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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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
(Exact Name of the Registrant as Specified in its Charter)
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NOVA SCOTIA 13-2691133
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Av. Hernando Siles 5635
Obrajes, La Paz-Bolivia
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(Address of principal executive offices)(zip code)
Registrant's telephone numbers, including area codes:
(Bolivia) 591-2-782474
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
None Not applicable
Securities registered pursuant to section 12(g) of the Act:
Common Shares, No Par Value
---------------------------
(Title of Class)
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 __
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. YES X NO ___
-----
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The Registrant's Common Stock was delisted from the New York Stock Exchange on
December 19, 1996. At that time, the aggregate market value of the Registrant's
Common Stock held by non-affiliates was approximately $6,100,000. Since then,
there has been no established active trading market for the Registrant's Common
Stock. The Registrant is not able to estimate the current aggregate market
value of the Registrant's Common Stock held by non-affiliates since it has no
information concerning recent trading prices.
As of March 22, 1999, there were 4,202,575 outstanding shares of the
Registrant's Common Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement, to be filed with the
Commission for use in connection with the Company's 1999 Ordinary General
Meeting of Shareholders, are incorporated by reference into Part III of this
Form 10-K.
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COMPANIA BOLIVIANA DE ENERGIA ELECTRICA, S.A. --
BOLIVIAN POWER COMPANY LIMITED
(the "Company")
PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company was incorporated in 1925 under the laws of Nova Scotia, Canada. The
Company generates electricity in Bolivia from 14 hydroelectric power stations
and one thermal facility. In 1998, electricity generated by the Company
represented approximately 27% of all electricity generated in Bolivia. As of
December 31, 1998, the Company's maximum generating capacity was 190 megawatts
("MW"). The Company was also engaged in the distribution of electricity in
Bolivia until January 1996, when the Company sold its distribution assets in
order to comply with Bolivia's new Electricity Law. Since that time, the
Company has been engaged in the generation of electricity and in the
transmission and sale of its generated power primarily to Electricidad de La Paz
S.A. ("Electropaz") and Empresa de Luz y Fuerza Electrica de Oruro, S.A.
("ELF"), two former subsidiaries of the Company which are now independently
owned. Electropaz distributes electricity to the cities of La Paz and El Alto
and surrounding areas and ELF distributes electricity to the City of Oruro and
to the customers of the Company's former Oruro division. According to the 1992
census, the metropolitan areas of La Paz and El Alto had a population of
approximately 1.1. million and the metropolitan area of Oruro had a population
of approximately 180,000. In addition to its former distribution activities,
during 1995 the Company also was engaged in the manufacturing of concrete
utility poles through its former subsidiary, Compania Administradora de Empresas
("CADE"), which was also sold in January 1996. See "Restructuring of the
Bolivian Electric Industry," "Continuing Operations," and "Former Distribution
Activities," below.
The Company intends to build new electric generating facilities in Bolivia. In
addition, the Company will consider developing, owning and operating electric
generation projects within Bolivia for the export of electricity to the
neighboring electricity markets of Argentina, Brazil, Chile and Peru. It also
will consider investments in electric generation projects or other energy-
related investment opportunities within those countries and throughout Latin
America.
As described below under "Expansion and Modernization Projects," the Company is
completing the process of expanding by approximately 65 MW its major
hydroelectric facilities in the Zongo Valley. During 1998, the Company
completed the expansion of the Cuticucho and Botijlaca facilities by 12.7 MW
and 3.5 MW respectively. Upon the expected completion of the Zongo Project in
mid 1999 the Company's total generating capacity of 218 MW will represent
approximately 27% of all capacity owned by the four major generators in Bolivia,
making the Company the largest hydroelectric generator in Bolivia and the second
largest generator in Bolivia overall.
CHANGE OF CONTROL
The Offer. On November 13, 1996, the Company entered into a Purchase Agreement
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with a wholly-owned subsidiary of NRG Energy, Inc. ("NRG"), pursuant to which
the subsidiary made a cash tender offer (the "Offer") for all of the outstanding
shares of the Company's Common Stock at $43.00 per share. Prior to the
expiration of the Offer, Tosli Investments B.V. succeeded to all of the
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subsidiary's rights and obligations under the Purchase Agreement. The Offer
expired on December 18, 1996, and promptly thereafter Tosli purchased all of the
shares that had been validly tendered and not withdrawn. As a result, Tosli
acquired and now owns 4,060,732, or 96.6%, of the Company's outstanding shares,
and became entitled to designate all of the members of the Company's Board of
Directors. Tosli is a Netherlands limited liability company that is equally
owned, through subsidiaries, by NRG and Nordic Power Invest AB, a Swedish
corporation ("NPI").
NRG is one of the leading participants in the independent (i.e., non-utility)
power generation industry in the U.S. Established in 1989 and headquartered in
Minneapolis, Minnesota, NRG is principally engaged in the acquisition,
development and operation of independent power production and cogeneration
facilities, thermal energy production and transmission facilities and resource
recovery facilities. NRG is a Delaware corporation that is wholly owned by
Northern States Power Company. Northern States is a regional investor-owned
electricity and natural gas utility that provides services to the states of
Minnesota, North Dakota, South Dakota, Wisconsin and Michigan. Its shares are
listed on the New York Stock Exchange.
NPI is a wholly-owned subsidiary of Vattenfall AB, a Swedish Corporation
("Vattenfall") that is wholly owned by the State of Sweden. Vattenfall is the
largest energy company in the Nordic market. NPI is responsible for
Vattenfall's investments outside Europe. NPI and Vattenfall are headquartered
in Stockholm, Sweden.
While the Company's loan agreement (the "CAF Agreement") with Corporacion Andina
de Fomento ("CAF") is in effect, NRG and NPI are required to maintain a combined
ownership position of at least 50% of the Company unless the voting stock of the
Company is publicly traded and at least 20% of the voting power is held by
persons other than NRG, NPI and their affiliates. See "CAF Agreement" and
"Shareholder Maintenance Agreement" below.
Stockholders Agreement. Pursuant to a Stockholders Agreement, dated as of
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December 13, 1996, NRG and NPI have made various agreements relating to their
ownership of interests in Tosli and the Company.
Under the Stockholders Agreement, NRG and NPI agreed that they would observe the
following basic principles governing the ownership and management of the Company
and Tosli:
(i) NRG and NPI shall cooperate in a spirit of good faith and fair
dealing in an effort to develop a harmonious working relationship for
the purpose of maximizing the long-term value of their investments in
the Company.
(ii) The Company shall be operated as an independent, self-sufficient
entity. Neither NRG nor NPI shall have authority to bind or make
commitments on behalf of the Company or Tosli.
(iii) Neither NRG nor NPI shall be obligated to make any equity investments
in or loans to the Company or Tosli or issue guarantees in favor of
the Company or Tosli.
(iv) The Board of Directors of the Company shall make decisions on the
basis of the benefit to the Company of such decisions rather than the
partisan interest of either NRG or NPI; provided, however, that while
Tosli holds any shares of the Company's Common Stock, Tosli has
agreed to take all lawful action so that NRG and NPI may vote
(subject to the corporate governance provisions of the
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Stockholders Agreement) those shares in the same proportions as their
respective percentage ownership interests in Tosli .
(v) The Company shall deal at arm's length with NRG and NPI.
(vi) NRG and NPI shall cooperate fully to the end that the Company and
Tosli will qualify for a "participation exemption" under the laws of
the Netherlands.
(vii) The Company shall conduct its business with due consideration to
applicable environmental standards.
Under the Stockholders Agreement, NRG and NPI have agreed that the Board of
Directors of the Company will consist of three designees of NRG, three designees
of NPI and three additional directors who are mutually satisfactory to NPI and
NRG.
The Stockholders Agreement also provides that "Major Matters" would require the
approval of at least six directors. Major Matters include (i) amendments to the
Company's Memorandum or Articles of Association, (ii) approvals of mergers and
other corporate reorganizations of the Company, (iii) changes in the Company's
dividend policy, (iv) any borrowings or guarantees by the Company in excess of
$10,000,000 in any one case, (v) changes in the Company's auditors, (vi) changes
in the Company's business objectives by entering into businesses other than the
generation, transmission and/or distribution of heat or electricity, or services
related thereto, (vii) any material amendments of the Company's material
agreements, (viii) any material commitments regarding the Mato Grosso Project or
the Miguillas Project, or (ix) any exit from the Company's existing rate base.
In addition to the Board approvals specified above, the matters referred to in
clauses (i), (iv) and (vi) would require the concurrence of at least one
director designated by NPI.
The Board approvals specified above would be in addition to the approvals, if
any, required of shareholders under applicable law and the Articles of
Association.
Under the Stockholders Agreement, the Chairman of the Board and the Secretary of
the Company are initially to be designees of NRG and thereafter the Chairmanship
is to be rotated every two years, and the position of Secretary is to be rotated
annually, between designees of NPI and NRG. It is the intention of the parties
that the Chairman not have a casting vote.
Under the Stockholders Agreement, the shares of the Company held by Tosli, and
the shares of Tosli itself, are subject to rights of first refusal and rights of
approval of transferees in favor of NRG and NPI where the proposed transfer
includes, directly or indirectly, 25% or more of the then outstanding shares of
the Company's Common Stock or would reduce the combined holdings of NRG and NPI
to less than 51% of the then outstanding shares of the Company's Common Stock.
Pursuant to the Stockholders Agreement, in the event of the transfer of
effective working control of NPI by Vattenfall, or of NRG by Northern States
(other than a spin-off or split-off of NRG to all shareholders of Northern
States or a change of control of Northern States or Vattenfall), then the other
party would have a right to purchase the first party's interest in the shares of
the Company held by Tosli and in Tosli at fair market value.
The Stockholders Agreement states that each party would be free to pursue other
business opportunities without offering them to the Company, except as otherwise
required by applicable law. However, each party has agreed to ensure that none
of its unilateral actions would be detrimental to the Company.
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RESTRUCTURING OF THE BOLIVIAN ELECTRICITY INDUSTRY
Since 1994, the electricity industry in Bolivia has been restructured in several
significant respects. Previously, Bolivia's electricity sector was comprised of
two principal generators, the Company and the government owned power entity,
Empresa Nacional de Electricidad ("ENDE"), which operated several thermal power
stations and two hydroelectric power stations. During peak periods, the Company
purchased electricity (equal to approximately 29% of its total electricity sales
in 1995) from ENDE, and it competed with ENDE for the sale of bulk power to
mines and other industrial users of electricity. Together they served 97% of
the total national demand in 1995. The Company and ENDE each owned and operated
transmission networks which were interconnected.
In March 1994, the Bolivian Congress enacted legislation known as the
"Capitalization Law" providing for the transfer to private entities of certain
Government-owned industries, including ENDE. Under the Government's
capitalization program, private investors in these industries are invited to
make a capital contribution and own a 50% equity interest in the entity to be
capitalized and to enter into a long-term contract to manage the entity. The
remaining 50% equity interest in the capitalized entity is to be transferred to
pension funds for the benefit of the Bolivian people. Pursuant to the
Capitalization Law, during 1995 the Government divided ENDE into three separate
generating companies (two thermal-powered generating companies and one
hydroelectric generating company), and a 50% interest in each company was sold
to private entities which now manage the capitalized companies.
In December 1994, the Bolivian Congress provided for the further restructuring
of the Bolivian electricity industry by enacting a new Electricity Law which
replaced the existing Electricity Code. The new Electricity Law provides for
the separation of the generation, interconnected transmission and distribution
activities of the electricity industry. It also requires entities which control
more than one such activity to divest themselves of control of the other
activities. The Company divested itself of its distribution assets in January
1996 in order to comply with this provision of the new Electricity Law.
In anticipation of the mandated sale of its distribution assets, in the first
part of 1995 the Company formed a new subsidiary, Electropaz, and subsequently
transferred its La Paz Division distribution assets to Electropaz. The Company
also transferred its Oruro Division distribution assets and customers to its
former 95% owned subsidiary, ELF, on July 1, 1996. Bids for the purchase of
Electropaz and ELF were solicited through a competitive bidding process. After
carefully considering each bid, the Company accepted the bid of Iberdrola
Investimentos Sociedade Unipessoal L.D.A. ("Iberdrola"), a Portuguese company.
Iberdrola submitted an aggregate bid of $65.3 million. At the closing held on
January 11, 1996, Iberdrola paid to the Company $57.5 million in cash and
deposited $7.8 million in an escrow account pending the satisfaction of certain
conditions, including the grant by the Government of a distribution concession
to ELF, the transfer of certain distribution assets of the Company's Oruro
Division to ELF and the extension of ELF's service area to include the Company's
Oruro Division distribution customers. In February and July 1996 and November
1997, $6 million, $1.4 million and $0.4 million respectively of the escrowed
funds were released to the Company following the satisfaction of such
conditions. The Company and Iberdrola subsequently agreed to a post-closing
adjustment of $513,000 to reflect changes in the book value of Electropaz and
ELF, resulting in an increase in the purchase price from $65.3 million to $65.8
million.
In connection with the sale to Iberdrola, the Company entered into an
Electricity Supply Contract with Electropaz which provides that the Company
shall sell, and Electropaz shall purchase, all of the electricity that the
Company can supply, up to the maximum amount of electricity required by
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Electropaz to supply the requirements of its concession area. The Electricity
Supply Contract expires in December 2008. On February 26, 1996 the Company and
ELF entered into an Electricity Supply Contract on terms that are substantially
similar to the terms of the Electropaz Electricity Supply Contract. See
"Continuing Operations - Major Customers" below.
As a result of the restructuring of the Bolivian electricity industry and the
sale by the Company of its distribution assets, the Company is now primarily a
wholesale electricity supplier to two major electricity distributors in Bolivia
and no longer supplies electricity directly to Bolivian retail consumers in the
Company's concession area.
CONTINUING OPERATIONS
CONCESSION
The Company operates its electric generation and localized transmission business
under a 40-year Concession which was granted by the National Government in 1990
and subsequently was amended on December 30, 1994 and March 17, 1995 by two
Supreme Resolutions.
The Concession, as amended, includes the following pertinent provisions: (i) The
Concession is for a period of 40 years commencing on October 1, 1990 and
expiring on September 30, 2030; (ii) for a period of seven years from and after
December 30, 1994, the Company shall be entitled to the 9% rate of return
established under the old Electricity Code; thereafter, for a period of seven
years 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; and
from and after 14 years, the Company shall be subject to the marginal cost
pricing system established under the new Electricity Law; (iii) the Company will
comply with the new Electricity Law by, among other things, disposing of its
distribution assets by June 30, 1996 (which the Company has done); (iv) the
Company will retain ownership of its assets upon termination of the Concession;
(v) the Company is required to complete certain designated projects in the Zongo
Valley within specified time periods; (vi) the Company must supply power to meet
an annual growth in demand in its concession area of up to 6% and if demand in
an area grows at a rate in excess of 6% and the Company declines to supply such
demand in excess of 6%, another party may be granted a concession in the area
(since the Company is no longer engaged in distribution activities, the Company
believes that this requirement is no longer applicable).
If the Company fails to meet its obligations under the Concession, including
(iii) (v), and (vi) above, the Government may, depending on the nature of the
failure, terminate the Concession either in part or in its entirety and grant a
new concession to a third party.
ELECTRIC POWER STATIONS
The Company owns and operates 14 hydroelectric power stations and one gas-fired
electric generation facility, which vary in size and together currently generate
190 MW of electricity. Eleven of the Company's power stations serve the La Paz
area, with a total coincidental capacity of 171 MW, and four serve the Oruro
area, with a total coincidental capacity of 19 MW, all with associated dams and
aqueducts. The Company also owns and operates 69 Kilovolt and 115 Kilovolt
transmission lines.
The table below lists the Company's electric power stations, the year operations
commenced, total installed capacity, total coincidental capacity ("maximum
capacity") and availability
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<TABLE>
<CAPTION>
TOTAL TOTAL AVAIL-
NO. YEAR INSTALLED COINCIDENTAL ABILITY
OF OPERATIONS CAPACITY CAPACITY FACTOR
POWER STATION UNITS COMMENCED (MW) (MW) (1) (2)
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<S> <C> <C> <C> <C> <C>
LA PAZ DIVISION
Achachicala 2 1909 4.2 4.0 98.0
1 1952
Zongo Valley
Zongo 1 1997 10.5 10.5 98.3
Tiquimani 1 1997 9.5 9.5 99.5
Botijlaca (3) 1 1937 7.4 7.0 63.7(6)
1 1940
1 1998
Cuticucho (4) 1 1942 22.2 21.4 95.1
1 1944
1 1955
1 1965
1 1998
Santa Rosa 1 1952 12.7 12.5 96.0
1 1955
1 1997
Sainani 1 1956 10.4 10.4 91.4
Chururaqui 2 1966 25.6 25.5 87.4(7)
Harca 2 1969 28.4 26.1 95.3
Cahua 2 1974 29.7 26.9 92.3
El Alto - Kenko 2 1995 30.0 17.6(5) 98.2
---- ----- ------
SUB TOTAL 25 190.6 171.4
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ORURO DIVISION
Miguillas Valley
Miguillas 2 1931 3.2 2.5 98.1
Angostura 1 1936 4.2 3.7 99.1
1 1958
Choquetanga 1 1939 7.4 6.5 90.9
2 1944
Carabuco 1 1958 6.1 6.1 99.2
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SUB TOTAL 8 20.9 18.8
---- ----- ------
TOTAL 33 211.5 190.2
==== ===== ======
</TABLE>
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(1) Coincidental or "maximum" capacity represents the total capacity of each
power station if all units are in operation at the same time.
(2) Availability factor is calculated as a percentage of the number of days
during the 12 months ended December 31, 1998 on which the specified plant
was available to generate electricity.
(3) The third Botijlaca unit (former Zongo No.3 unit) entered into commercial
operation in July 1998.
(4) The Cuticucho plant expansion entered into commercial operation in
February, 1998.
(5) 41% derating due to the altitude.
(6) Two units were out of service for over two months while installation of unit
No.3 took place - see (3) above.
(7) Both units of the Chururaqui plant were out of service since November 30,
1998 due to a landslide.
MAJOR CUSTOMERS
The Company is now primarily a wholesale electricity supplier to two major
electricity distributors, Electropaz in La Paz and El Alto, and ELF in Oruro.
In addition, at certain times when the Company's generation exceeds the
requirements of Electropaz and ELF, the Company sells electricity on the spot
market. The Company no longer supplies electricity directly to retail
consumers. In 1998, Electropaz and ELF accounted for approximately 80% and 14%
respectively of the Company's revenue.
The Company's Electricity Supply Contract with Electropaz expires in 2008 and
provides that the Company shall sell, and Electropaz shall purchase, all of the
electricity that the Company can supply, up to the maximum amount of electricity
required by Electropaz to supply the requirements of its concession area. The
Electricity Supply Contract, as originally signed and approved by Bolivian
regulatory authorities, require, among other things, that Electropaz deposit 75%
of its daily collections from electricity customers into an escrow account in
favor of the Company. Once a month, these escrowed amounts are to be delivered
to the Company and are to be applied by the Company to amounts owed to the
Company for electricity delivered to Electropaz under the Electricity Supply
Contract. In connection with the sale of Electropaz and ELF to Iberdrola, the
Company agreed with Iberdrola that the amount of the escrow would be reduced to
35% of Electropaz's daily collections.
On February 26, 1996, the Company and ELF entered into an Electricity Supply
Contract on terms that are substantially similar to the terms of the Electropaz
Electricity Supply Contract.
FORMER DISTRIBUTION ACTIVITIES
As discussed above, in January 1996 the Company divested itself of its
distribution assets in accordance with the new Electricity Law. The following
paragraphs describe the Company's distribution activities as they existed during
1995.
The Company's retail distribution activities served the cities of La Paz and El
Alto, through the Company's La Paz Division, and the City of Oruro, through the
Company's Oruro Division and its former subsidiary, ELF. The Company owned and
maintained a distribution network to service its customer base. In 1995, retail
sales of electricity by the Company accounted for approximately 45% of total
retail sales by all distributors in Bolivia. The following table provides
summary information on the transmission and distribution lines of the Company
during 1995.
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<TABLE>
<CAPTION>
TRANSMISSION DISTRIBUTION
(KM) (KM)
<S> <C> <C>
La Paz Division............................ 400 2,605
Oruro Division............................. 367 566
--- -----
Total...................................... 767 3,171
=== =====
</TABLE>
During 1995, no customer accounted for more than 5% of the Company's operating
revenues.
The Company was not able to realize sales on all the electricity it generated or
purchased because of losses during transmission and distribution. The Company's
transmission losses during 1995 amounted to approximately 3% of the total
electricity generated and its distribution losses amounted to approximately 11%
of the total electricity generated or purchased. Through a variety of programs,
the Company was able to reduce its total losses from 19% in 1988 to
approximately 14% as of December 31, 1995.
During 1995 the Company's largest operating cost was the cost of electricity
purchased from ENDE. In 1995, the Company purchased electricity from ENDE in
the amount of $18.8 million, which represented 41.7% of the Company's total
operating expenses, and it sold surplus electricity to ENDE in the amount of
$0.7 million. The Company purchased electricity from ENDE in order to meet
additional demand during peak periods, and it sold electricity to ENDE during
off-peak periods.
The Company was permitted to include as an operating cost the cost of
electricity purchased from ENDE, which was more expensive than electricity
generated by the Company, and to recover such costs through the rates which the
Company charged to its consumers.
EXPANSION AND MODERNIZATION PROJECTS
ZONGO PROJECT
Under the terms of its Concession, the Company is obligated to expand its
hydroelectric generation capacity. This expansion, which the Company refers to
as the "Zongo Project," consists of adding new generation facilities and
expanding existing facilities located in the Zongo Valley and constructing
transmission lines to transmit the increased generation capacity. Construction
of the Zongo Project was commenced in 1995 and is scheduled to be completed in
mid-1999. The Company estimates that it will be required to spend approximately
$6 million to complete the generation facilities associated with the Zongo
Project, which is expected to add approximately 65 MW to the Company's
generation capacity. In addition the Company will spend $4 million to complete
the transmission facilities associated with the Zongo Project. Under the
Concession, the Company was also obligated to expand its La Paz distribution
facilities, and during 1995 the Company expended approximately $4.8 million for
this purpose. Since the Company has divested itself of all of its distribution
assets, it no longer is required to spend funds for the expansion of the La Paz
distribution system. However, it is anticipated that Electropaz will invest
substantial funds over the next few years to complete the expansion of its
electric distribution capability in and around La Paz.
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Upon completion of the entire Zongo Project, the Company will be entitled to
include the cost thereof, as previously agreed upon by the Government and the
Company, in its rate base. However, any cost overruns not approved by the
Government are to be absorbed by the Company and may not be passed on to the
Company's customers.
The six projects listed below, together comprise the Zongo Project. The Company
anticipates that the entire Zongo Project will be completed in mid-1999.
1. THE TIQUIMANI PROJECT. The Tiquimani plant was constructed to provide 9.5
---------------------
MW and entered into service in January, 1997.
2. THE CUTICUCHO EXPANSION. The 8 MW Cuticucho plant was expanded by 12.7 MW
-----------------------
and entered into service in February, 1998.
3. THE SANTA ROSA EXPANSION. The Santa Rosa plant was expanded by 3 MW and
------------------------
entered into service in December, 1997.
4. THE ZONGO EXPANSION. The Zongo plant expansion consisted of the
-------------------
installation of a 10.6 MW unit to replace the existing 4.6 MW and entered
into service in September, 1997.
5. THE BOTIJLACA EXPANSION. The Botijlaca plant was expanded to provide an
-----------------------
additional 3.5 MW and entered into service in July 1998.
6. THE HUAJI PROJECT. The Huaji plant is to be constructed to provide 29 MW
-----------------
by May 1999.
THE BULO - BULO PROJECT
The Company is involved in the development of a greenfield gas generation
facility (the "Bulo-Bulo project") at the wellhead of a gas field near
Cochabamba in Bolivia. The Bulo-Bulo project will consist of an 80 MW natural
gas fired facility and is being developed in cooperation with another company.
The electricity generated by this facility will be fed into the Bolivian grid.
Construction of this facility is expected to begin in early August 1999 and
commercial operation is planned for early 2000. Financial alternatives for the
project will include borrowings from financial institutions and equity
contributions in amounts which have yet to be determined. Once the Bulo-Bulo
project is completed, it is expected that the Company will be the operator of
the project.
MIGUILLAS PROJECT
Under the terms of the Concession, the Company also has the right to expand its
facilities in the Miguillas Basin (the "Miguillas Project") 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 Project.
During 1998 the Company actively pursued the Miguillas Project and 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
Project which would add approximately 160 MW of
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generating capacity, principally for the domestic market. The Company also
actively explored the financing alternatives for the Miguillas Project.
On August 10, 1998 an administrative action was filed before the Superintendency
of Electricity by a private Bolivian citizen, seeking the termination of the
Company's concession. See "Item 3 - Legal Proceedings" and Note 6c to the
Company's Consolidated Financial Statements. The Miguillas project has been put
on hold as a consequence of this action, due to the uncertainties relating to
the outcome of the claim and to the unavailability of financing alternatives for
the Miguillas Project if the claim is not resolved in the Company's favor and
certain other factors.
PUERTO SUAREZ PROJECT
In September 1997 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 and future advancement of the Puerto Suarez Project will
be conditioned on obtaining a satisfactory power purchase agreement, which will
thereafter lead to the study of financial alternatives for the Project. As
these conditions have not yet been met, there can be no assurance that the
Project will be ultimately undertaken.
FINANCING EXPANSION AND MODERENIZATION PROJECTS
The Company estimates that during the next two years approximately $17 million
will be required for completion of the Zongo Project and for the Company's
regular capital expenditure program. The Company estimates that it will be
required to spend approximately $6 million to complete the Zongo Project
generation facilities, $4 million to complete the Zongo Project transmission
facilities, and approximately $7 million on its regular capital expenditure
program. Based on revised and updated projections, which include the settlement
of certain claims from contractors and redesign of civil works, the total cost
of the Zongo Project, including expenditures through December 31, 1998 of $105
million, is estimated to be $115 million ($100 million for generation facilities
and $15 million for transmission facilities).
The Company has funded the Zongo Project and its regular capital expenditure
program with borrowings from financial institutions or possible equity
financings, equipment financing, the proceeds it received from the sale of
Electropaz, ELF and CADE, and from internal cash generation. At December 31,
1998, $8 million of loan proceeds under the CAF Agreement was available for this
purpose. See "CAF Agreement" below. During 1998 and 1997, the Company expended
$28 million and $39 million, respectively, on the Zongo Project. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in relation to borrowings by the
Company from CAF and special dividends paid by the Company. The capital
requirements discussed above do not include possible funding requirements of the
Bulo - Bulo Project, the Miguillas Project or the Puerto Suarez Project
referred to above.
During 1998, NRG and NPI 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 ("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
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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 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 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. The Company periodically applies to the Government for
rate increases sufficient to provide a 9% rate of return based on the Company's
current operating results and its projection of future revenue and expenses.
Prior to 1990, the Government failed to approve rates sufficient to produce a 9%
return or to adjust rates to compensate for shortfalls. As of December 31,
1989, the accumulated deficit for the period 1968 through 1989 was approximately
$53.8 million. In connection with the negotiations between the Company and the
Government for the Concession, the Company agreed to waive $40.8 million of the
accumulated deficit. The $13 million balance of such deficit will also be
waived by the Company in the event of a favorable outcome for the Company of the
legal proceeding described in "Item 3 - Legal Proceedings" and Notes 4 and 6(b)
to the Company's Consolidated Financial Statements.
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, as the increases granted do not enable
the Company to obtain, both in 1998 and 1999, the 9% rate of
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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.
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 requests a 23% rate increase as from January
1, 1999, over and above the increases already granted, as described in the
previous paragraph. By letter dated February 24, 1999, the Superintendency of
Electricity indicated that a review of the Company's rate case study will be
conducted as from mid - March 1999. The Company cannot predict the final
outcome of this matter.
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. Although
Bolivia suffered from periods of hyperinflation in prior years, the Government
has been successful in maintaining a relatively low rate of inflation since
1986. While the Company does not anticipate that there will be a period of
hyperinflation in the near future, it should be recognized that in a period of
hyperinflation there can be no assurance that dollar indexing would adequately
protect the Company from severe currency fluctuations. See "The Republic of
Bolivia - Inflation" below.
The Company is 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 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.
EMPLOYEES
As of December 31, 1998, the Company and Servicios Energeticos S.A., the
Company's wholly -owned subsidiary had 320 employees. The Company has
contracts with local labor unions covering such matters as representation,
general working conditions, seniority, wages, and arbitration. Labor unions and
all labor matters are under the supervision of the Ministry of Labor. The
Company considers its employee relations to be good. The Company's work force
is supplemented by work done by independent contractors.
COMPETITION WITHIN BOLIVIA AND THROUGHOUT LATIN AMERICA
Until ENDE was capitalized and separated into three separately owned generating
companies (two thermal powered generating companies and one hydroelectric
generating company) during 1995, ENDE was the only other major electricity
producer in Bolivia and was the Company's principal competitor. In the Bolivian
market, the Company now competes with the three independently owned generating
companies which now own and operate the generation business formerly owned and
operated by ENDE. These new Bolivian generators are Empresa Electrica Corani
S.A. (126 MW hydroelectric capacity), Empresa Electrica Guaracachi S.A. (210 MW
thermal capacity), and Empresa Electrica Valle Hermoso S.A. (177 MW thermal
capacity) which are owned by investment groups led by three U.S. utilities,
Dominion Energy (a subsidiary of Dominion Resources), Energy Initiatives, Inc.
(a subsidiary of General Public Utilities), and Constellation Energy (a
subsidiary of Baltimore Gas & Electric), respectively. The Company anticipates
that it will compete with these three and other companies for new electricity
projects within Bolivia as well as for new projects to export electricity from
within Bolivia to neighboring countries. An overall limit on the amount of
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<PAGE>
total Bolivian interconnected generation capacity owned by the Company or any
one of these three other generators has been set by the new Electricity Law at
35%.
Pursuant to the Concession, the Company is entitled to the 9% rate of return
established under the old Electricity Code until December 2001, after which it
shall be entitled, at its option, to continue that pricing system for another
seven years or to change to the marginal cost pricing system established under
the new Electricity Law. On the other hand, the Company's three competitors are
required to price all of their generated power exclusively under the marginal
cost pricing system established under the new Electricity Law. The Company
believes that its flexible pricing system may provide it with more stable and
predictable cash flow and earnings than that of its competitors. It is also
important to note that the Company's electricity price on a per kwh basis is
lower today than that of the other three Bolivian generators. See "Regulation
and Rate Setting" above. Under the new Electricity Law, the Company and its
three competitors are the only four companies permitted to own and operate
interconnected electric generation facilities in Bolivia until the end of 1999
and to own electric generation facilities for export from Bolivia until December
1998. The Company expects the expiration of these exclusivity periods will not
materially and adversely affect its existing business, but it will likely result
in increased competition for new projects that the Company might pursue.
As explained above under "Major Customers", the Company has entered into an
Electricity Supply Contract which provides that the Company shall sell, and
Electropaz shall purchase, all of the electricity that the Company can supply,
up to the maximum amount of the electricity required by Eletropaz to supply the
requirements of its La Paz concession area. Also, as explained above, the
Company has entered into an Electricity Supply Contract with ELF on terms that
are substantially similar to the terms of the Electropaz Electricity Supply
Contract in order that ELF can supply the requirements of its Oruro concession
area.
In addition to the competition it faces from Empresa Electrica Corani S.A.,
Empresa Electrica Guaracachi S.A. and Empresa Electrica Valle Hermoso S.A. for
both new internal and export electric power projects in Bolivia, the Company
also faces competition for new "greenfield" development projects and for the
acquisition of or investment in existing electric power projects throughout
Latin America from numerous international independent power project companies
and from electric utility companies, such as those which led the successful
investor groups in the three other Bolivian generators.
ENVIRONMENTAL REGULATIONS
The Republic of Bolivia for the first time enacted legislation to protect the
environment in 1991. Regulations implementing this legislation were adopted by
the Government in 1996. The Company is complying with these new regulations and
it is possible that the Company may be required to make future capital
expenditures in this regard. However, management of the Company believes that
any required actions or expenditures to comply with the environmental
regulations will not have a material adverse effect on the Company's
consolidated financial condition.
THE REPUBLIC OF BOLIVIA
GENERAL
Bolivia has an area of 424,164 square miles, approximately equal to the combined
size of France and Spain. Bolivia shares its borders with the growing
electricity markets of Argentina, Brazil, Chile and Peru, as well as with
Paraguay. Geographically, the country is divided into three distinct regions:
the
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<PAGE>
lowland plains, which are in the eastern region of the country, the highland
valleys, which are in the middle of the country, and the highlands, or
Altiplano, located in the western part of the country between the cities of La
Paz and Oruro. Over half of Bolivia's terrain is relatively low-lying, and this
section of the country has substantial timber, oil and gas reserves and is
suited for agriculture. The upper valleys and high plateau formations contain
most of the country's mineral deposits and are actively mined.
Out of Bolivia's total population of approximately 6.9 million, 75% live in the
provinces of La Paz, Cochabamba, and Santa Cruz. Overall, approximately 58% of
the population live in urban areas. The principal cities are La Paz, Santa Cruz
and Cochabamba with approximate populations of 1.1 million (including El Alto),
692,000 and 408,000, respectively. Spanish, Quechua and Aymara are the official
languages.
GOVERNMENT AND POLITICAL SYSTEM
The Bolivian Constitution provides for a tripartite system of government: an
executive branch headed by a President; a legislative branch made up of a
bicameral congress; and a judicial branch, of which the Supreme Court is the
highest authority. The President's term of office is five years; the Bolivian
Constitution does not allow successive terms. The Congress is comprised of a
27-member Senate, consisting of three senators from each of the nine
departments, and a 130-member Chamber of Deputies. Both senators and deputies
hold office for five years.
The military dominated the political arena in Bolivia until 1982 Since then,
civilian constitutional governments have been democratically elected The
current National Government, headed by President Hugo Banzer Suarez, was elected
in June 1997 to a five-year term which expires in August 2002.
GOVERNMENT PARTICIPATION IN THE ECONOMY AND THE CAPITALIZATION PLAN.
Prior to 1992, there were a number of important sectors of the economy that were
highly dependent on Government owned and controlled enterprises, including oil
and gas production, sugar and dairy production, and water and sewage services.
In 1992 the Government initiated a privatization plan that affected minor
enterprises owned by regional development corporations. Companies that were
sold included those in the agro-industrial and lodging sectors.
Since the enactment of the Capitalization Law in 1994, several larger
enterprises have been capitalized. Under the Capitalization Law, investors are
permitted to make a capital contribution and own up to 50% of the enterprise to
be capitalized and are granted a contract to manage the business. The
Government-owned entities that have been capitalized include ENDE (electric
generation), Lloyd Aereo Boliviano (airline), Empresa Nacional de
Telecomunicaciones (telecommunications), Empresa Nacional de Ferrocarriles
(railways) and Yacimientos Petroliferos Fiscales Bolivianos (oil). In addition,
the Government privatized the Cochabamba electric distribution company (ELFEC)
by selling the entire company to a private entity for $52 million.
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<PAGE>
EXCHANGE RATES
The official rate of exchange for U.S. dollars is set daily by Bolivia's Central
Bank. There have been no restrictions on the transfer of foreign currency out
of Bolivia since 1985, and the exchange rate of Bolivianos to dollars has been
relatively stable in recent years. The following table sets forth for the
periods and dates indicated certain information concerning the exchange rate for
dollars expressed in Bolivianos per $1.00.
<TABLE>
<CAPTION>
YEAR LOW(1) HIGH(1) AVERAGE(2) YEAR
END
<S> <C> <C> <C> <C>
1994 4.48 4.70 4.62 4.70
1995 4.70 4.94 4.82 4.94
1996 4.94 5.19 5.08 5.19
1997 5.19 5.37 5.26 5.37
1998 5.37 5.65 5.51 5.65
</TABLE>
(1) Reflects the low and high rate, as the case may be, for each respective
year.
(2) Reflects the average rate for each respective year. On December 31,
1998 the exchange rate was 5.65 Bolivianos per $1.00.
Source: Central Bank of Bolivia.
INFLATION
The following table sets forth the consumer price index for the years 1994 to
1998.
<TABLE>
<CAPTION>
YEAR RATE OF INFLATION
<S> <C>
1994 8.5%
1995 12.6%
1996 7.6%
1997 6.7%
1998 4.4%
</TABLE>
Source: Bolivian National Institute of Statistics.
CAF AGREEMENT
The Company entered into the CAF Agreement in August 1997. CAF is a
multilateral, supernational financial institution, the shareholders of which are
the member countries of the Andean Community (i.e., Bolivia, Colombia, Ecuador,
Peru and Venezuela), plus Chile, Mexico, Trinidad and Tobago, Brazil, Paraguay,
Jamaica and 22 private commercial banks. The CAF Agreement provides an A Loan
of up to $30,000,000 (the "A Loan") to be provided by CAF and a B Loan of up to
$45,000,000 (the "B Loan") to be provided by ING Baring (U.S.) Capital
Corporation (or an affiliate) and other Participants.
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<PAGE>
In December 1997 the Company borrowed $61,700,000 under the CAF Agreement. A
further $13,300,000 were borrowed in November 1998 pursuant to this facility and
a prepayment of a corresponding amount of other outstanding indebtedness
amounting to $ 9,476,994 took place.
The loans under the CAF Agreement will be amortized in 18 semi-annual
installments of varying amounts beginning January 31, 1999 and ending July 31,
2007.
The A Loan may be voluntarily prepaid upon 90 days notice in whole or in part in
an amount of not less than $5,000,000 beginning on July 31, 1999 subject to the
payment of (i) a prepayment fee of 2.00% if a prepayment occurs on or before
July 31, 2003, or 1.00% if a prepayment occurs thereafter and (ii) applicable
breakage costs. The B Loan may be voluntarily prepaid in whole or in part at
any time upon 90 days notice, subject to payment of applicable breakage costs.
Any voluntary prepayment will be made pro rata between the A Loan and the B
Loan, except that CAF may elect to waive pro rata voluntary prepayment and allow
voluntary prepayment of B Loan amounts only. Voluntary prepayments shall be
applied pro rata to remaining principal payments due on the A Loan and the B
Loan.
Certain mandatory prepayments will be required in the event of asset sales by
the Company in excess of a cumulative total of $15,000,000.
Interest is payable semi-annually in arrears at a rate equal to 6-month LIBOR
plus a margin of 4.5% on the A Loan and 6-month LIBOR plus a margin of 4.0% on
the B Loan. Overdue amounts will bear interest at a rate of 4.00% over the
amount otherwise payable.
The A Loan and the B Loan are collateralized by a mortgage on substantially all
of the Company's assets.
The CAF Agreement includes the following affirmative covenants, among others:
Unless CAF shall otherwise agree, the Company shall:
(a) conduct its business with due diligence and efficiency and in
accordance with sound financial and business practices, maintain its
corporate existence and good standing and qualify and remain qualified
to do business as a foreign corporation in the Republic of Bolivia and
each other jurisdiction in which the character of the properties owned
or leased by it therein or in which the transaction of its business is
such that the failure to qualify would have a Material Adverse Effect,
and maintain its assets and properties in good working order and
condition, ordinary wear and tear excepted;
(b) keep its properties and business insured with financially sound and
reputable insurers against loss or damage in such manner and to the
same extent as shall be no less than that generally accepted as
customary in regard to property and business of like character;
(c) as soon as available, but in any event within 60 days after the end of
each quarter of each fiscal year, furnish to CAF the Company's Form 10-
Q filed with the SEC and the Company's unaudited financial statements
for such quarter, a report on any factors which could reasonably be
expected to have a Material Adverse Effect and a certificate stating
that no Event of Default has occurred and is continuing, or if an Event
of Default has occurred and is continuing, the actions which the
Company intends to take to cure such Event of Default;
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<PAGE>
(d) as soon as available, but in any event within 120 days after the end of
each fiscal year, furnish to CAF the Company's Form 10-K filed with the
SEC, the Company's audited financial statements for such fiscal year,
together with an audit report; and a report by Price Waterhouse
certifying that the Company was in compliance with the financial
covenants contained in Section 6.02 of the CAF Agreement as of the end
of the relevant fiscal year or detailing any non-compliance;
(e) as soon as available, but in any event within 15 days after the end of
each fiscal quarter, furnish to CAF the Company's calculation of the
Debt Service Coverage Ratio ("DSCR") for the four quarters then ended,
and until completion of the Zongo Valley Expansion Project, a
construction progress report in form reasonably acceptable to CAF;
(f) within 90 days after the end of each of the Company's fiscal quarters,
furnish to CAF the Company's calculation of the Unrestricted Dividend
Balance including the amount of any dividends declared and/or paid to
the Company's shareholders which are intended to reduce the
Unrestricted Dividend Balance;
(g) take such actions as are necessary or required by CAF to cause the lien
of the security documents to attach to and be perfected, and continue
to be perfected, for the benefit of CAF;
(h) obtain, on or prior to the date required, and maintain in force (or
where appropriate promptly renew) all Permits necessary or advisable
for carrying out the Company's business and operations generally, and
comply with the Bolivian Electricity Laws and all other applicable
laws, rules and regulations, except in each case where failure to so
obtain, maintain in force or comply could not reasonably be expected to
have a Material Adverse Effect;
(i) obtain, make and keep in full force and effect all Permits and
registrations that may be required for the validity or enforceability
of the CAF loan documents, except to the extent failure to obtain, make
or keep Permits and registrations in full force and effect could not
reasonably be expected to have a Material Adverse Effect;
(j) obtain, on or prior to the date required, and maintain in force (or
where appropriate promptly extend), enter into all agreements necessary
or advisable for carrying out the Company's business and operations
generally, and comply in all material respects therewith, except to the
extent that any failure to so obtain, enter into and comply could not
reasonably be expected to have a Material Adverse Effect;
(k) furnish promptly to CAF copies of all material documents and reports
that the Company submits to any governmental authority, and take all
necessary action to permit CAF's representatives to (i) visit with
prior notice the premises of the Company and (ii) have access to the
Company's books and its auditors;
(l) promptly notify CAF upon the discovery by any officer of the Company of
the occurrence of (i) any Default or Event of Default; (ii) certain
other adverse events, developments or circumstances set forth in the
CAF Agreement;
(m) exercise all reasonable efforts to complete the Zongo Valley Expansion
Project no later than June 30, 1998, and in any event complete the
Zongo Valley Expansion Project by no later than required by each
Concession; and construct and complete the
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<PAGE>
expansion and construction of each of the projects specified in the
Resolutions as and when required by the Resolutions and for the cost
approved by the appropriate governmental authority;
(n) yearly on or about the anniversary of August 13, 1997, (i) furnish CAF
a certificate of the Company's chief financial officer setting forth
the Book Value of the Generating Assets, the book value of all other
assets which are part of the Collateral, the book value of the
remaining assets, and the Collateral Value Ratio, (ii) cause NRG and
NPI to deliver to CAF a certificate stating that the Sponsors are in
compliance with the ownership requirements set forth in the Shareholder
Maintenance Agreement, and (iii) deliver to CAF any revisions to the
Company's Corporate Environmental Policy;
(o) upon entering into any electricity supply contract which will commit
10% or more of the electrical capacity of the Company, or result in the
sale of 10% or more of the energy sold by the Company, and which
provides for the escrow of retail power sales revenues by the purchaser
thereunder for the benefit of the Company, the Company shall enter into
with CAF an agreement similar to Article 10 of the Contract of
Constitution of Guaranties, and shall cause the power purchaser and
applicable financial institution(s) to enter into Irrevocable
Instructions similar to those entered into by Electropaz, ELF and Banco
Mercantil;
(p) take such actions, either before or after a Default or Event of
Default, as may be requested by CAF to ensure or increase the
likelihood that the proceeds of any sale, auction or other disposition
of the Company's Generating Assets pursuant to Article 34 of the
Electricity Law will, to the extent otherwise payable to the Company
and the Company agrees that such proceeds shall be paid directly to CAF
by the corresponding awardee of the bid process provided for in said
Article, without the Company being entitled to receive such proceeds in
any manner whatsoever; and
(q) prepay the Loan in accordance with Section 3.04(b) of the CAF Agreement
and, if required by the intercreditor agreement between CAF and any
provider of Pari Passu Debt, any Pari Passu Debt, pro rata, to the
extent necessary to maintain the Collateral Value Ratio at all times at
a level no less than as specified in Section 6.02(g) of the CAF
Agreement.
The CAF Agreement includes the following negative covenants, among others:
Unless CAF shall otherwise agree, the Company shall not:
(a) declare or pay any dividend or make any distribution on its share
capital, or purchase, redeem or otherwise acquire 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 Sections 6.02(d)-(g) of the CAF
Agreement, (iii) the DSCR 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;
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<PAGE>
(b) transfer, convey, sell, lease or otherwise dispose of any part of its
business or assets, subject to certain limited exceptions;
(c) incur, assume or permit to exist any Indebtedness, except:
(i) the Loan;
(ii) Indebtedness which is subordinated to the Loan upon terms and
conditions acceptable to CAF;
(iii) Non-Recourse Debt;
(iv) the March 16, 1995 Loan Agreement between the Company and CAF in
the original principal amount of $13,233,571, provided that such
Indebtedness shall cease being permitted in the event that
borrowings under the CAF Agreement exceed $61,766,429;
(v) guaranties provided to third parties in connection with the Zongo
Valley Expansion Project and the Miguillas Expansion, which are
required by the Concession therefor; and
(vi) certain other Indebtedness.
(d) allow the Leverage Ratio to exceed 0.60/1;
(e) fail to maintain Tangible Net Worth of at least $65,000,000, or, except
as may result from payment of the January 1998 dividend, allow a
cumulative reduction of Tangible Net Worth in excess of 15% over any
period of four consecutive fiscal quarters;
(f) fail to maintain the Current Ratio at least 1.00/1;
(g) allow the Collateral Value Ratio to fall below 1.25/1 at any time;
(h) create or permit to exist any Lien, except Permitted Liens;
(i) enter into, any transactions with any Affiliate of the Company, other
than upon fair and reasonable terms no less favorable to the Company
than would obtain in a comparable arm's-length transaction with an
entity not an Affiliate of the Company;
(j) make any prepayment (whether voluntarily or involuntarily) or
repurchase of any long-term Indebtedness (other than the Loan), or
make, any repayment of any such Indebtedness pursuant to any provision
of any agreement or note which provides directly or indirectly for
acceleration of repayment in time or amount, unless in any such case it
shall, if CAF so elects, contemporaneously make a proportionate
prepayment or repayment of the principal amount then outstanding of the
Loan;
(k) terminate or assign, or materially amend or modify, or waive any
material provision of, any Concession, any Material Agreement, or any
electricity supply contract covering 10% or more of the electrical
capacity of the Company and Restricted Subsidiaries, or 10% or more the
energy sold by the Company and Restricted Subsidiaries, or allow any
Restricted Subsidiary to do so, except that the Company may, in respect
of, and as permitted by, the Electropaz Electricity Supply Contract,
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<PAGE>
and the ELF Electricity Supply Contract elect the marginal cost pricing
formula contemplated by Title V of the Electricity Law, so long as it
has provided CAF prior notice of its intent to do so;
(l) without the consent of CAF (which shall not be unreasonably withheld),
enter into any new electricity supply contract expected to commit 10%
or more of the electrical capacity of the Company, or result in the
sale of 10% or more of the energy sold by the Company;
(m) merge, amalgamate or consolidate with any other entity, or reorganize
its business, subject to certain exceptions set forth in the CAF
Agreement;
(n) cease doing business, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution);
(o) materially alter the scope of the Zongo Valley Expansion Project, or
schedule progress of construction such that completion of the stages of
the Zongo Valley Expansion Project could not reasonably be expected to
be attained by [the completion dates set forth in the CAF Agreement's
definition of such Project];
(p) settle or compromise any pending or threatened suit, action, claim,
dispute or proceeding which would have a Material Adverse Effect; and
(q) take any action, which could reasonably be expected to result in the
Company's loss of its exemption from Canadian taxation.
Events of Default:
The CAF Agreement includes the following Events of Default:
(a) default shall have occurred in the payment of any principal of the
Loan;
(b) default shall have occurred in the payment of any interest on the Loan
or any fee, reimbursement or other amount due to CAF under the Loan
Documents, and such default shall have continued for a period of five
business days;
(c) (i) default shall have occurred in the due observance or performance of
any term, covenant or agreement contained in specified sections of the
CAF Agreement; or (ii) default shall have occurred in the due
observance or performance of any other term, covenant or agreement
contained in the CAF Agreement and such default under this clause (ii)
shall have continued unremedied for a period of 30 days after the
Company becomes aware, or should have become aware, of such default;
(d) any representation or warranty, shall be found to have been incorrect
in any material respect as of the date it was made or confirmed and
shall continue to be incorrect for a period of 30 days after notice
thereof shall have been given to the Company by CAF;
(e) any Political Risk Event shall occur which, in the reasonable opinion
of CAF, has had or could reasonably be expected to have a Material
Adverse Effect;
22
<PAGE>
(f) the Company, or any of its "empresas vinculadas", or any of its
"accionistas o socios vinculados" (as such terms are defined in Article
2 of the Electricity Law), fails to comply with the ownership
restrictions set forth in Article 15 of the Electricity Law;
(g) the Company shall abandon the Zongo Valley Expansion Project, or any
substantial portion thereof, or cease working on the Zongo Valley
Expansion Project for a period in excess of 90 consecutive days
(excluding days where work could not progress due to adverse weather
conditions);
(h) any Permit required to conduct the Company's business is revoked,
suspended, withdrawn, or declared unenforceable, or material conditions
are added thereto, unless such revocation, suspension, withdrawal,
declaration or addition of material conditions would not have a
Material Adverse Effect;
(i) there shall have occurred certain bankruptcy or insolvency-related
events with respect to the Company, the Company's branch in Bolivia,
any Restricted Subsidiary, or any Sponsor;
(j) a material default shall have occurred with respect to any Indebtedness
of (other than the Loan) in excess of $1,000,000 individually, or in
excess of $3,000,000 in the aggregate, and such default shall have
continued for more than any applicable period of grace;
(k) any Lien created by the Security Documents ceases to be valid under
applicable law or ceases to be effective with the priority purported to
be created by the Security Documents and applicable filings and
recordings (subject to Article 35 of the Electricity Law and
corresponding regulations);
(l) any Sponsor fails to comply with the terms of the Shareholder
Maintenance Agreement;
(m) each of the voting power and aggregate capital stock of the Company
shall cease for any reason to be owned, directly or indirectly, by any
combination of NRG and Vattenfall (or, if Vattenfall owns at least 51%
of each of the voting power and capital stock of NPI, owned by NPI), in
amounts set forth in the CAF Agreement and the Shareholder Maintenance
Agreement;
(n) the Republic of Bolivia ceases to be a member of CAF;
(o) a Material Adverse Change occurs and is continuing;
(p) one or more judgments are entered against the Company or attachments
are obtained against its property, in excess of $1,000,000 individually
or $3,000,000 in the aggregate, or the operation or result of which
could reasonably be expected to have a Material Adverse Effect, and
which remain unpaid, unstayed on appeal, undischarged, unbonded, or
undismissed for a period of 60 days; or
(q) any material provision of the CAF Agreement or any other Loan Document
(or any component thereof) is or shall have become or been declared by
any Governmental Authority or party thereto (other than CAF) invalid,
illegal or unenforceable.
23
<PAGE>
The Bolivian Electricity Law imposes certain limitations on the lenders' ability
to exercise remedies with respect to their collateral. If the Company defaults
under the CAF Agreement and CAF seeks to exercise remedies that jeopardize the
normal supply of electricity, the Electricity Law requires CAF to apply to the
Superintendency of Electricity for preventive intervention, a mechanism which
allows an arm of Bolivia's energy regulatory body to supervise the operation and
administration of the Company for up to two years. If by the expiration of this
intervention period, the Company is unable to cure its default and normalize its
operations, the Superintendency of Electricity may revoke the Company's
Concession, conduct an auction, and transfer the Concession and the Company's
generating assets to a new concessionaire.
Certain Definitions
Under the CAF Agreement the following definitions apply (as to capitalized terms
used herein, but not defined below, see the more detailed list of definitions in
the CAF Agreement):
"Book Value" means "valor de libros," as used in Article 34 of the Electricity
Law.
"Collateral" means any item of collateral specified in or pursuant to a Security
Document, whether owned by the Company or a Restricted Subsidiary on the Closing
Date, or later acquired.
"Collateral Value" means the value of the Collateral. For purposes of this
definition, (a) all Generating Assets shall be valued at Book Value, and (b) all
other Collateral shall be valued at book value under GAAP.
"Collateral Value Ratio" means the ratio of (a) the Collateral Value to (b) the
aggregate outstanding principal amount of the Loan plus all Pari Passu Debt.
"Current Ratio" means, at any time for the Company and Restricted Subsidiaries,
current assets divided by current liabilities.
"EBIT" means, for any period for the Company and Restricted Subsidiaries, Net
Income for such period, plus, to the extent deducted in determining such Net
Income, (a) Interest Expense and (b) all income taxes, whether domestic
(Bolivia) or foreign, all as determined in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied.
"Generating Assets" means Collateral which is subject to disposition to a new
concessionaire at the direction of the Superintendent of Electricity of the
Republic of Bolivia pursuant to Article 34 of the Electricity Law.
"Indebtedness" of any entity at any date means (a) all indebtedness of such
entity for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities included in the ordinary course
of business and payable in accordance with customary practices), (b) any other
indebtedness of such entity which is evidenced by a note, bond debenture or
similar instrument, (c) all capital lease obligations of such entity, (d) all
obligations of such entity in respect of acceptances issued or created for the
account of such person, (e) all liabilities secured by any Lien on any property
owned by such entity even though such entity has not assumed or otherwise become
liable for the payment thereof, (f) any guarantee or contingent liability in
respect of the obligations of another entity and (g) any liability or
obligation, contingent on otherwise, arising out of any capital contribution
agreement or subscription agreement or the like.
24
<PAGE>
"Intangible Assets" means, to the extent included in balance sheet assets, (a)
all write-ups subsequent to December 31, 1996 in book value of any assets, (b)
all investments in Unrestricted Subsidiaries, and (c) all other intangible
assets in accordance with GAAP.
"Interest Coverage Ratio" means, for any period for the Company and Restricted
Subsidiaries, the ratio of (a) EBIT to (b) Interest Expense for the specified
period.
"Interest Expense" means, for any period for the Company and Restricted
Securities, the sum of (a) all interest expense determined in accordance with
GAAP, but excluding capitalized interest, plus (b) the net amount payable (or
minus the net amount receivable) under interest rate hedging agreements during
such period (whether actually paid or received during such period).
"Leverage Ratio" at any date means, for the Company and Restricted Subsidiaries,
the ratio of Total Debt to Total Capital.
"Material Adverse Change" means an event, occurrence or condition which has
resulted in or could reasonably be expected to result in a Material Adverse
Effect.
"Material Adverse Effect" means a material adverse effect, as reasonably
determined by CAF, on (a) the ability of the Company, any Restricted Subsidiary
or any Sponsor to perform its obligations under any Loan Document to which it is
a party, or (b) the validity, perfection or priority of the lien of the Security
Documents, or any Collateral; provided that a material adverse effect on the
ability of any Restricted Subsidiary to perform its obligations under any Loan
Document to which it is a party shall not be deemed to be a Material Adverse
Effect if the Company, together with the other Restricted Subsidiaries, is able
to perform its obligations under the Loan Documents.
"Net Income" means, for any period, net income of the Company and Restricted
Subsidiaries for such period, but excluding (a) any extraordinary or non-
recurring gains or losses, (b) effects of discontinued operations and (c)
interest income to the extent attributable to any special dividends paid in such
period.
"Non-Recourse Debt" means Indebtedness of the Company or any Restricted
Subsidiary (a) that is without recourse to the Company or any Restricted
Subsidiary or to any assets of the Company or any Restricted Subsidiary, other
than the asset purchased with the proceeds of such Indebtedness and the income
deriving from such asset, (b) as to which neither the Company nor any Restricted
Subsidiary provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness) and (c) no default
with respect to which would permit any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated.
"Pari Passu Debt" means any Indebtedness of the Company and the Restricted
Subsidiaries which is not Non-Recourse Debt or is not subordinated to the Loan
in accordance with Section 6.02(c)(ii) of the CAF Agreement and is secured by
the Collateral or any portion thereof.
"Political Risk Event" means (a) war (whether declared or undeclared),
insurrection, civil war, revolution, terrorism, sabotage, kidnapping or any
other act or series of acts of civil or political violence; (b) an act or series
of acts (including any requisition, confiscation, detention, restraint,
commandeering, attachment, freezing of assets, sequestration, seizure,
appropriation, expropriation, nationalization, discriminatory taxation,
additional Permit requirements or cancellation or non-renewal of existing
Permits) or failure or series of failures to act by a governmental authority or
entity controlled by a governmental authority; (c) breach of contract by a
governmental authority or entity controlled by a governmental authority; (d) the
Superintendent of Electricity of the Republic of
25
<PAGE>
Bolivia shall have rejected the Company's application for an "adecuacion" to the
Electricity Law, as provided by Article 69 of the Electricity Law, or shall have
issued such adecuacion under terms which materially adversely affects the
ability of the Company to conduct business in the normal course as currently
conducted, or (e) the creation, imposition, application or existence of any
restriction on the ability of the Company or CAF to obtain U.S. dollars in a
lawful market of the Republic of Bolivia or to effect the transfer of U.S.
dollars to CAF.
"Restricted Subsidiary" means any subsidiary of the Company other than
Unrestricted Subsidiaries (as hereinafter defined).
"Sponsors" means NRG and NPI.
"Tangible Net Worth" means, at any date for the Company and Restricted
Subsidiaries, (a) shareholders' equity minus (b) Intangible Assets plus (c)
Indebtedness provided by any Sponsor which is subordinated to the Loan upon
terms and conditions acceptable to CAF.
"Total Capital" means Total Debt plus Tangible Net Worth.
Total Debt" means for the Company and Restricted Subsidiaries (a) all interest-
bearing Indebtedness, whether or not subordinated to the Loan, but excluding any
subordinated Indebtedness provided by any Sponsor, plus (b) any obligation on
the part of the Company or any Restricted Subsidiary to fund or otherwise
provide equity to any project or joint venture which is not supported by an
undertaking from a creditworthy third party to provide such equity.
"Unrestricted Dividend Balance" means the sum of (a) cash dividends or other
cash distributions received by the Company from Unrestricted Subsidiaries (such
dividends, "Unrestricted Subsidiary Cash Dividends"), minus (b) dividends to the
Company's shareholders which are deemed to have been made from Unrestricted
Subsidiary Cash Dividends (provided that such sum shall not be less than zero).
For purposes of the foregoing sentence, dividends to the Company's shareholders
will be deemed to have been made from Unrestricted Subsidiary Cash Dividends (i)
in full, at all times that dividends to the Company's shareholders are
prohibited by Section 6.02(a) of the CAF Agreement, and (ii) at all other times,
in the same proportion relative to the entire dividend paid to the Company's
shareholders as (A) the Unrestricted Subsidiary Cash Dividend bears to (B) the
sum of (1) the aggregate Net Income (as defined in the CAF Agreement) for such
fiscal year and (2) the Unrestricted Subsidiary Cash Dividends. For
illustration, if the Unrestricted Cash Dividends in Fiscal Year 2000 is $20x,
the aggregate Net Income for such Fiscal Year is $10x, and the Company dividends
to its shareholders $15x, the Unrestricted Dividend Balance is increased by $20x
and then decreased by $10x ($20x/$10x multiplied by the dividend to Company
shareholders), for a net balance of $10x.
"Unrestricted Subsidiary" means any Subsidiary of the Company with respect to
which (a) there exist no Contractual Obligations (as defined in the CAF
Agreement) which provide recourse to any assets of the Company, other than to
the capital stock of such Unrestricted Subsidiary, including by virtue of a
guaranty of or other contingent obligation of the Company with respect to, any
such Contractual Obligations of such Unrestricted Subsidiary, (b) the Company
and the Restricted Subsidiaries have no Contractual Obligations which do not
comply with Section 6.02(j) of the CAF Agreement, (c) no Permits, Contractual
Obligations or conditions thereto of the Company or any Restricted Subsidiary
are dependent on the status, operations, property, nature or other status or
such Unrestricted Subsidiary, and (d) neither the Company nor any Restricted
Subsidiary has any obligation to subscribe for additional shares of capital
stock or other equity interest therein, or to
26
<PAGE>
maintain or preserve such Unrestricted Subsidiary's financial condition or cause
such Unrestricted Subsidiary to achieve certain operating results.
SHAREHOLDER MAINTENANCE AGREEMENT
In connection with the execution of the CAF Agreement, NRG, NPI and CAF entered
into the Shareholder Maintenance Agreement. For a period of five years, NPI and
NRG agreed to maintain a combined ownership of at least 40% of each of the
voting power and the aggregate capital stock of the Company; provided, however,
-------- -------
that they agreed to maintain a combined ownership of more than 50% of each of
the voting power and aggregate capital stock unless the voting stock of the
Company is publicly traded and at least 20% of the voting power is held by
persons other than NRG, NPI and their affiliates. Thereafter, for the remaining
term of the financing, NPI and NRG agreed to maintain a combined ownership of at
least 30% of each of the voting power and aggregate capital stock of the
Company; provided, however, that they agreed to maintain a combined ownership of
-------- -------
more than 50% of each of the voting power and aggregate capital stock unless the
voting stock of the Company is publicly traded and at least 20% of the voting
power is held by persons other than NRG and NPI and their affiliates.
Additionally, they agreed to maintain effective management control of the
Company, and to appoint competent directors of the Company who will exercise
diligence and attention to the management of, and the appointment of officers
with appropriate competence and experience to manage, the Company.
Under the Shareholder Maintenance Agreement, NRG and NPI are prohibited from
encumbering or otherwise hypothecating shares in the Company or any intermediate
company through which they hold their ownership interests in the Company.
Additional covenants include notification/information requirements, maintenance
of corporate existence, compliance with laws and regulations, and an agreement
not to modify their organizational documents. In an event of default, remedies
include specific performance and injunctive relief as well as monetary damages.
The Shareholder Maintenance Agreement will automatically terminate upon the
repayment in full of all amounts payable under the CAF Agreement. In addition,
NRG and NPI shall have the right to transfer all of their capital stock of the
Company or of Tosli pursuant to a claims payment settlement under an insurance
agreement covering expropriation risk, and thereupon the Shareholder Maintenance
Agreement shall automatically terminate.
ITEM 2. PROPERTIES
See Item 1 - "Business - Continuing Operations" for a description of the
Company's power plants.
During 1996, the Company's principal offices in La Paz, Bolivia were located at
Plaza Venezuela in a two-story office building owned by its former subsidiary,
CADE. In January 1996, the Company sold CADE to Iberdrola and, prior to the
sale of CADE to Iberdrola, the Company entered into a two-year lease with CADE
for the Company's office space. The Company also leased other premises for
office space. In February 1997, the Company canceled these leases and moved its
offices to Av. Hernando Siles 5635, zona Obrajes in La Paz pursuant to a two-
year lease of approximately 16,000 square feet at an annual rent of $81,000. On
November 16, 1998 this lease was extended until December 15, 1999.
27
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
(A) EXCESSIVE RATE CHARGE CLAIM (CENTRO CIVICO Y CULTURAL 20 DE OCTUBRE VS.
COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A.)
In January 1987, an action was filed against the Company by claimants purporting
to represent the Company's customers alleging that the Company had applied
unauthorized rates in billing its residential customers. On February 20, 1987,
the Superior Court of Justice of the District of La Paz ("Superior Court") ruled
that the action was unfounded. On appeal, the Supreme Court reversed the ruling
of the Superior Court and the case was referred to DINE, the Government
regulatory body, to establish the amounts overcharged, if any. DINE ascertained
that the claimants were not registered as customers of the Company, and so
informed the Court.
The claimants insisted that this is a class action suit on behalf of all
customers, and that it be resubmitted to DINE. Upon resubmission by the
claimants, DINE certified that, under the terms of the Electricity Code, no
overcharges had taken place. This certification was again rejected by the
claimants. On September 26, 1989, the Superior Court ruled that, since the
Supreme Court decisions did not establish the amounts of the claim, this must
now be determined by the Courts through the regular channels of Ordinary
Proceedings. On July 27, 1996 a Bolivian court ruled that the claimants had
abandoned their claim due to their failure to pursue this action within the
statutorily prescribed period. The claimants appealed this ruling on May 30,
1997 and on March 7, 1998 the Superior Court upheld the claimants appeal. The
action has now returned to the Courts who must rule on an uncertainty regarding
the good standing of the claimants legal representation, prior to any other
further ruling.
The Company is unable to predict the ultimate resolution of this matter, but in
the event of an adverse ruling, the unwaived balance of $13 million of
accumulated deficits in rates of return at December 31, 1989 could be used to
offset any obligation arising therefrom, or the Company may be able to recover
any payment it is required to make through the rates it charges to consumers.
In the event of a favorable resolution to the Company, the $13 million
accumulated deficit amount will be waived by the Company. See notes 4 and 6(b)
of the Notes to Consolidated Financial Statements.
(B) ADMINISTRATIVE CLAIM (EDUARDO BELMONTE VS. SUPERINTENDENCY OF ELECTRICITY)
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, primarily in relation to timing for
submission of a reasonable execution plan for the Miguillas project to the
Superintendency of Electricity and the timing of the conversion process of the
Company's concession into a license, as required by the 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 project 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 Sectorial Superintendency. On March 1, 1999 this Superintendency
confirmed the previous rulings of the Superintendency of Electricity.
28
<PAGE>
The claimant can appeal the administrative decisions of both Superintendencies
on questions of law to the Bolivian Supreme Court within ninety days after the
General Sectorial Superintendency's ruling. While the Company believes that
such an appeal would be 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.
(C) OTHER PROCEEDINGS
The Company is a party to certain legal proceedings arising in the normal course
of its business, none of which is material individually or in the aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ending December 31, 1998, no matter was
submitted to a vote of the Company's security holders through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Common Stock was traded on the New York Stock Exchange ("NYSE") under the
symbol "BLP" from November 22, 1993 until December 19, 1996, when it was
delisted as a result of the Offer. Since the delisting, there has been no
established active trading market for the Company's Common Stock. As of March
10, 1999, there were 375 shareholders of record and approximately 500
shareholders who held their shares through nominees.
The table below sets forth the high and low bid prices for the Common Stock on
the NYSE for the periods indicated.
<TABLE>
<CAPTION>
Per Share
High Low
<S> <C> <C>
Year ended December 31, 1995:
First quarter.................................... 24 1/8 19 1/2
Second quarter .................................. 32 1/2 23 7/8
Third quarter ................................... 31 1/4 29
Fourth quarter .................................. 33 1/4 26
Year ended December 31, 1996:
First quarter ................................... 38 5/8 33 1/3
Second quarter .................................. 42 7/8 34 7/8
Third quarter ................................... 46 3/8 37 1/4
Fourth quarter (through December 19, 1996)....... 44 3/4 42
</TABLE>
Prices are based on the NYSE. On December 19, 1996 the reported closing bid
price for the Common Stock on the NYSE was $43.75 per share.
The Company terminated its policy of paying regular quarterly dividends when the
Common Stock was delisted from the NYSE. However, the Company paid a special
cash dividend of $5.00 per share
29
<PAGE>
in January 1997 and a special cash dividend of $8.32 per share in January 1998.
There is no current intention that any further special dividends will be paid or
that the policy of paying regular quarterly cash dividends will be reinstated.
The Company's ability to pay dividends is restricted by the CAF Agreement. See
Item 1--"Business--CAF Agreement" above.
The United States has no reciprocal tax treaty with Bolivia. There is no
withholding tax on dividends paid to shareholders of the Company. See Note 5 to
Consolidated Financial Statements for a discussion of income taxes and
withholding provisions.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the Company are presented in a separate section of
this Annual Report on Form 10-K beginning on Page No. F-1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented in a separate section of this Annual Report on Form 10-K
beginning on Page No. F-4.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MATERIAL RISK.
The Company is subject to potential variations in the interest rate stipulated
in the CAF Agreement, under which the Company has borrowed $75,000,000. See
"CAF Agreement" above. The interest rate provided in the CAF Agreement has a
variable portion as interest is paid semi-annually at the rate of 6-month LIBOR
plus a margin of 4.5% on the A portion of the loan and 6-month LIBOR plus 4% on
the B portion of the loan. In the hypothetical event of a 10% increase in the
6-month LIBOR interest rate the Company would incur additional annual interest
expense of approximately $700,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data, listed under Item 14, are presented
in a separate section of this Annual Report on Form 10-K beginning on Page No.
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
30
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item with respect to directors is
incorporated by reference to the section captioned "Election of Directors" in
the Company's definitive proxy statement to be filed with the Commission in
connection with the Company's 1999 Ordinary General Meeting of Shareholders.
Information with respect to executive officers follows.
OFFICER POSITION WITH
NAME AGE SINCE THE COMPANY
---- --- ----- -----------
David H. Peterson 58 1996 Chairman of the Board,
Chief Executive Officer*
and Director
Roger J. Dupuis 57 1993 President and General
Manager
Roland C. Gibson 47 1991 Vice President - Finance
All officers serve at the pleasure of the Board of Directors of the Company.
The recent business experience of the Company's executive officers is summarized
as follows:
DAVID H. PETERSON has been the Company's Chairman of the Board since December
1996. He served as its Chief Executive Officer from December 1996 until
November 1997. He has been Chairman of the Board of NRG since January 1994,
Chief Executive Officer of NRG since November 1993, President of NRG since 1989
and a Director of NRG since 1989. He is also a director of Cogen America. He
was also Chief Operating Officer of NRG from June 1992 to November 1993. Prior
to joining NRG, Mr. Peterson was Vice President, Non - Regulated Generation for
Northern States Power Company ("NSP") and has served in various other management
positions with NSP during the last 20 years.
ROGER J. DUPUIS has served as President and General Manager of the Company since
January 1993, and as Executive Vice President of the Company from August 1991 to
December 1992. He was a director from December 1993 to November 1994. He
previously served as Project Manager for Canadian International Power Services,
Inc. from 1987 to 1991 in Georgetown, Guyana and in Managua, Nicaragua. Mr.
Dupuis received his Masters of Business Administration degree from the
University of Western Ontario and his Bachelor of Electrical Engineering degree
from the University of New Brunswick in Canada.
______________________________
* Until August 7, 1998, Mr. Robert McClenachan held the position of
Chief Executive Officer. Upon Mr. McClenachan's resignation, Mr. Peterson was
elected to that position.
31
<PAGE>
ROLAND C. GIBSON has served as Vice President-Finance of the Company since 1991
and as Assistant Finance Manager of the Company from 1988 to 1990. Prior to
joining the Company in 1988, Mr. Gibson worked as an audit manager for Deloitte,
Haskins & Sells in Buenos Aires, Argentina. Mr. Gibson is a Certified Public
Accountant with a degree from Universidad Nacional de La Plata, Argentina.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference to the
section captioned "Executive Compensation" in the Company's definitive proxy
statement to be filed with the Commission in connection with the Company's 1999
Ordinary General Meeting of Shareholders.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information called for by this item is incorporated by reference to the
sections captioned "Election of Directors - Securities Ownership of Management"
and "Voting Securities and Principal Shareholders" in the Company's definitive
proxy statement to be filed with the Commission in connection with the Company's
1999 Ordinary General Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated by reference to the
sections captioned "Election of Directors - Executive Compensation",
"Compensation Committee Interlocks and Insider Participation", "Certain
Transactions" and "Voting Securities and Principal Shareholders" in the
Company's definitive proxy statement to be filed with the Commission in
connection with the Company's 1999 Ordinary General Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
REFERENCE FORM 10-K ANNUAL REPORT PAGE
- ------------------------------------------------------
(a) (1) Index to Financial Information
Report of Independent F-14
Accountants
Consolidated Balance Sheets at F-15
December 31, 1998 and 1997
Consolidated Statements of F-16
Income for the years ended
December 31, 1998, 1997 and
1996.
Consolidated Statements of F-17
Changes in Shareholders' Equity
32
<PAGE>
for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of F-18
Cash Flows for the years ended
December 31, 1998, 1997 and
1996.
Notes to Consolidated F-19
Financial Statements
(a) (2) The following exhibits are filed herewith or incorporated by reference:
EXHIBIT
NUMBER EXHIBIT
- --------------------------------------------------------------------------------
2(a) Stock Purchase Agreement dated December 15, 1995 between the Company
and Iberdrola Investimentos Sociedade Unipessoal L.D.A.
(incorporated by reference to the Company's Form 8-K dated December
28, 1995).
2(b) Purchase Agreement, dated as of November 13, 1996, by and between
NRGenerating Holdings (No.9) B.V., a wholly-owned subsidiary of NRG
Energy, Inc., and Compania Boliviana de Energia Electrica S.A. -
Bolivian Power Company Limited. (incorporated by reference to the
Company's Form 8-K dated December 19, 1996).
2(c) Form of Stockholders Agreement, dated as of December 13, 1996, by
and between NRG Energy, Inc. and Nordic Power Invest AB.
(incorporated by reference to the Company's Form 8-K dated December
19, 1996).
3(a) Memorandum and Articles of Association of the Company (incorporated
by reference to Exhibit 6.1 in Registration Statement No.2-59195 on
Form S-14, filed with the Commission on June 3, 1977).
3(b)4 Amended and Restated Articles of Association of the Company
(incorporated by reference to the Company's Form 10-K for the year
ended December 31, 1997).
10(a)(i) Supreme Resolution dated May 4, 1990 (revised English translation)
(incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1990)
10(a)(ii) Supreme Resolution No.215064 dated December 30, 1994 (Spanish and
English translation) (incorporated by reference to the Company's
Form 10-K for the year ended December 31, 1994).
10(a)(iii) Supreme Resolution No.215087 dated February 2, 1995 (Spanish and
English translation) (incorporated by reference to the Company's
Form 10-K for the year ended December 31, 1994).
10(a)(iv) Supreme Resolution No.215474 dated March 17, 1995 (Spanish and
English translation) (incorporated by reference to the Company's
Form 10-K for the year ended December 31, 1994).
33
<PAGE>
10(a)(v) DINE Resolution dated June 1, 1990 regarding Third-Party Rights in
Company's area of Concession (English translation) (incorporated by
reference to the Company's Form 10-Q for the quarter ended June 30,
1990).
10(a)(vi) Accord dated June 21, 1990 between DINE and the Company regarding
adjustment of rates (or tariffs) (English translation)
(incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1990).
10(a)(vii) Contract for the Supply of Electric Energy dated June 6, 1995
between the Company and Electricidad de La Paz S.A. and DINE
resolution No.030/95 dated June 12, 1995 approving the agreement
(Spanish and English language translation) (incorporated by
reference to the Company's Form 10-Q for the quarter ended June 30,
1995).
10(a)(viii) Contract for the Supply of Electricity, dated February 26, 1996
between the Company and Empresa de Luz y Fuerza Electrica de Oruro
S.A. (Spanish and English language translation) (incorporated by
reference to the Company's Form 10-Q for the quarter ended March
31, 1996).
10(b)(i)** Employment Agreement dated as of October 7, 1996 between the
Company and Roger J. Dupuis (incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1996).
10(b)(ii)** Employment Agreement dated as of October 7, 1996 between the
Company and Roland C. Gibson (incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1996).
10(b)(iii)** 1994 Stock Option Plan (incorporated by reference to the Company's
definitive proxy statement dated April 1, 1994).
10(c) Loan Agreement (No.207) dated March 16, 1995, between the Company
and BHN Multibanco (Spanish and English translation) (incorporated
by reference to the Company's Form 10-K for the year ended December
31, 1994).
10(d) Interconnection Agreement dated June 21, 1990 between Empresa
Nacional de Electricidad ("ENDE") and the Company (incorporated by
reference to the Company's Form 10-Q for the quarter ended June 30,
1990).
10(e) Form of Credit Agreement dated as of August 1, 1997, by and between
Compania Boliviana de Energia Electrica S.A. - Bolivian Power
Company Limited and Corporacion Andina de Fomento (incorporated by
reference to the Company's Form 10-Q for the quarter ended June 30,
1997).
10(f) Form of Shareholder Maintenance Agreement dated as of August 1,
1997, by and among NRG Energy, Inc., Nordic Power Invest AB and
Corporacion Andina de Fomento (incorporated by reference to the
Company's Form 10-Q for the quarter ended June 30, 1997).
10(g) Form of Pledge Agreement dated as of August 1, 1997, by and among
Compania Boliviana de Energia Electrica S.A. - Bolivian Power
Company Limited,
34
<PAGE>
Corporacion Andina de Fomento and United States Trust Company of New
York (incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1997).
10(h) Form of Subsidiary Guaranty dated as of August 1, 1997, by and among
Compania Boliviana de Energia Electrica S.A. - Bolivian Power
Company Limited, Corporacion Andina de Fomento and all Restricted
Subsidiaries of the Company made a party to the Agreement by
execution of a Joinder to Guaranty in the form attached thereto
(incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1997).
10(i) Form of Indenture dated as of August 1, 1997, by and between
Compania Boliviana de Energia Electrica S.A. - Bolivian Power
Company Limited and Corporacion Andina de Fomento (incorporated by
reference to the Company's Form 10-Q for the quarter ended June 30,
1997).
10(j) Development Services Agreement for Miguillas and Puerto Suarez
Projects between COBEE Development LLC and Bolivian Power Company
Limited dated as of October 9, 1998.*
21 List of Subsidiaries*
27 Financial Data Schedule*
* Filed with this report
** Required to be identified as an exhibit by Item 14(a)(3) of Form 10-K.
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the fourth quarter of 1998.
(c) Exhibits Required by Item 601 of Regulation S-K
The exhibits to this report follow "Signatures".
35
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
- -------------------------------------
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(US Dollars in thousands, except per share data)
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------
1998 1997 1996(*) 1995 1994
<S> <C> <C> <C> <C> <C>
Total Assets $ 169,596 $ 198,394 $ 153,761 $ 148,535 $ 125,918
Gross Plant Additions 29,968 41,546 27,992 34,319 7,586
Operating Revenue 23,739 21,676 20,009 52,874 45,969
Net Income 5,164 6,195 8,434 7,963 7,712
Net Income Per Common Share (*) 1.23 1.47 2.01 1.90 1.84
Book Value Per Common Share 19.38 18.15 29.96 27.66 26.20
Cash Dividends Per Common Share - 13.32 0.80 0.76 0.72
</TABLE>
(*) average common shares outstanding: 4,202,575 in 1998 and 1997, 4,201,602 in
1996 and 4,198,983 in 1995 and 1994.
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------
1998 1997 1996(*) 1995 1994
<S> <C> <C> <C> <C> <C>
Customers at End of Year 164 168 151 259,937 244,611
kWh Sales (in thousands) 840,715 834,488 861,345 910,315 888,539
Peak Demand-kW - - - 224,249 214,118
Demand Purchased from ENDE-kW - - 18,161 90,439 87,508
kWh Purchased (in thousands) - - 22,907 264,180 245,742
kWh Generated 865,631 853,636 864,792 773,059 771,543
</TABLE>
(*) In 1996 the Company sold its distribution subsidiaries and therefore no
longer supplies electricity directly to retail consumers. The Company is now
primarily a wholesale electricity supplier to two former subsidiaries,
ELECTROPAZ and ELF, who distribute electricity principally in the cities of
La Paz and Oruro, respectively.
See Item I - "Business - Restructuring of Bolivian Electricity Industry."
F-1
<PAGE>
<TABLE>
<CAPTION>
FIVE YEAR HISTORICAL OPERATING REVIEW
LA PAZ DIVISION
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------
1998 1997 1996(*) 1995 1994
<S> <C> <C> <C> <C> <C>
Customers at End of Year:
Residential 191,126 179,979
Commercial 32,146 29,484
Industrial 681 664
Public Lighting, Interconnection
and others 11 11
ELECTROPAZ 1 1 1
Zongo Valley customers 36 42 36
Spot Market 1 1 1
------------ ----------- ----------- ------------ -----------
TOTAL 38 44 38 223,964 210,138
============ =========== =========== ============ ===========
kWh Sales (in thousands):
Residential 352,273 345,823
Commercial 161,733 150,513
Industrial 145,874 134,417
Others 24,356 23,127
Public Lighting 31,012 29,207
Interconnection 53,998 64,872
ELECTROPAZ 677,198 667,958 653,160
Zongo Valley customers 1,773 3,965 1,734
Spot Market 42,893 53,222 67,113
------------ ----------- ----------- ------------ -----------
TOTAL 721,864 725,145 722,007 769,246 747,959
============ =========== =========== ============ ===========
Operating Revenue (US$ in thousands):
Residential $ 17,595.3 $ 15,456.1
Commercial 15,387.1 13,099.9
Industrial 6,965.8 5,993.7
Others 2,210.3 1,737.7
Public Lighting 1,612.0 1,432.6
Interconnection 664.1 688.2
ELECTROPAZ $ 19,167.8 $ 17,031.2 $ 13,554.6
Zongo valley customers 183.9 373.7 145.5
Spot Market 648 760.0 1,064.0
Miscellaneous 424.5 374.3 369.1
------------ ----------- ----------- ------------ -----------
TOTAL $ 20,424.2 $ 18,539.2 $ 15,133.2 $ 44,434.6 $ 38,408.2
============ =========== =========== ============ ===========
Peak Demand - Kw 185,500 175,000
Demand Purchased - kW 70,690 67,390
kWh Purchased (in thousands) 218,082 195,770
Generation Peak - kW 168,300 142,800 127,520
</TABLE>
(*) In January 1996 the Company sold Electropaz and its La Paz Division
distribution assets and, as from that date, no longer supplies electricity
to retail consumers. The Company is now primarily a wholesale supplier to
Electropaz, the retail distributor in the cities of La Paz and El Alto. See
Item 1 - "Business - Restructuring of Bolivian Electricity Industry".
F-2
<PAGE>
<TABLE>
<CAPTION>
FIVE YEAR HISTORICAL OPERATING REVIEW
ORURO DIVISION
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Customers at End of Year:
Comibol (+) 6 6
Other Mining & Industrial 33 29
Small Towns & Others 16 15
Rural Customers 1,511 1,394
ELF (*) 34,407 33,029
ELF-Retail distributor (*) 1 1 1
Miguillas Valley customers 124 122 111
Spot Market 1 1 1
------------- ---------- ---------- ---------- ----------
Total 126 124 113 35,973 34,473
============= ========== ========== ========== ==========
kWh Sales (in thousands):
Comibol(+) 30,663 32,853
Other Mining & Industrial 17,550 16,191
Small Towns & Others 9,666 9,574
Rural Customers 901 898
Interconnection 3,073 4,040
ELF(*) 79,216 77,024
ELF - Retail distributor(*) 115,782 103,499 106,649
Miguillas Valley customers 62 59 1,076
Spot Market 3,007 5,785 2,955
Customers transferred to ELF 28,658
------------- ---------- ---------- ---------- ----------
Total 118,851 109,343 139,338 141,069 140,580
============= ========== ========== ========== ==========
Operating Revenue (US$ in thousands):
Comibol (+) $ 1,727.4 $ 1,711.3
Other Mining & Industrial 344.7 249.7
Small Towns & Others 1,228.9 989.8
Rural Customers 42.1 38.1
Interconnection 43.3 35.2
ELF (*) 4,836.4 4,530.0
ELF - Retail distributor (*) $ 3,258.6 $ 3,040.4 $ 3,169.5
Miguillas Valley customers 5.5 5.0 63.7
Spot Market 50.7 90.9 27.7
Customers transferred to ELF 1,615.4
------------- ---------- ---------- ---------- ----------
TOTAL $ 3,314.8 $ 3,136.3 $ 4,876.3 $ 8,222.8 $ 7,554.1
============= ========== ========== ========== ==========
Peak Demand - Kw 61,203 61,086
Demand Purchased - Kw 19,749 29,118
kWh Purchased (in thousands) 22,907 46,098 49,972
Generation Peak - Kw 18,500 18,700 18,600
</TABLE>
(+) Comibol (Corporacion Minera de Bolivia) is a Bolivian Government owned
mining entity.
(*) ELF is the Company's former 95% owned subsidiary engaged in the
distribution of electricity in the city of Oruro. In January and July 1996
respectively, the Company sold ELF and its Oruro Division Distribution assets.
The Oruro Division Distribution customers were also transferred in July 1996.
As from that date, the Company no longer supplies electricity to retail
customers and is primarily a wholesale supplier to ELF. See Item 1 - "Business-
Restructuring of Bolivian Electricity Industry."
F-3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto which are included elsewhere in this Form
10-K Annual Report.
DECEMBER 1996 CHANGE OF CONTROL
In December 1996, NRG Energy, Inc. and Nordic Power Invest AB, together through
Tosli Investments B.V., purchased 96.6% of the Company's outstanding common
stock. The Company incurred expenses amounting to $10.3 million directly related
to the sale. $6.4 million of these expenses were attributable to employee stock
options (see STOCK OPTIONS COMPENSATION) and $3.9 million of these expenses were
attributable to legal, finance, printing and other costs. The former principal
shareholder of the Company, Liberty Power/Cogentrix and the previous management
of the Company, authorized and approved all expenditures related to this
transaction. The $10.3 million of expenses are unique to the Change of Control
transaction and are not recurring expenses. See Item 1 - "Business - Change of
Control".
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. See Item 1 - "Business -
Concession" for a description of the pertinent provisions of the Concession.
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. See
"Sale of Distribution Subsidiaries" below.
On February 2, 1995 a 40-year distribution concession (the "Distribution
Concession") for the cities 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, and
Electropaz shall purchase, 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.
F-4
<PAGE>
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
("DINE"), 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.
SALE OF DISTRIBUTION SUBSIDIARIES
In order to comply with the new Electricity Law, on December 15, 1995 the
Company entered into a Stock Purchase Agreement (the "Agreement") with Iberdrola
Investimentos Sociedade Unipessoal L.D.A., a Portuguese company ("Iberdrola"),
which is a subsidiary of Iberdrola S.A., a Spanish electric utility, providing
for the sale to Iberdrola of three of the Company's subsidiaries - Electropaz,
ELF and CADE - for an aggregate cash price of $65.3 million (the "Purchase
Price"). The closing of the Agreement was held on January 11, 1996.
On the closing date, Iberdrola paid to the Company $57.5 million in cash and
deposited $7.8 million in an escrow account pending the satisfaction of certain
conditions. Of the $7.8 million deposited in escrow, $6 million, $1.4 million
and $0.4 million respectively were released to the Company in February and July
1996 and November 1997 upon resolution of certain outstanding issues.
In accordance with the Agreement an adjustment of $513,000 subsequently was
agreed to between the Company and Iberdrola to reflect changes in the book value
of Electropaz and ELF, resulting in an increase in the Purchase Price from $65.3
million to $65.8 million.
EXPANSION AND MODERNIZATION PROJECTS
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.
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 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
administrative 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 certain other factors. See Item 1 - "Business -
Expansion and Modernization Projects" and Item 3 - "Legal Proceedings" and Note
6c to the Company's Consolidated 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
F-5
<PAGE>
of a gas - fired generation facility in Puerto Suarez in Bolivia for the export
of electricity to the Brazilian market. See Item 1 - "Business - Expansion and
Modernization Projects".
FINANCING EXPANSION AND MODERNIZATION PROJECTS
The Company estimates that during the next two years approximately $17 million
be required for completion of the Zongo Project and for the Company's regular
capital expenditure program. The Company estimates that it will be required to
spend approximately $6 million to complete the Zongo Project generation
facilities, $4 million to complete the Zongo Project transmission facilities and
approximately $7 million of its regular capital expenditure program. Based on
revised and updated projections, which include the settlement of certain claims
from contractors and redesign of civil works, the total cost of the Zongo
Project, including expenditures through December 31, 1998 of $105 million, is
estimated to be $115 million ($100 million for generation facilities and $15
million for transmission facilities).
The Company has funded the Zongo Project and its regular capital expenditure
program with borrowings from financial institutions or possible equity
financings, equipment financing, the proceeds it received from the sale of
Electropaz, ELF and CADE, and from internal cash generation. At December 31,
1998, $8 million of loan proceeds under the CAF Agreement was available for this
purpose. During 1998 and 1997, the Company expended $28 million and $39
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 Project
and the Puerto Suarez Project referred to above.
During 1998, NRG and NPI 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 ("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 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 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
F-6
<PAGE>
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 is 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.
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 requests a 23% rate increase as from January
1, 1999, over and above the increases already granted and which are described in
the previous paragraph. By letter dated February 24, 1999, the Superintendency
of Electricity indicated that a review of the Company's rate case study will be
conducted as from mid - March 1999. The Company cannot predict the final
outcome of this matter.
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. Although
Bolivia suffered from periods of hyperinflation in prior years, the Government
has been successful in maintaining a relatively low rate of inflation since
1986. While the Company does not anticipate that there will be a period of
hyperinflation in the near future, it should be recognized that in a period of
hyperinflation there can be no assurance that dollar indexing would adequately
protect the Company from severe currency fluctuations. See "The Republic of
Bolivia - Inflation" below.
The Company is 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 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.
F-7
<PAGE>
STOCK OPTIONS COMPENSATION
A. In December 1996, upon the change in control of the Company - see "Item 1 -
Business - Change of Control" - the Company charged $6.4 million to income in
relation to stock options compensation to Directors, officers and certain key
employees (the "Optionees") of the Company. This charge arose due to the
termination of options granted pursuant to the Company's 1994 stock option plan
and to the termination of the agreement between Liberty Power/Cogentrix Bolivia
Inc. and certain executive officers of the Company.
The stock options granted to Optionees pursuant to the Company's 1994 Stock
Option Plan were terminated on December 20, 1996 and the Company paid the
Optionees the amount equal to the excess of the tendered price for the purchase
of the Company's common stock over the exercise price for each share covered by
the options. Total expenditure for the termination of these options amounted to
approximately $1.7 million.
In addition, the Company charged $4.7 million to income with respect to stock
options compensation paid to three executive officers of the Company pursuant to
the termination of the agreement by which Liberty Power/Cogentrix Bolivia Inc.,
which owned 719,206 shares or 17.1% of the outstanding common stock of the
Company prior to the change of control of the Company, had granted to three
executive officers of the Company (the "Officers") options (the "Options") to
purchase an aggregate of 431,523 of the shares (the "Shares") owned by Liberty
Power/Cogentrix. The Options were granted at the approximate time Liberty
Power/Cogentrix acquired its 17.1% interest in the Company in November 1994.
The price per share paid by the Officers upon the termination of the Options was
equal to the greater of: (i) $25.00 per share plus 5% per year compounded
annually or (ii) $25.00 per share, plus 100% of the cumulative increase (if any)
in the consolidated shareholders' equity per share of common stock of the
Company determined in accordance with U.S. generally accepted accounting
principles, in each case from the date the Options were granted to the date of
termination.
Since the Options are considered to be variable price options, the beneficiaries
of the Options were officers of the Company and as Liberty Power/Cogentrix owned
more than 10% of the common stock of the Company at the date the Options were
granted, under the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, the benefits received had to be
recorded as compensation in the Company's Income Statement. Consequently, as
the Options were terminated upon the change of control of the Company, the
accounting provisions for the Options require that the excess, if any, of the
tendered price of the common stock of the Company over the price of the Options
must be recorded by the Company as compensation expense even though there is no
actual cost to the Company. Such excess is recognized as a charge to income with
a corresponding credit to Additional Capital within the Shareholders' Equity
section of the Consolidated Balance Sheet. This charge had no effect on the
Company's cash flow and will not be recurring in the future.
b. In 1997 the Company granted 83,500 stock options to management. During
1998, 73,800 of these options were forfeited because the beneficiaries left the
Company. Consequently the total number of stock options outstanding at December
31, 1998 amounts to 9,700 shares. The pro-forma effect of accounting for the
compensation cost of the outstanding stock options at December 31, 1998, in
accordance with SFAS 123 under which compensation cost of stock options is
determined
F-8
<PAGE>
based on the fair value of the options at the grant date, is not significant in
the results of operations and in earnings per share in 1998 and 1997.
RESULTS OF OPERATIONS
1998 compared with 1997
- -----------------------
Electricity sales in 1998 were 840,715 MWh, less than a 1% increase when
compared to 1997. The Company's overall generation increased by only 1.4% in
1998 when compared to 1997, despite the fact that several facilities of the
Zongo expansion are already on-line. A very short rainy season at the beginning
of 1998 and extremely dry early winter months caused the Company to control
water storage and consequently restrict production. Despite this negligible
increase in MWh sales, the Company's revenue increased by 9.5% in 1998 when
compared to 1997. This increase was due to a more favorable mix of sales by
category and to a rate increase granted to the Company on September 1, 1998.
Operating expenses increased by 10.2% in 1998 when compared to 1997.
Maintenance expenses increased significantly due to works performed on equipment
and facilities that were affected by climatic conditions during 1998. There has
also been a significant increase in the depreciation charge for the year due to
addition of new facilities to the rate base.
As a result of the above, operating income in 1998 increased by 7.7% over 1997.
Interest capitalized during construction increased significantly in 1998 when
compared to 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 during 1998 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 2.2% in 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 and because, as permitted by
Bolivian tax legislation, the Company's Bolivian branch profits will be
allocated for reinvestment in Bolivia and consequently the 12.5% withholding tax
does not apply. The tax charge also decreased in 1998 when compared to 1997 due
to a 39% 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 1998 was $5.1 million or $1.23 per common share compared to net
income of $6.2 million or $1.47 per common share in 1997.
F-9
<PAGE>
1997 COMPARED WITH 1996
- -----------------------
Electricity sales in 1997 were 834,488 MWh, an overall decrease of 3.1% when
compared to 1996, because in the first six months of 1996 the Company was still
engaged in the distribution activity in the Oruro division providing service to
its Oruro division customers. Excluding these sales to Oruro customers,
electricity sales in 1997 were almost the same as in 1996. Revenue in 1997
increased by 8.3% over 1996, but excluding the sales to the Oruro customers the
overall increase in revenue is 17.8%. This is principally due to the rate
increase granted to the Company in February 1997.
The Company's overall hydro generation decreased by 3% in 1997, despite the fact
that both the Tiquimani plant and the new Zongo plant went on line in 1997.
This reduction occurred in the second half of 1997, and is attributable to the
Company's plans - and recommendations from governmental authorities - to
increase water storage, and consequently restrict production, in order to face
what is expected to be a very dry year in 1998.
Operating expenses in 1997 decreased by 33% from 1996 principally due to the
fact that in 1996 the Company charged $6.4 million to income in relation to
stock options compensation to certain officers of the Company. This charge was
a non-recurring expense. In addition, the Company no longer purchases bulk power
to supply retail customers in the Oruro Division. As from July 1, 1996 the
Company transferred its retail customers in the Oruro Division to its former
subsidiary ELF, and therefore discontinued its purchase of bulk power in the
Oruro Division. In the first six months of 1996 the cost of power purchased
amounted to $1.5 million. The depreciation charge has increased by 10.3% due to
the addition of new facilities to the rate base during 1997.
Due to the reasons above mentioned, operating income in 1997 was equivalent to
26.5% of operating revenue. In 1996 the Company's operating loss compared to
operating revenue was equivalent to 20.8%
Interest capitalized during construction increased in 1997 due to the continuous
increase of the balance of work in progress (Zongo expansion). Interest is
currently being capitalized and allocated to work in progress at rates permitted
in the Bolivian Electricity Code.
Interest income decreased in 1997 as the balance of temporary investments
decreased principally due to expenditure for the Zongo expansion, special
dividends and other extraordinary expenses. In addition, in 1996 the Company
charged $3.9 million to income in relation to expenses relating to the change of
control of the Company. This charge was a non-recurring expense.
The financial statements at December 31, 1996 include a gain of $16.3 million on
the sale of the Company's former subsidiaries Electropaz, ELF and CADE. The
effect on earnings per common share is $3.17.
The Company's statutory income tax is 34.375% which is comprised of an income
tax of 25% relating to branch profits and a 12.5% withholding tax relating to
net branch profits after the 25% income tax. The Company is permitted to
recover such taxes through the rates it charges its consumers. The effective
tax rate of 28.8% in 1997 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.
F-10
<PAGE>
Net income in 1997 was $6.2 million or $1.47 per Common Share as compared to
$8.4 million of 2.01 per Common Share in 1996.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, 1997 and 1996, the Company incurred capital expenditures of $30
million, $41.5 million and $28 million, respectively. 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 from the sale of its distribution subsidiaries, as explained above.
At December 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 $1.5 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 $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. See
Item 1 - "Business--CAF Agreement."
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. See "Sale of Distribution Subsidiaries" above. 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
F-11
<PAGE>
released to the Company. Subsequently, the Company and Iberdrola 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 in the next two years approximately $17 million will
be required for completion of the Zongo Project and the Company's regular
capital expenditure program. The Company estimates that it will be required to
spend approximately $6 million to complete the Zongo Project generation
facilities, $4 million to complete the Zongo Project transmission facilities and
approximately $7 million on its regular capital expenditure program. The total
cost of the Zongo Project, including expenditures through December 31, 1998 of $
105 million, is estimated to be $115 million ($100 million for generation
facilities and $15 million for transmission facilities).
The Company has funded 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 December 31, 1998, $8 million of loan
proceeds under the CAF Agreement was available for this purpose. During 1998
and 1997, the Company expended $28 and $39 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%, 6.7% and
7.6% in 1998, 1997 and 1996, 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 by mid-1999, although
continuing testing of equipment after such time 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
F-12
<PAGE>
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.
F-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A. -
BOLIVIAN POWER COMPANY LIMITED
We have audited the consolidated balance sheets of Compania Boliviana de
Energia Electrica S.A. Bolivian Power Company Limited and its
subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income of cash flows and of changes in
shareholders' equity for each of the three years in the period ended
December 31, 1998 appearing on pages F-15 through pages F-26 These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as, evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us,
appearing on pages F-15 through F-26, present fairly, in all material
respects, the financial position of Compania Boliviana de Energia
Electrica S.A. - Bolivian Power Company Limited and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.
PricewaterhouseCoopers
La Paz, Bolivia
March 2, 1999
F-14
<PAGE>
CONSOLIDATED BALANCE SHEETS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31
---------------------------------------
1998 1997
-------- --------
<S> <C> <C>
A S S E T S
----------------
Utility Plant
In service
Production $110,454 85,329
Transmission 12,770 10,833
Construction work in progress 55,278 54,466
General Property 6,157 5,434
-------------- --------------
184,659 156,062
Less accumulated depreciation 43,278 39,750
-------------- --------------
Net utility plant 141,381 116,312
-------------- --------------
Current assets
Cash and cash equivalents 4,477 1,453
Temporary investments at fair market value
(includes restricted collateral deposits
of $371 in 1998 and $3,410 in 1997) 9,236 66,227
Accounts receivable, net 8,610 7,489
Materials and supplies 1,440 3,004
Prepaid expenses 1,707 1,003
-------------- --------------
Total Current Assets 25,470 79,176
-------------- --------------
Other assets 2,745 2,906
-------------- --------------
Total Assets $169,596 $198,394
============== ==============
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)
Earnings reinvested 11,721 6,557
-------------- --------------
Total Shareholders' Equity 81,461 76,283
-------------- --------------
Long-term debt 68,700 70,964
Provision for severance indemnities 3,838 3,649
-------------- --------------
72,538 74,613
-------------- --------------
Current liabilities
Accounts payable 7,393 6,058
Current portion of long term-debt 6,303 2,647
Dividends payable - 34,965
Other liabilities
Taxes on income 1,560 2,269
Other taxes 331 1,361
Other 10 198
-------------- --------------
Total Current Liabilities 15,597 47,498
-------------- --------------
Contingencies and commitments (Note 6) - -
-------------- --------------
Total Shareholders' Equity and Liabilities $169,596 $198,394
============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-15
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATE)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------
1998 1997 1996
---------------- ----------------- ----------------
<S> <C> <C> <C>
Operating revenue $ 23,739 $ 21,676 $ 20,009
---------------- ----------------- ----------------
Operating expenses
Operations 9,759 10,136 12,342
Maintenance 2,738 1,716 1,603
Depreciation 4,210 3,306 2,998
Taxes, other than income taxes 857 783 788
Stock options compensation - - 6,437
---------------- ----------------- ----------------
Total operating expenses 17,564 15,941 24,168
---------------- ----------------- ----------------
Operating income (loss) 6,175 5,735 (4,159)
---------------- ----------------- ----------------
Sale of distribution subsidiaries - - 16,273
Interest capitalized 4,787 2,808 1,554
Other, principally interest income 1,807 1,733 4,598
Expenses relating to change of control
of the Company - - (3,918)
---------------- ----------------- ----------------
Total other income 6,594 4,541 18,507
---------------- ----------------- ----------------
Income before interest charges
and income taxes 12,769 10,276 14,348
Interest charges 7,489 1,577 1,462
---------------- ----------------- ----------------
Income before taxes 5,280 8,699 12,886
Income tax 116 2,504 4,452
---------------- ----------------- ----------------
Net income $ 5,164 $ 6,195 $ 8,434
================ ================= ================
Average common shares outstanding 4,202,575 4,202,575 4,201,602
================ ================= ================
Earnings per common share $ 1.23 $ 1.47 $ 2.01
================ ================= ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-16
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized
loss on Total
Common Additional Earnings Temporary Shareholders
Shares Capital Reinvested Investments Equity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 $ 55,237 $ 9,805 $ 51,267 $ (149) $ 116,160
Net income for year - - 8,434 - 8,434
Increase in share capital 10 - - - 10
Dividends paid ($ 0.80 per share) - - ( 3,361) - ( 3,361)
Unrealized loss on temporary
investments - - - (24) (24)
Stock options compensation - 4,688 - - 4,688
- --------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 $ 55,247 $ 14,493 $ 56,340 $ (173) $ 125,907
Net income for year - - 6,195 - 6,195
Dividends paid ($ 13.32 per share) - - ( 55,978) - ( 55,978)
Unrealized gain on temporary investments - - - 159 159
- --------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $ 55,247 $ 14,493 $ 6,557 $ (14) $ 76,283
Net income for year - - 5,164 - 5,164
Unrealized gain on temporary investments - - - 14 14
- --------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 $ 55,247 $ 14,493 $ 11,721 $ - $ 81,461
========== ========== ============ =========== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN US DOLLARS, IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 5,164 $ 6,195 $ 8,434
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Profit on sale of subsidiaries - - ( 16,273)
Depreciation 4,210 3,306 2,998
Provision for indemnities 586 746 732
Interest capitalized (4,787) ( 2,808) ( 1,554)
Stock options compensation - - 4,688
Other-net 106 ( 713) ( 1,308)
(Increase) in accounts receivable (1,121) ( 18) ( 6,095)
Decrease (Increase) in materials and supplies 1,565 975 ( 1,221)
(Increase) Decrease in prepaid expenses (704) 44 402
Increase in accounts payable 1,335 207 958
(Decrease) Increase in taxes payable (1,740) ( 1,786) 1,482
(Decrease) Increase in other liabilities (188) ( 30) 59
Indemnities paid (398) ( 223) ( 2,002)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 4,028 5,895 ( 8,700)
- -----------------------------------------------------------------------------------------------------------
Cash flows from (used in) investing activities
Utility plant additions (25,181) ( 38,738) ( 26,438)
Cash received from disposal of subsidiaries
net of cash disposed and of related expenses - - 58,427
Net (Increase) Decrease in temporary
investments 56,990 ( 9,198) ( 25,337)
Other-net 762 1,106 296
- -----------------------------------------------------------------------------------------------------------
Net cash (provided by) used in investing
activities 32,571 ( 46,830) 6,948
- -----------------------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities
Proceeds from long-term debt 13,300 61,700 -
Payment of long-term debt (11,910) ( 1,323) -
Payment of dividends (34,965) ( 21,013) ( 3,361)
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (33,575) 39,364 ( 3,361)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 3,024 ( 1,571) ( 5,133)
Cash and cash equivalents at beginning of period 1,453 3,024 8,137
- -----------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 4,477 $ 1,453 $ 3,024
========= ========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest (net of amount capitalized) $ 2,702 $( 1,231) ( 92)
Income tax and withholding tax on branch income $ 2,223 $ 4,372 $ 2,776
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE, PER SHARE DATA AND EXCHANGE RATE DATA)
1. CHANGE OF CONTROL
In December 1996, NRG Energy and Nordic Power Invest AB, together through Tosli
Investments B.V., a Netherlands limited liability company, purchased 96.6% of
the Company's common stock, pursuant to a cash tender offer for all the
outstanding shares of the Company at $43 per share. As a result of this
transaction the Company incurred non-recurring expenses amounting to $10,355.
Of this amount, $6,437 related to stock options compensation (see note 2g.) and
$3,918 were spent in respect of legal, financial and printing costs.
2. ACCOUNTING PRINCIPLES
A. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Management believes that the
estimates used are reasonable.
B. CONSOLIDATION POLICY
The financial statements at December 31, 1997 and 1996 include the accounts of
the Company's Head Office and Bolivian Branch. The consolidated financial
statements at December 31, 1998 include the accounts of the Company and of
Servicios Energeticos S.A., the Company's wholly-owned subsidiary.
C. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America and are
presented in U.S. Dollars, the functional currency of the Company.
D. UTILITY PLANT AND RELATED MATERIALS
Properties and related materials are stated at cost. In accordance with a
resolution of the Government Regulatory Board, depreciation is provided on a
straight line basis over estimated service lives for different types of
facilities which range between 5 and 40 years. Charges for maintenance and
repairs are expensed as incurred and costs of renewals and improvements are
capitalized.
Interest expense from funds used during construction is capitalized and
allocated to work in progress at rates permitted in the Bolivian Electricity
Code or at actual rates paid to lenders.
E. TEMPORARY INVESTMENTS
The Company accounts for investments in securities for sale at their fair market
value, reporting unrealized holding gains and losses separately in shareholders'
equity. Unrealized gains of $14 and $159 have been
F-19
<PAGE>
reported at December 31, 1998 and 1997, respectively, and an unrealized loss of
$24 has been reported at December 31, 1996.
F. CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.
G. EARNINGS PER COMMON SHARE
Earnings per Common Share are calculated by dividing net income by the average
number of outstanding Common Shares.
H. STOCK OPTIONS ACCOUNTING
A. On May 4, 1994, the Company adopted a Stock Option Plan that provides for
the issuance of stock options at not less than the fair market value of the
underlying stock on the date the options were granted. Prior to the change of
control of the Company on December 20, 1996, options to purchase 107,760 shares
had been granted to certain officers, directors and employees (the "Optionees")
of the Company, of which 25,380 were exercisable.
On December 20, 1996, pursuant to the change of control of the Company, the
stock options granted to the Optionees were terminated, and the Company paid the
Optionees the amount equal to the excess of the tendered price for the purchase
of the Company's common stock over the exercise price for each share covered by
the options. The total amount charged to income in relation to the termination
of these stock options was $1,749.
In addition, in 1996, the Company charged $4,688 as stock options compensation
to three executive officers of the Company pursuant to the termination of the
agreement by which Liberty Power/Cogentrix Bolivia Inc. ("Liberty
Power/Cogentrix"), which owned 719,206 shares or 17.1% of the outstanding common
stock of the Company prior to the change of control of the Company, had granted
to three executive officers of the Company (the "Officers") options (the
"Options") to purchase an aggregate of 431,523 of the shares (the "Shares")
owned by Liberty Power/Cogentrix. The Options were granted at the approximate
time Liberty Power/Cogentrix acquired its 17.1% interest in the Company in
November 1994.
The price per share paid by the Officers upon the termination of the Options is
equal to the greater of: (i) $25.00 per share plus 5% per year compounded
annually or (ii) $25.00 per share, plus 100% of the cumulative increase (if any)
in the consolidated shareholders' equity per share of common stock of the
Company determined in accordance with U.S. generally accepted accounting
principles, in each case from the date the Options were granted to the date of
termination.
Since the Options are considered to be variable price options, the beneficiaries
of the Options were officers of the Company and as Liberty Power/Cogentrix owned
more than 10% of the common stock of the Company at the date the Options were
granted, under the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, the benefits received had to be
recorded as compensation in the Company's Income Statement. Consequently, as
the Options were terminated upon the change of control of the Company, the
accounting provisions for the Options require that the excess, if any, of the
tendered price of the common stock of the Company over the price of the Options
must be recorded by the Company as compensation expense even though there is no
actual cost to the Company. Such excess is recognized as a charge to income
with a corresponding credit to Additional Capital within the
F-20
<PAGE>
Shareholders' Equity section of the Consolidated Balance Sheet. This charge had
no effect on the Company's cash flow and will not be recurring in the future.
B. In 1997 the Company granted 83,500 stock options to management. During 1998,
73,800 of these options were forfeited because the beneficiaries left the
Company. Consequently the total number of stock options outstanding at December
31, 1998 amounts to 9,700 shares. The pro-forma effect of accounting for the
compensation cost of the outstanding stock options at December 31, 1998, in
accordance with SFAS 123 under which compensation cost of stock options is
determined based on the fair value of the options at the grant date, is not
significant in the results of operations and in earnings per share in 1998 and
1997.
I. REPORTING COMPREHENSIVE INCOME
FAS 130, Reporting Comprehensive Income, states that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. At December 31, 1998, 1997 and 1996
there were no significant items to be reported as Comprehensive Income in a
separate financial statement.
J. NEW ACCOUNTING PRONOUNCEMENTS
The following accounting pronouncements, which are not yet effective, FAS 133 -
Accounting for Derivative Instruments and Hedging Activities -, SOP 98.1 -
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use - and SOP 98.5 - Reporting on the Cost of Start Up Activities - are not
expected to have a significant impact on the Company.
3. SALE OF DISTRIBUTION SUBSIDIARIES
In order to comply with the Bolivian Electricity Law which was enacted in
December 1994, (see note 6a), on December 15, 1995 the Company entered into a
Stock Purchase Agreement (the "Agreement") with Iberdrola Investimentos
Sociedade Unipessoal L.D.A., a Portuguese company ("Iberdrola"), which is a
wholly-owned subsidiary of Ibedrola S.A., a Spanish electric utility, providing
for the sale to Iberdrola of three of the Company's subsidiaries (Electropaz,
ELF and CADE) for an aggregate cash price of $65,300 (the "Purchase Price").
This Purchase Price was subject to closing adjustments discussed below. The
closing of the Agreement was held on January 11, 1996.
On the closing date, Iberdrola paid to the Company $57,500 in cash and deposited
$7,800 in an escrow account pending the satisfaction of certain conditions. Of
the $7,800 deposited in escrow on the closing date, $6,000, $1,400 and $400 were
was released to the Company in February and July 1996 and in November 1997,
respectively, upon the resolution of certain outstanding issues.
In accordance with the Agreement an adjustment of $513 subsequently was agreed
to between the Company and Iberdrola, resulting in an increase in the Purchase
Price from $65,300 to $65,813.
4. RATE OF RETURN
Pursuant to the provisions of the Bolivian Electricity Code and of the
Concession (see Note 6a) granted by the Government of Bolivia in 1990 and its
subsequent amendments, the Company is entitled to earn on its U.S. Dollar rate
base, consisting of net fixed assets at historical cost in U.S. Dollars and
working capital and materials up to certain limits, a return of 9% after all
operating expenses, depreciation, taxes and interest expense in excess of 6% on
borrowings. The Electricity Code also provides for the adjustment of rates to
compensate the Company for any shortfall or to recapture any excess in the
Company's actual rate of return during the previous year.
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 is not in agreement with certain
issues taken into account by the
F-21
<PAGE>
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.
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 requests a 23% rate increase as from January
1, 1,999, over and above the increases already granted and which are described
in the previous paragraph. By letter dated February 24, 1999, the
Superintendency of Electricity indicated that a review of the Company's rate
case study will be conducted as from mid - March 1999. The Company cannot
predict the final outcome of this matter.
The amount of the shortfall in revenue required to obtain the 9% rate of return
is approximately $2,400. The Company has not recognized this amount in the 1998
financial statements.
Pursuant to an agreement between the Company and the Government Regulatory Board
dated May 4, 1990, the Company agreed to waive $40,788 of a total of $53,788 of
accumulated deficits in rates of return for the period 1968 through December 31,
1989. The balance of $13,000 of such deficit will also be waived by the Company
in the event of a favorable outcome for the Company of the legal proceeding
mentioned in note 6b. In the event of an adverse ruling the Company believes
that any obligation arising therefrom will be offset against such amount.
Should the compensation be disallowed by the Courts, the payment of this
obligation may be recoverable through rates to consumers.
5. INCOME TAXES
The Company is subject to a 25% income tax and must withhold 12.5% on profits
credited to the Head Office. The Company is also permitted to recover these
taxes through rates it charges to its consumers.
The effective tax rate of 2.2% in 1998, 28.8% in 1997 and 29.3% in 1996 differs
from the above-mentioned tax rates because the Company had income and expenses
outside Bolivia which are not subject to or deductible against Bolivia tax, the
Company had recovery of income tax as a credit against revenue tax and because
in 1998, as permitted by Bolivian tax legislation, the Company's Bolivian Branch
profits will be allocated for reinvestment and consequently the 12.5%
withholding tax does not apply. At December 31, 1998, 1997 and 1996 there were
no significant tax timing differences which should be deferred in accordance
with the Statement of Financial Accounting Standards No.109, Accounting for
Income Taxes.
6. CONTINGENCIES AND COMMITMENTS
A. The Company operates under a 40 year concession (the "Concession") from
the Government of Bolivia to generate electricity as a public utility. The term
of the Concession commenced on October 1, 1990, and expires on September 30,
2030.
Amendments to the Concession were introduced on December 30, 1994 and March 17,
1995 by Supreme Resolutions of the Bolivian Government in order to conform to
the new Electricity Law enacted by the Bolivian Congress on December 21, 1994.
The new Electricity Law requires the separation of the generation, transmission
and distribution activities of the electric industry and requires entities which
control more than one such activity, including the Company, to divest themselves
of control of the other activities.
F-22
<PAGE>
In order to comply with the new Electricity Law the Company formed a new
subsidiary, Electropaz, which held the Company's La Paz Division distribution
assets and which was divested, together with two other Company subsidiaries, ELF
and CADE, on January 11, 1996 (see Note 3).
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 a Supply Contract with Electropaz which 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 its former subsidiary, ELF,
which distributes electricity to the city of Oruro. On January 10, 1996, the
Government Regulatory Board granted ELF a 40-year concession for distribution in
the City of Oruro. On February 26, 1996 and Company and ELF entered into a
long-term Electricity Supply Contract on substantially similar terms as the
Electricity Supply Contract between the Company and Electropaz.
B. In January, 1987, claimants purporting to represent a class comprised of
the Company's rate payers commenced a legal action against the Company alleging
that the Company had included unauthorized rate increases in its bills to rate
payers. In February, 1987, the Superior Court of Justice of the District of La
Paz ("Superior Court") ruled that the action was unfounded.
On appeal, the Supreme Court reversed the lower court ruling and the case was
referred to the Government Regulatory Board to establish the amounts by which
such claimants were overcharged, if any. The Government Regulatory Board
ascertained that the claimants were not registered as customers of the Company,
and so informed the court.
The claimants insisted that this is a class action case on behalf of all
consumers, and that it be resubmitted to the Government Regulatory Board. Upon
resubmission by the claimants, the Government Regulatory Board certified that
under the terms of the Bolivian Electricity Code no overcharges had taken place.
This certification was again rejected by the claimants. On September 26, 1989,
the Superior Court ruled that since the Supreme Court decision did not establish
the amount of the claim, the amount must now be determined by the courts through
the regular channels of Ordinary Proceedings. On July 27, 1996 a Bolivian court
ruled that the claimants had abandoned their claim due to their failure to
pursue action within the statutorily prescribed period. The claimants appealed
this ruling on May 30, 1997 and on March 7, 1998 the Superior Court upheld the
claimants appeal. The action has now returned to the Courts who must rule on an
uncertainty regarding the good standing of the claimants legal representation,
prior to any other further ruling.
The Company is unable to predict the ultimate resolution of this matter, but in
the event of an adverse ruling, an unwaived balance of $13,000 of accumulated
deficits in rates of return at December 31, 1989, may be used to offset any
obligation arising therefrom, or the payment of any obligation may be
recoverable through rates to customers (See Note 4).
F-23
<PAGE>
C. 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, primarily in relation to timing for
submission of a reasonable execution plant for the Miguillas project to the
Superintendency of Electricity and the timing of the conversion process of the
Company's concession into a license, as required by the 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 project 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 Sectorial Superintendency. On March 1, 1999 this Superintendency
confirmed the previous rulings of the Superintendency of Electricity.
The claimant can appeal the administrative decisions of both Superintendencies
on questions of law to the Bolivian Supreme Court within ninety days after the
General Sectorial Superintendency's ruling. While the Company believes that
such an appeal would be 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.
D. Under the terms of its Concession, the Company is obligated to expand
its hydroelectric generation capacity serving La Paz. This expansion, which the
Company refers to as the "Zongo Project", consists of adding new generation
facilities and modernizing existing facilities located in the Zongo Valley and
constructing transmission lines to transmit the increased generation capacity at
a total estimated cost of $115,000 ($100,000 for generation and $15,000 for
transmission). Construction of the Zongo Project was commenced in 1995 and is
scheduled to be completed in mid-1999. The Company estimates that it will be
required to spend approximately $10,000 to complete the Zongo Project
(approximately $6,000 for generation facilities and $4,000 for transmission
facilities), which will add approximately 65 MW to the Company's generation
capacity. Under the Concession, the Company also was obligated to expand its La
Paz distribution facilities, and during 1995 the Company expended approximately
$4,825 for this purpose. Since the Company has divested itself of all of its
distribution assets in early 1996, the Company is no longer required to expend
funds for the expansion of its former distribution systems. In addition to the
funds it has budgeted for the Zongo Project, it is anticipated that the Company
will spend approximately $7,000 in the next two years on its regular capital
expenditure program. The Company has funded the Zongo Project and its regular
capital expenditure program with borrowings from financial institutions or
possible equity financings, equipment financing, the proceeds from the sale its
distribution subsidiaries and from internal cash generation. During 1998, 1997
and 1996, the Company expended $28,430, $39,015 and $25,522, respectively, on
the Zongo Project. The total expenditures on the Zongo Project through December
31, 1998 were $105,000.
E. At December 31, 1998, the Company had entered into purchase commitments
with suppliers amounting to approximately $1,482, for which the Company has
restricted collateral deposits amounting to $371.
F-24
<PAGE>
7. LONG TERM DEBT
A. To finance the Company's El Alto generating facility, the Company entered
into a seven-year loan agreement with BHN Multibanco, a Bolivian bank, and BHN
Multibanco subsequently sold all of this loan to Corporacion Andina de Fomento
("CAF"). This loan bears interest at the rate of LIBOR (six months) plus 5
1/4%, payable semi-annually, with principal to be paid in ten equal semi-annual
installments commencing September 1, 1997. At December 31, 1997 the Company had
obligations under this loan of $11,911 ($2,647 current portion and $9,264 non-
current portion). During 1998, the Company paid two principal installments
amounting to $2,647 and in November 1998 prepaid the total outstanding principal
amount of the loan.
B. On August 13, 1997 the Company entered into a Credit Agreement with CAF
pursuant to which the Company may borrow from CAF up to an aggregate principal
amount of $75,000 (the "loan") for the financing of the Zongo Project. At
December 31, 1998 the Company had obligations under this loan of $75,000.
The loan bears an interest rate of LIBOR (six months) plus 4.50% on its A
portion (40% of the principal amount) and LIBOR (six months) plus 4% on its B
portion (60% of the principal amount). The loan is payable in variable semi-
annual installments commencing on January 31, 1999.
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 Credit Agreement also requires the Company to maintain certain financial
ratios. The loan is collateralized by a mortgage on substantially all of the
Company's assets.
C. The payment schedule of the above-mentioned loan is as follows:
1999 $ 6,300
2000 7,650
2001 9,450
2002 9,450
2003 10,350
after 2003 31,800
-------
$75,000
=======
8. RELATED PARTY TRANSACTIONS
On October 27, 1994, the Company entered into a Management Agreement (the
"Management Agreement") with its then principal shareholder, Liberty
Power/Cogentrix. Pursuant to the Management
F-25
<PAGE>
Agreement, Liberty Power/Cogentrix performed certain general, administrative and
overhead functions for the Company. The Management Agreement provides the
Company will pay Liberty Power/Cogentrix $320 per year, subsequently adjusted,
effective January 1, 1996, to $329 per year, and reimburse up to an aggregate
amount of $100 for travel expenses to be incurred by certain officers of the
Company. The Management Agreement expired on December 20, 1996, but was extended
to February 14, 1997.
9. FOREIGN CURRENCY REQUIREMENTS
There are currently no exchange controls in Bolivia and, while this situation
continues, the Company sees no difficulty in meeting its foreign currency
requirements.
10. BOLIVIAN ECONOMIC SITUATION
During 1998, inflation, measured by the official price index, decreased from
6.7% in 1997 to 4.4% in 1998. The Boliviano exchange rate changed from Bs 5.37
= US$ 1 at December 31, 1997 to Bs 5.65 = US$ 1 at December 31, 1998.
11. QUARTERLY PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
==================================================================
<S> <C> <C> <C> <C> <C>
1998
- ----
OPERATING REVENUE $6,257 $5,740 $5,092 $6,650 $23,739
OPERATING INCOME $2,434 $1,659 $ 688 $1,394 $ 6,175
NET INCOME $1,638 $1,020 $ 332 $2,174 $ 5,164
EARNINGS PER COMMON
SHARE $ 0.39 $ 0.24 $ 0.07 $ 0.53 $ 1.23
DIVIDENDS PER
COMMON SHARE $ - $ - $ - $ - $ -
1997
====
OPERATING REVENUE $5,703 $5,473 $4,674 $5,826 $21,676
OPERATING INCOME $1,863 $1,300 $1,002 $1,570 $ 5,735
NET INCOME $1,961 $1,672 $1,265 $1,297 $ 6,195
EARNINGS PER COMMON
SHARE $ 0.47 $ 0.38 $ 0.30 $ 0.32 $ 1.47
DIVIDENDS PER
COMMON SHARE $ 5.00 - - $ 8.32 $ 13.32
</TABLE>
F-26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 30, 1999 By: /s/ Roger J. Dupuis
-------------------
Roger J. Dupuis
President and General Manager
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
By /s/ David H. Peterson Chairman of the Board March 30, 1999
---------------------
David H. Peterson and Director and Chief
Executive Officer
(Principal Executive Officer)
By /s/ Roger J. Dupuis President and General March 30, 1999
-------------------
Roger J. Dupuis Manager
By /s/ Roland C. Gibson Vice President-Finance March 30, 1999
--------------------
Roland C. Gibson (Principal Financial and
Accounting Officer)
By /s/ Leonard Bluhm Director March 30, 1999
-----------------
Leonard Bluhm
By /s/ Edwin G. Corr Director March 30, 1999
----------------
Edwin G. Corr
By /s/ Mats Fagerlund Director March 30, 1999
------------------
Mats Fagerlund
<PAGE>
By /s/ Mauricio Gonzales Director March 30, 1999
---------------------
Mauricio Gonzales
By /s/ Hans Lundgren Director March 30, 1999
-----------------
Hans Lundgren
By Director March 30, 1999
-----------------
Gunnar Vallin
By /s/ Ronald J. Will Director March 30, 1999
------------------
Ronald J. Will
<PAGE>
INDEX TO EXHIBITS
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT LOCATION
- ------- --------
<S> <C> <C>
2(a) Stock Purchase Agreement dated Incorporated by reference to
December 15, 1995 between the the Company's Form 8-K dated
Company and Iberdrola December 28, 1995
Investimentos Sociedade
Unipessoal L.D.A.
2(b) Purchase Agreement, dated as of Incorporated by reference to the
November 13, 1996, by and between Company's Form 8-K dated
NRGenerating Holdings (No. 9) B.V., December 19, 1996
a wholly-owned subsidiary of NRG
Energy, Inc., and Compania
Boliviana de Energia Electrica S.A.
- Bolivian Power Company Limited
2(c) Form of Stockholders Agreement, Incorporated by reference to the
dated as of December 13, 1996, by Company's Form 8-K dated
and between NRG Energy, Inc. and December 19, 1996
Nordic Power Invest AB
3(a) Memorandum and Articles of Incorporated by reference to
Association of the Company Exhibit 6.1 in Registration
Statement No. 2-59195 on Form
S-14, filed with the Commission
on June 3, 1977
3(b)4 Amended and Restated Articles of Incorporated by reference to the
Association of the Company Company's Form 10-K for the year
ended December 31, 1997
10(a)(i) Supreme Resolution dated May 4, Incorporated by reference to the
1990 (revised English translation) Company's Form 10-Q for the
quarter ended June 30, 1990)
10(a)(ii) Supreme Resolution No. 215064 dated Incorporated by reference to the
December 30, 1994 (Spanish and Company's Form 10-K for the year
English translation) ended December 31, 1994
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10(a)(iii) Supreme Resolution No. 215087 dated Incorporated by reference to the
February 2, 1995 (Spanish and Company's Form 10-K for the year
English translation) ended December 31, 1994
10(a)(iv) Supreme Resolution No. 215474 dated Incorporated by reference to the
March 17, 1995 (Spanish and English Company's Form 10-K for the year
translation) ended December 31, 1994
10(a)(v) DINE Resolution dated June 1, 1990 Incorporated by reference to the
regarding Third-Party Rights in Company's Form 10-Q for the
Company's area of Concession quarter ended June 30, 1990
(English translation)
10(a)(vi) Accord dated June 21, 1990 between Incorporated by reference to the
DINE and the Company regarding Company's Form 10-Q for the
adjustment of rates (or tariffs) quarter ended June 30, 1990
(English translation)
10(a)(vii) Contract for the Supply of Electric Incorporated by reference to the
Energy dated June 6, 1995 between Company's Form 10-Q for the
the Company and Electricidad de La quarter ended June 30, 1995
Paz S.A. and DINE resolution No.
030/95 dated June 12, 1995
approving the agreement (Spanish
and English language translation)
10(a)(viii) Contract for the Supply of Incorporated by reference to the
Electricity, dated February 26, Company's Form 10-Q for the
1996 between the Company and quarter ended March 31, 1996
Empresa de Luz y Fuerza Electrica
de Oruro S.A. (Spanish and English
language translation)
10(b)(i) Employment Agreement dated as of Incorporated by reference to the
October 7, 1996 between the Company Company's Form 10-K for the year
and Roger J. Dupuis ended December 31, 1996
10(b)(ii) Employment Agreement dated as of Incorporated by reference to the
October 7, 1996 between the Company Company's Form 10-K for the year
and Roland C. Gibson ended December 31, 1996
10(b)(iii) 1994 Stock Option Plan Incorporated by reference to the
Company's definitive proxy
statement dated April 1, 1994
10(c) Loan Agreement (No. 207) dated Incorporated by reference to the
March 16, 1995, between the Company's Form 10-K for
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Company and BHN Multibanco the year ended December 31, 1994
(Spanish and English translation)
10(d) Interconnection Agreement dated Incorporated by reference to the
June 21, 1990 between Empresa Company's Form 10-Q for the
Nacional de Electricidad ("ENDE") quarter ended June 30, 1990
and the Company
10(e) Form of Credit Agreement dated as Incorporated by reference to the
of August 1, 1997, by and between Company's Form 10-Q for the
Compania Boliviana de Energia quarter ended June 30, 1997
Electrica S.A. - Bolivian Power
Company Limited and Corporacion
Andina de Fomento
10(f) Form of Shareholder Maintenance Incorporated by reference to the
Agreement dated as of August 1, Company's Form 10-Q for the
1997, by and among NRG Energy, quarter ended June 30, 1997
Inc., Nordic Power Invest AB and
Corporacion Andina de Fomento
10(g) Form of Pledge Agreement dated as Incorporated by reference to the
of August 1, 1997, by and among Company's Form 10-Q for the
Compania Boliviana de Energia quarter ended June 30, 1997
Electrica S.A. - Bolivian Power
Company Limited, Corporacion Andina
de Fomento and United States Trust
Company of New York
10(h) Form of Subsidiary Guaranty dated Incorporated by reference to the
as of August 1, 1997, by and among Company's Form 10-Q for the
Compania Boliviana de Energia quarter ended June 30, 1997
Electrica S.A. - Bolivian Power
Company Limited, Corporacion Andina
de Fomento and all Restricted
Subsidiaries of the Company made a
party to the Agreement by execution
of a Joinder to Guaranty in the
form attached thereto
10(i) Form of Indenture dated as of Incorporated by reference to the
August 1, 1997, by and between Company's Form 10-Q for the
Compania Boliviana de Energia quarter ended June 30, 1997
Electrica S.A. - Bolivian Power
Company Limited and Corporacion
Andina de Fomento
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
10(j) Development Services Agreement for Attached
Miguillas and Puerto Suarez
Projects between COBEE Development
LLC and Bolivian Power Company
Limited dated as of October 9, 1998
21 List of Subsidiaries Attached
27 Financial Data Schedule Attached
</TABLE>
4
<PAGE>
EXHIBIT 10(j)
DEVELOPMENT SERVICES AGREEMENT
FOR MIGUILLAS AND PUERTO SUAREZ PROJECTS
between
COBEE DEVELOPMENT LLC
and
COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A.
BOLIVIAN POWER COMPANY LIMITED
Dated as of October 9, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions.................................................. 2
Section 1.1. Definitions.................................................. 2
Section 1.2. Terminology.................................................. 3
ARTICLE II Services..................................................... 3
Section 2.1. General...................................................... 3
Section 2.2. Development Services......................................... 3
Section 2.3. Development Activities Affecting COBEE's Investment Rights
in the Projects.............................................. 4
Section 2.4. COBEE Instruction to End Development Activities.............. 4
Section 2.5. Option to Continue Development of the Puerto Suarez Project.. 5
Section 2.6. Use of COBEE Personnel....................................... 5
Section 2.7. Use of NRG and/or NPI Resources.............................. 5
Section 2.8. Monthly Reports.............................................. 5
Section 2.9. Employees of CDLLC........................................... 6
ARTICLE III Payment for Services Rendered................................ 6
Section 3.1. Payment...................................................... 6
Section 3.2. Budget and Review............................................ 7
ARTICLE IV Limited Warranty; Limitation of Liability.................... 7
Section 4.1. Limited Warranty............................................. 7
Section 4.2. Limitation of Liability...................................... 7
ARTICLE V Term; Event of Default; Remedy............................... 8
Section 5.1. Term......................................................... 8
Section 5.2. Event of Default............................................. 8
Section 5.3. Remedy....................................................... 8
Section 5.4. Submission to Dispute Settlement Committee................... 8
ARTICLE VI. Miscellaneous................................................ 9
Section 6.1. Severability................................................. 9
Section 6.2. Assignment................................................... 9
Section 6.3. Entire Agreement............................................. 9
Section 6.4. Law.......................................................... 9
Section 6.5. Amendment or Modification.................................... 9
Section 6.6. Notices...................................................... 9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 6.7. No Third-Party Beneficiary................................. 11
Section 6.8. Arbitration................................................ 11
Section 6.9. Indemnification............................................ 12
Section 6.10. Compliance with Laws....................................... 12
Section 6.11. Confidentiality and Non-Competition........................ 13
Section 6.12. Costs and Expenses......................................... 13
Section 6.13. Counterparts............................................... 13
</TABLE>
ii
<PAGE>
DEVELOPMENT SERVICES AGREEMENT
THIS DEVELOPMENT SERVICES AGREEMENT is dated as of October 9, 1998 by and
between COBEE DEVELOPMENT LLC ("CDLLC"), a Delaware limited liability company,
and COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A. - BOLIVIAN POWER COMPANY
LIMITED ("COBEE"), a Nova Scotia corporation.
RECITALS
1. CDLLC is jointly-owned by NRG Energy, Inc. ("NRG") and Nordic Power
Invest AB ("NPI") and was created to, inter alia (i) serve as a vehicle for
----- ----
developing independent power projects in Latin America, and (ii) provide
development services on behalf of COBEE.
2. COBEE is an electric power company with generating facilities located
in Bolivia. COBEE possesses a concession granted by the Bolivian government
giving COBEE the right to develop, construct, own, and operate a hydroelectric
generating facility in the Miguillas Valley of Bolivia (the "Miguillas
Project"). COBEE is also a member of a consortium exploring a potential
investment opportunity for the development, construction, ownership and
operation of a gas-fired 500 plus MW facility near Puerto Suarez, Bolivia, which
would have, as its primary objective, the exportation of electricity to the
Brazilian market (the "Puerto Suarez Project").
3. CDLLC desires to develop the Miguillas Project and the Puerto Suarez
Project on behalf of COBEE and, in that context, wishes to provide development
services for the benefit of COBEE. CDLLC wishes to be reimbursed for the
expenses it incurs in the performance of such services on behalf of COBEE and to
receive a development fee.
4. In connection with its business and in light of the fact COBEE does
not currently possess the personnel and financial resources to do so on its own,
COBEE desires to have CDLLC develop the Miguillas Project and Puerto Suarez
Project on COBEE's behalf for which COBEE will reimburse CDLLC for its
development services and pay to CDLLC a development fee in accordance with the
terms of this Agreement.
AGREEMENT
In consideration of the premises and the covenants, conditions, and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
ARTICLE I
Definitions
-----------
Section 1.1. Definitions. The following terms shall have the indicated
-----------
meanings for the purposes of this Agreement:
"Agreement" shall mean this Development Services Agreement between CDLLC
and COBEE.
"Budget Estimate" shall have the meaning specified in Section 3.2.
"Business Day" shall mean any day other than Saturday, Sunday and a day on
which commercial banks are authorized or required to close in the State of
Minnesota, U.S.A., State of Florida, U.S.A., Sweden or Bolivia.
"CDLLC" shall have the meaning specified in the preamble to this Agreement.
"COBEE" shall have the meaning specified in the preamble to this Agreement.
"Dispute Settlement Committee" shall mean a five-member committee comprised
of the following individuals: (i) the chairman of NRG; (ii) the chairman of
NPI; (iii) the chief executive officer of CDLLC; (iv) the president of COBEE;
and (v) an independent member of the board of directors of COBEE.
"Financial Closing" shall mean: (i) the execution and delivery of third
party equity bridge financing agreements, if necessary, and third party long-
term financing agreements, provided that the funds to be furnished in accordance
with such financing agreements, when added to any equity capital commitments in
accordance with the lender's pro forma, are reasonably projected to be
sufficient to cover the cost of constructing the Projects through the
commencement of commercial operations; and (ii) the initial drawdown of funds
thereunder.
"Miguillas Project" shall have the meaning specified in the recitals to
this Agreement.
"NPI" shall have the meaning specified in the recitals to this Agreement.
"NRG" shall have the meaning specified in the recitals to this Agreement.
"Project" shall mean either of the Miguillas Project or the Puerto Suarez
Project.
"Projects" shall mean, collectively, the Miguillas Project and Puerto
Suarez Project.
"Puerto Suarez Project" shall have the meaning specified in the recital to
this Agreement.
2
<PAGE>
Section 1.2. Terminology. Unless the context of this Agreement clearly
-----------
requires otherwise, (a) pronouns, wherever used herein, and of whatever gender,
will include natural persons and corporations and associations of every kind and
character, (b) the word "include", "included" or "including" will mean
"including without limitation", (c) the word "or" will have the inclusive
meaning represented by the phrase "and/or," (d) the words hereof, herein,
hereunder, and similar terms in this Agreement will refer to this Agreement as a
whole and not any particular section or article in which such words appear, and
(e) all terms defined in this Agreement in the singular will have the same
meaning when used in the plural and vice versa. The section, article and other
headings in this Agreement and the Table of Contents to this Agreement are for
reference purposes and will not control or affect the construction of this
Agreement or the interpretation hereof in any respect. Article, section and
subsection references are to this Agreement unless otherwise specified.
ARTICLE II
Services
--------
Section 2.1. General. COBEE hereby appoints CDLLC, and CDLLC accepts the
-------
appointment, to develop on COBEE's behalf the Projects. Subject to Section 2.3,
CDLLC shall have the discretion to develop the Projects as it, in its sole
discretion, deems fit. CDLLC and COBEE shall cooperate with one another in the
development of the Projects and CDLLC shall consult regularly with COBEE
regarding CDLLC's development efforts in connection with the Projects.
CDLLC recognizes that COBEE desires to acquire know-how and technology in
connection with the development of projects in the independent power business
consistent with an integrated approach to operating successfully in the energy
sector. To assist COBEE in this regard, CDLLC: (i) will share with COBEE such
know-how and technology as CDLLC, in its sole discretion, deems fit; and (ii)
shall, to enhance the communication between CDLLC and COBEE, provide COBEE with
reasonable access to the employees of CDLLC and, to the extent reasonably
possible, the employees of third parties retained by CDLLC, who are working on
the Projects.
Section 2.2. Development Services. In connection with its development
--------------------
activities on behalf of COBEE associated with the Projects, the services CDLLC
shall provide shall include, but not be limited to, the following:
(i) leading and managing the development of the Projects, including
providing ancillary services thereto; and
(ii) furnishing the personnel and resources to:
(a) evaluate and negotiate project documents and any other
commercial agreements relating to the Projects;
3
<PAGE>
(b) provide advice and lead negotiations with financial
institutions in connection with the financing, including
any interim financing, associated with the Projects;
(c) assist with the due diligence activities concerning the
Projects;
(d) provide advice on tax and accounting matters in
connection with the Projects;
(e) negotiate and enter into contracts with third party
consultants (e.g., financial advisors, attorneys, etc.)
for services in connection with the development of the
Projects; and
(f) provide, as reasonably necessary prior to Financial
Closing, engineering and technical services relating to
the construction and operation of the Projects.
Section 2.3. Development Activities Affecting COBEE's Investment Rights in
-------------------------------------------------------------
the Projects. CDLLC and COBEE shall consult in advance regarding any of CDLLC's
- ------------
development activities that may directly affect COBEE's right to invest in the
Projects (including, but not limited to, activities affecting or involving (i)
COBEE's equity capital commitment level or ownership interest in the Projects,
(ii) operatorship of the Projects, and (iii) legal claims against third parties
possessing interests in the Projects and (iv) legal claims brought by third
parties challenging COBEE's interests in the Projects) and shall jointly agree
on the course of action to be followed with respect to such activities.
Notwithstanding any other provision in this Agreement, as long as CDLLC is
developing the Projects on behalf of COBEE under this Agreement, CDLLC shall not
be: (i) the signatory of loan agreements in connection with the Projects; (ii)
the signatory to the engineering, construction and procurement contract for the
Miguillas Project; or (iii) the applicant for and recipient of governmental
permits/authorizations in connection with the Projects.
Section 2.4. COBEE Instruction to End Development Activities.
-----------------------------------------------
Notwithstanding any other provision of this Agreement, COBEE may at any time
instruct CDLLC in writing to terminate its development activities in connection
with either or both Projects. In the event CDLLC is instructed by COBEE to
terminate its development activities on COBEE's behalf in connection with either
Project, CDLLC shall, as soon as reasonably practicable and subject to the
provisions of Section 2.5, terminate all of its development activities in
connection with such Project and shall not be entitled to reimbursement of any
of its development expenses incurred in connection with such Project under this
Agreement.
Section 2.5. Option to Continue Development of the Puerto Suarez Project
-----------------------------------------------------------
In the event COBEE instructs CDLLC to terminate its development activities in
connection with the Puerto Suarez Project in accordance with Section 2.4, CDLLC
shall have the option to continue to develop the Puerto Suarez Project for
CDLLC's own benefit. In the
4
<PAGE>
event CDLLC elects to exercise this option, CDLLC shall, within five (5) days of
receiving COBEE's instruction to terminate development activities, notify COBEE
in writing. Upon receipt of such notice, COBEE shall use its best efforts to
transfer or assign, as soon as reasonably practicable, to CDLLC: (i) COBEE's
right to invest in the Project and (ii) any other agreements and instruments
COBEE has executed in connection with the Project. In the event CDLLC elects to
continue to develop the Puerto Suarez Project for CDLLC's own benefit, CDLLC
shall, if there is a Financial Closing in connection with such Project or CDLLC
later sells its interest in such Project to a third party, use reasonable
efforts to ensure that the development expenses incurred by COBEE in connection
with such Project are reimbursed from the proceeds available at Financial
Closing or from the proceeds CDLLC receives from the sale of its interest in the
Project, as the case may be.
Section 2.6. Use of COBEE Personnel. To the extent deemed necessary or
----------------------
prudent for the development of the Projects, CDLLC shall use employees of COBEE
to assist in its development efforts. COBEE shall use its best efforts to, based
on its employees' availability as determined by COBEE in its sole discretion,
provide to CDLLC those COBEE personnel deemed by COBEE and CDLLC as essential to
the development of the Projects. If COBEE employees are used by CDLLC, COBEE's
costs for the services provided by such employees shall not be considered a
development expense of CDLLC and shall not be subject to the terms of this
Agreement. The remuneration and compensation provided to such employees shall be
left to COBEE's sole discretion.
Section 2.7. Use of NRG and/or NPI Resources. CDLLC may contract for or
-------------------------------
otherwise use the personnel resources of NRG and NPI and their affiliates to
assist CDLLC in its development efforts in connection with the Projects. The
development costs incurred by NRG and NPI in connection with the Projects prior
to the effective date of this Agreement shall be considered part of CDLLC's
development expenses which CDLLC is entitled to recover pursuant to Section
3.1(i).
Section 2.8. Monthly Reports. CDLLC shall provide monthly written progress
---------------
reports to COBEE's senior management regarding CDLLC's development activities in
connection with the Projects. CDLLC shall append to these reports the reports
associated with each Project's budget that CDLCC is required to prepare in
accordance with Section 3.2.
Section 2.9. Employees of CDLLC. Under no circumstances shall the personnel
------------------
of CDLLC, the employees of any third party consultant, or the employees of NRG
or NPI and their affiliates assisting CDLLC in the development of the Projects
be deemed to be employees of COBEE. COBEE is not obliged to pay a salary, or
other remuneration, to such personnel.
ARTICLE III
Payment for Services Rendered
-----------------------------
Section 3.1. Payment. In consideration for the development services
-------
provided by CDLLC on behalf of COBEE in connection with the Projects and in the
event there is
5
<PAGE>
Financial Closing in connection with either of the projects, unless agreed
otherwise by the parties, COBEE shall pay the following amounts to CDLLC from
the financing proceeds within thirty (30) days after such Financial Closing:
(i) all of the expenses incurred by CDLLC in the development of such
Project, which shall include, but not limited to:
(a) CDLLC's direct costs of the provision of the development
services hereunder based on the hourly rates set forth in
the rate schedule to be furnished by CDLLC to COBEE as soon
as reasonably practicable (which may be modified
periodically by CDLLC);
(b) legal, financial advisor, and other third party consultant
fees and expenses incurred by CDLLC for third party
activities;
(c) fees incurred by CDLLC in contracting for the services, or
using employees, of NRG and NPI and their affiliates; and
(d) out-of-pocket expenses incurred by CDLLC related to the work
carried out under this Agreement, including the reasonable
costs of travel, meals and lodging; and
(ii) to the extent consistent with the projected returns associated
with the Project, a development fee equal to 50 percent of the
total development expenses payable to CDLLC in accordance with
Section 3.1(i).
Unless agreed otherwise by the parties, all payments to CDLLC required to
be made pursuant to Sections 3.1(i) and 3.1(ii) shall be made in U.S. dollars at
a bank account to be specified by CDLLC. Each party shall pay all taxes, duties,
charges, etc. for which such party is legally responsible in connection with any
payments made hereunder. Any payments made by COBEE to CDLLC hereunder shall be
net of any amounts required to be withheld in accordance with Bolivian tax laws
and regulations.
In the event there is no Financial Closing in connection with a Project,
CDLLC shall not be entitled to any of the payments identified in Sections 3.1(i)
and 3.1(ii) with respect to such Project.
Section 3.2. Budget and Review. As soon as reasonably practicable after the
-----------------
execution of this Agreement, CDLLC shall present COBEE with a detailed budget
for COBEE's consideration and approval, which must be approved by COBEE,
estimating the total development expenses it anticipates incurring under Section
3.1(i) in connection with the development of each of the Projects (the "Budget
Estimate"). The Budget Estimate shall include the development costs incurred by
NRG and NPI in connection with the Projects. In the event CDLLC's development
expenses at Financial Close exceed the Budget Estimate, CDLLC shall not be
entitled to (i) reimbursement for such
6
<PAGE>
excess amount and (ii) any development fee in connection with such excess
amount, unless agreed otherwise by COBEE and CDLLC in advance. During the
development of the Projects, CDLLC shall prepare a monthly report for COBEE,
which shall contain a comparison of the Budget Estimate with the actual
development costs incurred to date.
ARTICLE IV
Limited Warranty; Limitation of Liability
-----------------------------------------
Section 4.1. Limited Warranty. Subject to CDLLC's responsibilities set
----------------
forth in Section 2.1, 2.2 and 2.3, CDLLC makes no (and hereby disclaims and
negates any and all) representations and warranties, express or implied,
including the warranties of merchantability or fitness for a particular purpose,
with respect to any development services rendered on behalf of COBEE.
Furthermore, COBEE may not rely upon any representation or warranty, express or
implied, including the warranties of merchantability or fitness for a particular
purpose made to CDLLC by NRG and NPI and their affiliates or any third party
performing development-related services on behalf of CDLLC in connection with
the Projects, unless such party makes an express written warranty to COBEE.
Without limiting the foregoing, CDLLC makes no guaranty that either project will
achieve a particular financial result or risk profile.
Section 4.2. Limitation of Liability. It is expressly understood by COBEE
-----------------------
and COBEE agrees that CDLLC shall have no liability for the failure of third-
party providers or NRG or NPI and their affiliates to perform any development-
related services hereunder and further that CDLLC shall have no liability
whatsoever for the services provided by such entities unless such services are
provided in a manner which would evidence gross negligence on the part of CDLLC
or intentional misconduct. COBEE agrees that the remuneration to be paid to
CDLLC for its development services hereunder reflects this limitation of
liability and disclaimer of warranties. In no event shall CDLLC be liable to
COBEE or any other person or entity for any indirect, special or consequential
damages resulting from any error in the performance of the services hereunder or
from the breach of this agreement, regardless of the fault of CDLLC, any third-
party provider or NRG and NPI and their affiliates or whether CDLLC, any third-
party provider or NRG and NPI and their affiliates is wholly, concurrently,
partially or solely negligent. To the extent any third-party provider or NRG and
NPI and their affiliates has limited its liability to CDLLC for services under
an outsourcing or other agreement, COBEE agrees to be bound by such limitation
of liability for any product or service provided to the company by such third-
party provider or NRG and NPI and their affiliates under CDLLC's agreement.
Notwithstanding any other provision in this Agreement, the total aggregate
liability of CDLLC for any claim or action arising from or in connection with
this Agreement shall not exceed the amount owed to CDLLC under Sections 3.1(i)
and 3.1(ii).
7
<PAGE>
ARTICLE V
Term; Event of Default; Remedy
------------------------------
Section 5.1. Term. This Agreement will terminate on December 31, 1999
----
unless the parties mutually agree in writing to extend the term of this
Agreement or to terminate this Agreement prior to that date.
Section 5.2. Event of Default. A party hereto shall be in default under
----------------
this Agreement when such party fails to perform or observe any material
obligation under this Agreement and such failure continues for more than 30 days
after the non-defaulting party has given notice thereof to such party (or if the
nature of such default is such that it is not capable of being cured within 30
days, then the failure of such party to commence to cure such default within 30
days and to diligently and continuously pursue the cure of such default
thereafter, but in no event may such extended cure period exceed 180 days).
Section 5.3. Remedy. At any time during the event of default under Section
------
5.2, the non-defaulting party will have the right to (a) elect, by giving notice
to the defaulting party, not to be bound in any respect by the provisions of
this Agreement during such continuance, in which case such party will have no
obligations or liabilities hereunder during such period, and (b) request Dispute
Settlement Committee resolution pursuant to Section 5.4.
Section 5.4. Submission to Dispute Settlement Committee. In the event of
------------------------------------------
(a) an event of default under Section 5.2, or (b) any other dispute arising
under this Agreement between the parties to this Agreement, any party may submit
the matter in writing, in accordance with Section 6.6, to the Dispute Settlement
Committee for resolution. If the matter is not resolved within 15 days by
unanimous Dispute Settlement Committee resolution, any party may pursue its
rights in accordance with Section 6.8.
ARTICLE VI
Miscellaneous
-------------
Section 6.1. Severability. In the event any portion of this Agreement shall
------------
be found by a court of competent jurisdiction to be unenforceable, that portion
of the Agreement will be null and void and the remainder of the Agreement will
be binding on the parties as if the unenforceable provisions had never been
contained thereunder.
Section 6.2. Assignment. Except for the ability of CDLLC to use the
----------
services of third party consultants or NRG and NPI and their affiliates to
assist CDLLC with its development efforts in connection with the Projects, no
party shall have the right to assign or delegate its rights or obligations under
this Agreement without the consent of the other party. Any such assignment or
delegation without such consent will be void ab initio.
Section 6.3. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties relating to the matters hereunder and may not be
contradicted by evidence of prior oral agreements of the parties.
8
<PAGE>
Section 6.4. Law. This Agreement shall be governed by, and construed in
---
accordance with, the laws of the State of New York, U.S.A. without regard to
conflicts of laws principles.
Section 6.5. Amendment or Modification. This Agreement may be amended or
-------------------------
modified from time to time only by a written amendment signed by the parties
hereto.
Section 6.6. Notices. Unless otherwise specified, all notices, offers,
-------
extensions of time or descriptions, and all other communications provided for
herein (including any modifications of, or waivers or consents under, this
Agreement) will be given or made in writing and delivered by hand, telecopy,
courier or first-class mail to the intended recipient at the "Address for
Notices" specified below (or, as to any party, at such other address as will be
designated for notice by such party in a notice to the other party). Any notice
given pursuant to this Agreement will be deemed effective when such notice is
received (or upon refusal of receipt) by the addressee; provided that notices
-------- ----
received by any party after its normal business hours (or on a day other than a
Business Day) will be effective on the next Business Day.
Addresses for Notices:
To CDLLC: Carl Goran Dandanell
Cobee Development LLC
800 Douglas Road
Suite 351
Coral Gables, Florida 33134
Phone: (305) 445-0313
Fax: (305) 445-1685
with a copy to: Guy Smith, Senior Counsel
NRG Energy, Inc.
1221 Nicollet Mall, Suite 700
Minneapolis, MN 55403
Phone: (612) 373-5457
Fax: (612) 373-5392
Bjorn Oberg
Vattenfall AB
Jamtlandsgatan 99
SE-162 87 Stockholm, Sweden
Phone: 46-8-739-5199
Fax: 46-8-739-5255
To COBEE: Roger Dupuis
President
Compania Boliviana de Energia Electrica S.A.-
Bolivian Power Company Limited
Obrajes, Av. Hernando Siles No. 5635
Entre Calles 10 y 11, Edificio Complejo Obrajes
9
<PAGE>
La Paz, Bolivia
Phone: 591-2-78-67-81
Fax: 591-2-78-59-20
To Dispute Settlement Committee:
David H. Peterson
Chairman, President and CEO
NRG Energy, Inc.
1221 Nicollet Mall, Suite 700
Minneapolis, MN 55403
Phone: (612) 373-5420
Fax: (612) 373-5312
Gunnar Vallin
Chairman and Senior Vice president
Nordic Power Invest AB
Racksta Gard
SE-162 87 Stockholm, Sweden
Phone: 46-8-739-7025
Fax: 46-8-739-7040
Carl Goran Dandanell
Cobee Development LLC
800 Douglas Road
Suite 351
Coral Gables, Florida 33134
Phone: (305) 445-0313
Fax: (305) 445-1686
Roger Dupuis
President
Compania Boliviana de Energia Electrica S.A.-
Bolivian Power Company Limited
Obrajes, Av. Hernando Siles No. 5635
Entre Calles 10 y 11, Edificio Complejo Obrajes
La Paz, Bolivia
Phone: 591-2-78-67-81
Fax: 591-2-78-59-20
Mauricio Gonzalez
c/o Compania Boliviana de Energia Electrica S.A.-
Bolivian Power Company Limited
Obrajes, Av. Hernando Siles No. 5635
Entre Calles 10 y 11, Edificio Complejo Obrajes
La Paz, Bolivia
10
<PAGE>
Phone: 591-2-78-67-81
Fax: 591-2-78-59-20
Section 6.7. No Third-Party Beneficiary. The provisions of this Agreement
--------------------------
are enforceable solely by the parties to this Agreement, and no other person
shall have the right, separate and apart from COBEE or CDLLC, to enforce any
provision of this Agreement or to compel any party to this Agreement to comply
with the terms of this Agreement.
Section 6.8. Arbitration. CDLLC and COBEE agree that, if any matter
-----------
submitted to the Dispute Settlement Committee is not resolved within 15 days by
unanimous Dispute Settlement Committee resolution, then either party may give
the other party written notice that the dispute should be submitted to
arbitration. Any such arbitration shall be conducted and finally settled in
accordance with the Rules of Conciliation and Arbitration of the International
Chamber of Commerce (the "ICC") then in effect (the "Rules") and by arbitrators
appointed in accordance with the Rules. The arbitration shall be held in New
York City (USA) and the arbitration proceedings shall be conducted, and the
award shall be rendered, in the English language. Any award entered by the
arbitrator(s) may be enforced by a judgment entered in a court of competent
jurisdiction.
Section 6.9. Indemnification. COBEE agrees that it will indemnify and hold
---------------
harmless CDLLC and its respective members, representatives on the Dispute
Settlement Committee, officers, employees and agents (each being a "CDLLC
Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several, to which such CDLLC Indemnified Party may become
subject under any applicable law, or otherwise, relating to or arising out of
the engagement of CDLLC pursuant to, and the performance by CDLLC of the
services contemplated by, this Agreement. COBEE will reimburse any CDLLC
Indemnified Party for all costs and expenses (including reasonable counsel fees
and expenses) as they are incurred in connection with the investigation of,
preparation of or defense of any pending or threatened claim or any action or
proceeding covered by such indemnity. COBEE will not be liable under the
foregoing indemnification provisions to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court to have resulted
primarily from the bad faith or gross negligence of CDLLC.
CDLLC agrees that it will indemnify and hold harmless COBEE and its directors,
officers, employees, and agents (each being a "COBEE Indemnified Party") from
and against any and all losses, claims, damages and liabilities, joint or
several, to which the COBEE Indemnified Party becomes subject under any
applicable federal or state law, or otherwise, relating to or arising out of the
willful misconduct or gross negligence of CDLLC. CDLLC will reimburse the COBEE
Indemnified Party for all costs and expenses (including reasonable counsel fees
and expenses) as they are incurred in connection with the investigation of,
preparation of or defense of any pending or threatened claim or any actions or
proceedings covered by such indemnity. CDLLC will not be liable under the
foregoing indemnification provisions to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court to have resulted
primarily from the bad faith or gross negligence of COBEE.
11
<PAGE>
Section 6.10. Compliance with Laws. Each party represent and warrants that
--------------------
it has conducted its affairs and activities with respect to the Projects in
accordance with applicable laws. Each party shall comply with any law, rule or
regulation under the laws of Bolivia, the United States and Canada which is or
may be applicable to it in the conduct of its business under this Agreement. No
party shall take any action that would subject any party to liability, penalty
or forfeiture under any laws, rules, regulations or decrees of any governmental
authority. Without limiting the foregoing, and mindful of the principles of the
United States Foreign Corrupt Practices Act, no party shall make or authorize
any payment or give anything of value directly or indirectly to an official of
Bolivia or any other government for the purpose of influencing an act or
decision in his official capacity or inducing him to use his influence with that
government with respect to the Projects or any other matter covered by this
Agreement. Likewise, no party shall make or authorize any payment to any
government agency, political party or political candidate for the purpose of
influencing any official act or decision, or inducing such entity or person to
use any influence with that government with respect to the Projects or any other
matter covered by this Agreement. Each party shall keep its books and records in
such a fashion that its compliance with the foregoing may be readily audited. In
addition to any other remedies under this Agreement, any party that fails to
comply with the requirements of this Section shall indemnify the other party
from and against any and all claims, losses, damages, liabilities, expenses and
costs of whatever nature arising out of or connected with such noncompliance,
including reasonable attorneys' fees and costs. Each party agrees to execute
certificates acknowledging its ongoing compliance with this Section from time to
time at the request of the other party.
Section 6.11. Confidentiality and Non-Competition. Any party may, to the
-----------------------------------
extent deemed necessary, condition and restrict delivery of information relating
to the services to be performed hereunder upon the execution of a separate
confidentiality and non-disclosure agreement by the other party.
Unless agreed otherwise by the parties, CDLLC shall not, itself, directly
or indirectly invest in, own, manage, operate, control or participate in the
ownership, management, operation or control of, any electric power generating
facility located in Bolivia within 200 kilometers of the proposed Puerto Suarez
project on the Bolivian border with Brazil that directly competes with the
Projects.
Section 6.12. Costs and Expenses. Each party will bear its own review
------------------
costs, attorneys, accountant and other professional fees and other expenses
incurred by it in connection with negotiating and entering into this Agreement.
Section 6.13. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together will constitute one and the same
instrument and the parties hereto may execute this Agreement by signing any such
counterpart.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on their behalf by their duly authorized officers.
COBEE DEVELOPMENT LLC
By:________________________________
Name: Goran Dandanell
------------------------------
Title:_____________________________
COMPANIA BOLIVIANA DE ENERGIA
ELECTRICA S.A. - BOLIVIAN
POWER COMPANY LIMITED
By:_________________________________
Name: Roger J. Dupuis
-------------------------------
Title: President and General Manager
-------------------------------
13
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Jurisdiction of
Name of Subsidiary Incorporation or Organization
- ------------------ -----------------------------
Servicios Energeticos S.A. Bolivia
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,477
<SECURITIES> 0
<RECEIVABLES> 2,006
<ALLOWANCES> 0
<INVENTORY> 1,440
<CURRENT-ASSETS> 25,470
<PP&E> 184,659
<DEPRECIATION> 43,278
<TOTAL-ASSETS> 169,596
<CURRENT-LIABILITIES> 15,597
<BONDS> 68,700
0
0
<COMMON> 55,247
<OTHER-SE> 26,214
<TOTAL-LIABILITY-AND-EQUITY> 169,596
<SALES> 0
<TOTAL-REVENUES> 23,739
<CGS> 0
<TOTAL-COSTS> 17,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,489
<INCOME-PRETAX> 5,820
<INCOME-TAX> 116
<INCOME-CONTINUING> 5,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,164
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
