certain fees paid
in the first six months of 1997 to the Company's former shareholders in the
amount of $475,000 are not recurring in 1998. Maintenance expenses increased by
30% due to significant maintenance work performed on certain equipment and on
other facilities which had been affected by climatic conditions. The Company
believes that this increase in maintenance expenses will continue in the fourth
quarter of 1998. In addition, the depreciation charge increased by 28% due to
the addition of new facilities to the rate base.
10
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As a result of the above, operating income in the first nine months of 1998
increased by 15% over the first nine months of 1997.
Interest capitalized during construction increased significantly in the first
nine months of 1998 when compared to the first nine months of 1997 because as
from January 1, 1998 the Company is capitalizing interest in work in progress at
the rate stipulated in the CAF Agreement (approximately 10%), instead of the
rate stipulated by the Bolivian Electricity Code (6%).
Interest charges also increased significantly because of the accrual - as from
December 1997 - of interest on long-term debt related to the CAF Agreement.
Monthly interest 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 21% in the first nine months of 1998 differs 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 decreased in 1998 when compared to 1997 due to a 43% reduction in
the Company's net income before taxes. This reduction arose principally because
of the significant increase in interest charges mentioned above.
Net income in the first nine months of 1998 was $2,990,332 or $.71 per common
share compared to net income of $4,837,821 or $1.15 per common share for the
first nine months of 1997.
Three months ended September 30, 1998 as compared to
Three months ended September 30, 1997.
MWh sales in the third quarter of 1998 were 157,707 MWh, an increase of 5% when
compared to the third quarter of 1997. Operating revenue, however, increased by
9%, principally due to a more favorable mix of MWh sales by category.
Operating expenses in the Company's Bolivian branch remained relatively stable
in the third quarter of 1998 when compared to the third quarter of 1997, but
there has been an increase in maintenance expenses due to significant
maintenance work performed on certain equipment and on other facilities which
had been affected by climatic conditions. The Company believes that this
increase in maintenance expenses will continue in the fourth quarter of 1998.
As a result of the above, operating income in the third quarter of 1998
decreased by 31% over the third quarter of 1997.
Interest capitalized during construction increased significantly in the third
quarter of 1998 when compared to the third quarter of 1997 because as from
January 1, 1998 the Company is capitalizing interest on work in progress at the
rate stipulated in the CAF Agreement (approximately 10%), instead of the rate
stipulated by the Bolivian Electricity Code (6%).
11
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Interest charges increased significantly in the third quarter of 1998 when
compared to the third quarter of 1997 because of the accrual - as from December
1997 - of interest on long-term debt related to the CAF Agreement. Monthly
interest 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 12.5%
withholding tax relating to net branch profits after the 25% income tax. The
tax charge decreased in 1998 when compared to 1997 due to a 83% reduction in
the Company's net income before taxes. This reduction arose principally because
of the significant increase in interest charges mentioned above and increased
maintenance expenses.
Net income in the third quarter of 1998 was $332,061 or $.07 per common share
compared to net income of $1,264,406 or $.30 per common share for the third
quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1998 and 1997 the Company incurred capital
expenditures of $24 million and $27.3 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 September 30, 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 $2.2 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 $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 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
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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, not 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 from 1998 through 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 the next two
years 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, the proceeds it received from the sale of ELECTROPAZ, ELF
and CADE, and from internal cash generation. At September 30, 1998, $9 million
of loan proceeds under the CAF Agreement was available for this purpose. During
1997 and in the first nine months of 1998 the Company expended $39 and $22
million, respectively, on the Zongo Project.
The Company is also currently engaged in discussions with CAF for loans of up to
$170 million for the construction of the first stage of the Miguillas Expansion
and expects to conclude its discussions with CAF in the near future if
acceptable financial terms can be reached. The total cost of the first stage of
the Miguillas Expansion is expected to be approximately $300 million and the
Company is exploring additional sources of long-term debt and equity financing
for this project.
In order to update its data processing facilities, the Company has acquired and
is currently installing a software package with will satisfy the Company's
current information requirements and which will render such facilities ready for
the year 2000. Total cost related to the acquisition and installation of this
software package is estimated to be $0.5 million; this expenditure will be
capitalized and depreciated over the assets estimated useful lives. The Company
is also taking reasonable steps necessary to confirm that its business systems,
software and equipment that process data-related information will continue to
function properly after December 31, 1999. 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
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
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of such third parties to become year 2000 - ready will not have an adverse
effect on the Company's financial condition or operations.
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 3.5% in the first nine months 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 automatically adjusted
on a monthly basis to reflect changes in the exchange rate between the Bolivian
currency and the U.S. dollar.
14
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PART II - OTHER INFORMATION
---------------------------
Item 6 Exhibits and Reports on Form 8-K.
- ------ ---------------------------------
(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.
15
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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
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/S/ ROLAND C. GIBSON
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ROLAND C. GIBSON
Vice President - Finance
Authorized Signatory and
Principal Financial and
Accounting Officer.
DATE: NOVEMBER 13, 1998
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