Colombia-Resilient-and-Sustainable-Infrastructure-for ...

The World Bank Resilient and Sustainable Infrastructure for Recovery DPF (P173424)

Official Use

Document of The World Bank

FOR OFFICIAL USE ONLY Report No: PGD182

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT FOR A

PROPOSED LOAN IN THE AMOUNT OF USD 500 MILLION

TO THE REPUBLIC OF COLOMBIA

FOR THE

RESILIENT AND SUSTAINABLE INFRASTRUCTURE FOR RECOVERY DEVELOPMENT

POLICY FINANCING

September 2, 2020

Energy and Extractives Global Practice Latin America And Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Republic of Colombia

GOVERNMENT FISCAL YEAR

January 1 – December 31

CURRENCY EQUIVALENTS

(Exchange Rate Effective as August 31, 2020)

COP 3,737= USD1.00

ABBREVIATIONS AND ACRONYMS AMI ANI BAU BRT CAD CMSF CONPES CPF CREG DPF DER DO FCL FCCL FDI FDN FINDETER FSSRI GoC IBRD ILE IFC LDP LVC MHCP

Advanced Metering Infrastructure National Infrastructure Agency Business as Usual Bus Rapid Transit System Current Account Deficit Capital Markets Strengthening Facility National Economic and Social Policy Council (Consejo Nacional de Política Económica y Social) Country Partnership Framework Regulatory Commission for Energy and Gas Development Policy Financing Distributed Energy Resource Development Objective Flexible Credit Line Fiscal Commitment and Contingent Liability Framework Foreign Direct Investment National Development Finance (Financiera de Desarrollo Nacional) Regional Development Bank (Financiera de Desarrollo Territorial) Solidarity Fund for Subsidies and Income Redistribution Government of Colombia International Bank for Reconstruction and Development Specialized logistic infrastructure (Infrastructura Logística Especializada) International Finance Corporation Letter of Development Policy Land Value Capture Ministry of Finance (Ministerio de Hacienda y Crédito Publico)

MIGA MME MoT MSMEs MTEF MVCT NCRE NDC NDP OEC PA PNL PPP PT ROA ROE SDG SECO SETP SOAT UPME VAT TES WBG WHO ZNI

Multilateral Investment Guarantee Agency Ministry of Mines and Energy Ministry of Transport Micro, Small and Medium Enterprises Medium-Term Expenditure Framework Ministry of Housing, City and Territory (Ministerio de Vivienda, Ciudad y Territorio) Non-Conventional Renewable Energy National Determined Contributions National Development Plan Organization for Economic Cooperation and Development Policy Action Logistics National Policy (Política Nacional de Logistica) Public Private Partnership Policy Trigger Return on Assets Return on Equity Sustainable Development Goal Swiss State Secretariat for Economic Affairs Public Transport Strategic Systems (Sistemas Estratégicos de Transporte Público) Mandatory Accident Insurance (Seguro Obligatorio de Accidentes de Tránsito) Mining and Energy Planning Unit (Unidad de Planeacion del Ministerio de Energia) Value Added Tax Domestic Public Bonds (Bonos del Estado) World Bank Group World Health Organization Non-Interconnected Zones (Zonas no Interconectadas)

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Regional Vice President: Carlos Felipe Jaramillo

Country Director: Ulrich Zachau

Regional Director: Franz R. Drees-Gross

Practice Manager: Stephanie Gil

Task Team Leaders: Silvia Martinez Romero, Catiana Garcia-Kilroy, Ana Guerrini


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REPUBLIC OF COLOMBIA

RESILIENT AND SUSTAINABLE INFRASTRUCTURE FOR RECOVERY DPF

TABLE OF CONTENTS

SUMMARY OF PROPOSED FINANCING AND PROGRAM .................... ERROR! BOOKMARK NOT DEFINED.

1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................5

2. MACROECONOMIC POLICY FRAMEWORK .................................................................................. 10

2.1. RECENT ECONOMIC DEVELOPMENTS ......................................................................................... 10

2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ...................................................... 17

2.3. IMF RELATIONS ........................................................................................................................... 23

3. GOVERNMENT PROGRAM ........................................................................................................ 23

4. PROPOSED OPERATION ............................................................................................................ 27

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 27

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 29

4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY .......................................... 52

4.4. COLOMBIA COVID-19 RESPONSE PLAN: ADJUSTMENT TO WBG SUPPORT ................................ 54

4.5. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 57

5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 59

5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 59

5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS ................................. 60

5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 62

5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 63

6. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 64

ANNEX 1: POLICY AND RESULTS MATRIX ............................................................................................. 67

ANNEX 2: FUND RELATIONS ANNEX .................................................................................................... 74

ANNEX 3: LETTER OF DEVELOPMENT POLICY ...................................................................................... 80

ANNEX 4: POVERTY AND SOCIAL IMPACT ANALYSIS ............................................................................. 96

ANNEX 5: ENVIRONMENT AND SOCIAL ANALYSIS TABLE .................................................................... 106

ANNEX 6: COVID-19 IMPACT ON THE INFRASTRUCTURE SECTOR ........................................................ 119

Official Use

The Resilient and Sustainable Infrastructure for Recovery DPF Series was prepared by an IBRD team consisting of Silvia Martinez Romero (Senior Energy Specialist), Ana Guerrini (Senior Transport Economist), Catiana Garcia Kilroy (Lead Financial Sector Specialist), Taimur Samad (Program Leader) Patricia Marcos Huidobro (Energy Specialist), Carlos Murgui Maties (Transport Analyst), Leonardo Canon (Transport Specialist), David Duarte (Senior Public Private Partnership Specialist), Cigdem Aslan (Lead Debt Specialist), Carlos Senon Benito (Consultant, Financial Sector Specialist), Hector Alexander (Water Resources Management Specialist), Vanessa Alexandra Velasco Bernal (Urban Specialist), Tamoya Annika Lois Christie (Economist), Cristina Savescu (Senior Economist), Paolo Dudine (Senior Economist), Andres Pinchao (Research Analyst), Jose Antonio Cuesta Leiva (Senior Economist), Julieth Carolina Pico Mejia (Consultant, Economist), Carolina Rojas (Senior Environmental Specialist), Carlos Alberto Molina (Senior Social Development Specialist), Maria Virginia Hormazabal (Financial Officer), Jeannette Estupinan (Senior Financial Management Specialist), Ana Maria Molina Cabal (Team Assistant) and Sergio Alejandro Perez (Consultant). The team benefited from guidance from Peer Reviewers David Reinstein (Senior Oil and Gas Specialist), Cecilia M. Briceno-Garmendia (Lead Economist), Caroline Cerruti (Senior Financial Sector Specialist) and Clive Harris (Lead Infrastructure Specialist), as well as from Martin Rama (Chief Economist), Ulrich Zachau (Country Director), Jutta Ursula Kern (Manager, Operations), Johannes Widmann (Senior Operations Officer), Jasmin Chakeri (Lead Country Economist), William David Wiseman, Theo David Thomas (Lead Economist) and IFC colleagues including Elizabeth Marcano (Country Manager), Camila Rodriguez (Principal Operations Officer) and Maria Victoria Guarin (Senior Investment Officer). The team is also appreciative of the excellent collaboration from the Government of Colombia throughout various stages of this operation. The team acknowledges the leadership of Ministry of the Finance and the Department of National Planning, as well as the guidance and support provided by the Ministry of Energy, Ministry of Transport, Ministry of Housing, Cities and Territory, the National Infrastructure Agency (ANI) and the National Development Finance (FDN).


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Official Use

SUMMARY OF PROPOSED FINANCING AND PROGRAM

BASIC INFORMATION

Project ID Programmatic If programmatic, position in series

P173424 Yes 1st in a series of 2

Proposed Development Objective(s)

The Development Objective (DO) of this programmatic series of operations is to sustain access to critical infrastructure services for firms and households following the COVID-19 crisis, while establishing the policy foundations for recovery through sustainable and resilient infrastructure

Organizations

Borrower: MINISTRY OF FINANCE

Implementing Agency: MINISTRY OF TRANSPORT, MINISTRY OF MINES AND ENERGY, MINISTRY OF HOUSING, CITY AND TERRITORY

PROJECT FINANCING DATA (US$, Millions) SUMMARY

Total Financing 500.00 DETAILS International Bank for Reconstruction and Development (IBRD) 500.00

INSTITUTIONAL DATA

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Overall Risk Rating

Substantial


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Official Use

. Results

Indicator Name Baseline Target (December 2022)

PILLAR 1 - Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19

Indicator 1: Colombian pesos disbursed to electricity and water utilities through the Findeter credit line

0 (February 2020)

COP 600 billion

Indicator 2: Number of mass transit systems using funding and financing instruments to cover operational deficits generated by the impact of COVID-19

0 3

Indicator 3: Percentage of concession and PPP road contracts active prior to the COVID-19 Emergency (in operation or under construction) affected by the measures taken by the Declaration of the National Emergency that have maintained or recovered their financial balance

0 80

PILLAR 2 - Resilient and Sustainable Infrastructure for Recovery from COVID-19

Indicator 4: MW of NCRE awarded under the October 2019 long-term energy auction 0 MW 1,374 MW

Indicator 5: MW of new NCRE installed 0 MW 200 MW

Indicator 6: MW of new energy storage installed 0 MW 45 MW

Indicator 7: Increase of freight transported by fluvial modes 5,000,039 Ton/YR (2018)

6,500,050 Ton/YR

Indicator 8: Decrease in logistics costs as percentage of sales 13.5 (2018)

12.9

Indicator 9: Average export processing times at maritime terminals (hours)

156 (2018)

125

Indicator 10: Increase in registrations of vehicles that are fully electric 2,100 (2019)

3,360

Indicator 11: Number of new mass transit co-financing agreements signed under the new governance and co-financing scheme

0 2

PILLAR 3 - Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19

Indicator 12: Number of existing and new structured concessions and PPP projects under new FCCL framework 0 19

Indicator 13: Estimated CAPEX value of new infrastructure projects tendered under the 5G Program 0

USD 1.0 billion (August 21, 2020

USD: COP Exchange Rate) .


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Official Use

IBRD PROGRAM DOCUMENT FOR A PROPOSED RESILIENT AND SUSTAINABLE INFRASTRUCTURE FOR

RECOVERY DPF TO THE REPUBLIC OF COLOMBIA

1. INTRODUCTION AND COUNTRY CONTEXT

1. The proposed Resilient and Sustainable1 Infrastructure for Recovery Development Policy Financing (DPF) in the amount of USD500 million for the Republic of Colombia is the first of a series of two programmatic DPFs.2 The series aims to support the Government of Colombia (GoC) in its efforts to sustain access to critical infrastructure services for firms and households following the COVID-19 crisis, while establishing the policy foundations for recovery through sustainable and resilient infrastructure. 2. After two decades of consistent economic growth3 and reduction in poverty4, the COVID-19 crisis has caused the first recession in Colombia in 20 years and the worst in more than a century. The economy is expected to contract by 6.7 percent in 2020. The fiscal deficit is expected to widen to 8.2 percent of GDP and general government debt is expected to increase to 66.5 percent of GDP in 2020. It is anticipated that poverty will increase between 3.0 and 9.1 percentage points, depending on the severity of the economic contraction. The presence of approximately 1.82 million migrants from Venezuela5 further strains the resilience of the economy and society.

3. In response to the COVID-19 crisis pandemic, Colombia declared a national health emergency on March 12, 2020 and imposed a national quarantine and lockdown on March 16, 2020. The GoC then rapidly rolled out a broad program of emergency public health, social protection, and economic-fiscal measures to save lives, protect the poor and sustain firms. The program focused on four areas: (i) ensuring fiscal space for the response; (ii) supporting the capacity of the health system; (iii) providing income and nutrition support to poor and vulnerable households; and (iv) maintaining liquidity and access to finance for firms, including utilities. The estimated cost of the measures is COP31.9 trillion, or 3.1 percent of GDP (see subsection 2.1 and Box 2 in Section 3 for further details).

4. In May and June 2020, Colombia began a shift in its response to COVID-19 to focus on a carefully managed, gradual restart of economic activity. The Government issued a series of biosecurity protocols for the renewed opening and operation of various sectors and businesses, along with systems for validation and control. Over 130,000 firms in the manufacturing, service and commercial sectors (representing 84 percent of all firms which applied) have been authorized by the Ministry of Commerce,

1 Sustainable in the context of this operation refers not only to environmental concerns but also wider economic, financial and social considerations. Sustainable infrastructure refers to infrastructure that is designed, built, and operated in ways that do not diminish the social, economic and ecological processes required to maintain human equity, diversity, and the functionality of natural systems. 2 The second DPF in the series is currently expected in late FY21 (first half of 2021). 3 Average economic growth was 3.9 percent during 2000-2019. 4 Extreme poverty fell from 17.7 percent in 2002 to 7.2 percent in 2018 while moderate poverty decreased, dropping from 49.7 percent to 27.0 percent over the same time frame. http://documents1.worldbank.org/curated/en/657941560749443721/pdf/Poverty-and-Shared-Prosperity-in-Colombia-Background-Paper-for-Policy-Notes.pdf 5 Based on estimates from Migration Colombia - Ministry of Foreign Affairs.


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Industry and Tourism to restart activities. Electricity consumption and mobility data evidence that economic activity has been gradually picking up since these measures were taken. In the construction sector, for example, an estimated 94 percent of closed or postponed projects had been reinitiated as of June 11, 2020.6 The Agencia Nacional de Infraestructura (ANI) reported on June 13, 2020 that 44 of 46 national infrastructure projects employing over 45,000 workers under construction have restarted. 5. Ensuring continued access to resilient infrastructure services will make a critical contribution to securing and restarting Colombia’s economy. Included in Colombia’s initial COVID-19 emergency response package are measures that – while necessary to save lives and protect the poor and vulnerable – have had a direct impact on the financial resilience and sustainability of infrastructure services. Specifically, these measures include: (i) a temporary 36-month deferral of electricity and water tariffs expected to provide critical relief to over 4 million lower income households; (ii) the temporary suspension of tariff increases for water and electricity to protect the poor and vulnerable; (iii) the temporary suspension of tolls to facilitate the flow of critical goods; (iv) the reconnection of over 200,000 households to electricity and water services, respectively, to ensure access to essential public services; (v) emergency provision of water supply to vulnerable populations; and, amongst others, (vi) the adoption of social distancing and biosecurity protocols in the operation of water, electricity and urban transport services.

6. The adverse impact of these initial mitigation measures on infrastructure services has been compounded by reduced demand and increasing payment delinquency for certain key services. Energy demand fell by 15 percent in the immediate aftermath of the declaration of emergency and has remained 12 percent below government pre-COVID-19 forecasts since March 24. In major cities, public transport ridership declined by 85 percent on average due to quarantine measures and an imposed cap on mass transit passenger occupancy of 35 percent of capacity. Traffic on inter-city toll roads has also declined in the aftermath of COVID-19, adversely affecting trade and commerce. Both water and electricity utilities are reporting a deterioration of payment behavior from residential, industrial and commercial users as a result of the economic impact of the COVID-19 crisis. Financial losses to utilities and providers of essential infrastructure services directly attributable to COVID-19 through December 2020 are estimated at USD2.0 billion7 depending on the speed of the recovery. A detailed description of the impact of COVID-19 on critical infrastructure services is included in Annex 6.

7. With the launch on July 20, 2020 of a sweeping ‘New Deal’ style program, Nuevo Compromiso para Colombia, Colombia shifted further towards a more comprehensive focus on recovery and reactivation. The Program focuses on four key pillars to catalyze recovery from COVID-19: (i) employment generation; (ii) green growth; (iii) protecting the poor and vulnerable; and (iv) rural development. The Program envisions generating over 1 million jobs through over COP 100 billion in investment (i.e. 10 percent of GDP) across these pillars, with a significant focus on resilient and sustainable infrastructure under both the employment generation and green growth pillars.8

6 As reported by the Camara Colombiana de la Construcción (CAMACOL) on June 12, 2020. 7 Specifically, the expected operating losses are estimated at up to: (i) USD516 million in the electricity sector; (ii) USD595 million in the seven primary mass transit systems; (iii) USD824 million in the water sector; and (iv) USD140 million in the toll road sector. 8 See https://id.presidencia.gov.co/Paginas/prensa/2020/Presidente-Duque-planteo-nuevo-Compromiso-por-el-Futuro-de-Colombia-200720.aspx.


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8. The ambitious agenda of resilient and sustainable infrastructure development as a component of the broader Nuevo Compromiso para Colombia recovery program holds promise to catalyze economic recovery from COVID-19 over the medium-term. Broad international evidence exists that infrastructure is a driver of job creation9; economic growth and competitiveness10; international trade11; and improvements in the quality of life for the poor and vulnerable12. 9. Colombia has made significant improvements in its ability to develop large-scale infrastructure in recent years, beginning to overcome important historical gaps in infrastructure development.13 The estimated USD27 billion 4G toll road program is amongst the developing world’s largest Public-Private Partnership (PPP) investment programs. Complemented by associated reforms in the logistics sector and the promotion of multimodal freight transport, these developments have seen Colombia move from 91 in 2016 to 58 in 2018 in the World Bank Logistics Performance rankings. Colombia has facilitated the development of mass and public transit systems in primary and secondary cities and remains committed to continue support for green urban mobility through system expansion, clean fleet modernization, financial sustainability and modal integration. Further, Colombia has made significant efforts to increase the share of non-conventional renewable energy in the electricity mix and has outlined a roadmap for sector competitiveness, efficiency and access and under the recently concluded Misión de Energia.

10. Colombia is well positioned to spur recovery from COVID-19 with resilient and sustainable infrastructure as one of the key components of the broader recovery plan, drawing on a strong fiscal and regulatory framework and an emerging pipeline of green investments. Infrastructure and related activities accounted in 2019 for an estimated 18.5 percent of GDP.14 Prior to the COVID-19 crisis, Colombia had the second highest number of infrastructure projects under construction in Latin America. Colombia ranks among the most competitive countries in the world in terms of the regulatory framework for infrastructure finance through PPPs.15 Colombia’s infrastructure program is further enabled by a sound

9 See Dinkelman, Taryn (2011) “The Effects of Rural Electrification on Employment: New Evidence from South Africa.” American Economic Review 101, 3078-3108; and Estache, A., & Garsous, G. (2012). “The Scope for an Impact of Infrastructure Investments on Jobs in Developing Countries.” International Finance Corporation Economics Notes- Note 4 (April). Washington, D.C.: International Finance Corporation. 10 See Yılmaz, Derya & Cetin, Isin. (2018). The Impact of Infrastructure on Growth in Developing Countries: Dynamic Panel Data. Analysis; Serebrisky, T. (2014) Sustainable infrastructure for competitiveness and inclusive growth, IDB; Aschauer, D. A. (1989). Is Public Expenditure Productive? Journal of Monetary Economics, 23(2),177–200. doi:10.1016/0304-3932(89)90047-0; and Hayaloğlu, Pınar. (2015). The Impact of Developments in the Logistics Sector on Economic Growth: The Case of OECD Countries. International Journal of Economics and Financial Issues. 5. 523-530. 11 See Krugman, P. (1991). Geography and Trade. Cambridge, MA: MIT Press; and ADB (2015) The Impact of Infrastructure on Trade and Economic Growth in Selected Economies in Asia. 12 See Calderon, C. & Serven, L. (2014). Infrastructure, Growth and Inequality: An Overview. World Bank Research Policy Working Paper, No. 7034. 13 Colombia ranks 108 out of 144 countries in terms of infrastructure quality (Source: World Economic Forum, Executive Opinion Survey. 2014- 2015 Global Competitiveness Index) and total investment remains below 4 percent of GDP, with overall infrastructure needs are estimated at USD85 billion (Source: "Colombia’s National Development Plan (NDP) 2018-2022 - https://colaboracion.dnp.gov.co/CDT/Prensa/PND-Pacto-por-Colombia-pacto-por-la-equidad-2018-2022.pdf.) 14 See https://www.dane.gov.co/index.php/estadisticas-por-tema/cuentas-nacionales/cuentas-nacionales-trimestrales. Estimates for infrastructure as a share of GDP are based on the total of three sectors as defined in the national statistical system (i) distribution of electricity, gas and other services; (ii) construction; and (iii) real estate. 15 See “Procuring Infrastructure PPP 2018" - http://pubdocs.worldbank.org/en/256451522692645967/pdf/PIP3-2018.pdf. The report measures 135 countries and the development of projects under the PPP scheme.


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contingent liability management framework; clear fiscal rules for public support to PPPs and concessions; and a track record of attracting private investment. Prior to and through the COVID-19 crisis, Colombia has advanced the structuring of a broad portfolio of critical sustainable infrastructure programs and projects both under the umbrella of the USD12.5 billion next generation 5G Infrastructure Program focused on multimodal connectivity infrastructure; and other large-scale investments in the urban mobility, environmental restoration and waste water sectors. This ambitious program of investment has a strong climate change mitigation and adaptation focus.16

11. This proposed DPF series follows the World Bank-financed ’COVID-19 Crisis Response DPF, approved on June 26, 2020, which supported Colombia’s broad program of critical initial emergency measures to save lives and protect the poor and vulnerable in the immediate aftermath of COVID-19. This DP series supports the next stage of Colombia’s COVID-19 response: (i) reactivating and securing the economy; and (ii) promoting a recovery that is both resilient and sustainable.

12. The proposed DPF Series is fully aligned with the approach set out in the World Bank Group’s paper ‘World Bank Group COVID-19 Crisis Response Approach Paper – Saving Lives, Scaling-Up Impact and Getting Back on Track’ discussed by the Board on June 25, 2020. The DPF series supports policies and programs under Pillar 3 of the Approach Paper, ‘Ensuring Sustainable Business Growth and Job Creation’, through support for essential measures that will ensure the continuity, resilience and sustainability of critical infrastructure services for the economy and poor and vulnerable groups following the COVID-19 crisis. Further, the DPF series supports policies and programs under Pillar 4 of the Approach Paper, ‘Strengthening Policies, Institutions and Investments for Rebuilding Better’, by supporting the policy foundations for an accelerated recovery from COVID-19 through investment in green and resilient infrastructure that will have a direct and positive impact on job creation, competitiveness and growth. See Figure 1 below.

16 Among the 20 goals of the NDP has the commitment to increase non-conventional renewable energy (NCRE) generation from 22.4 MW in 2018 to 1,500 MW in 2022 and the inclusion of mandatory energy efficiency goals under the Program for Efficient and Rational Use of Energy.

Figure 1: World Bank COVID-19 Support for Colombia

Pillar 1: Saving Lives

Pillar 2: Protecting the Poor

and Vulnerable

Pillar 3: Ensuring Sustainable Business Growth and

Job Creation

Pillar 4: Strengthening

Policies, Institutions and Investments for

Rebuilding Better

World Bank Group COVID-19 Crisis Response Approach Paper – Saving Lives, Scaling-Up Impact and Getting Back on Track

COVID-19 Crisis Response DPF (USD700 million)

Resilient and Sustainable Infrastructure for Recovery DPF Series (USD500 million in Phase 1)


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13. The objective of this programmatic series of operations is to sustain access to critical infrastructure services for firms and households following the COVID-19 crisis, while establishing the policy foundations for recovery through sustainable and resilient infrastructure. The series supports policy measures under three pillars:

Under Pillar 1, “Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19”, the programmatic series supports targeted and temporary measures to support utilities and PPPs facing financial strain as a result of COVID-19, thereby enabling continuity of access to critical infrastructure for firms and households, including the poor and vulnerable.

Under Pillar 2, “Resilient and Sustainable Infrastructure for Recovery from COVID-19”, the programmatic series focuses on establishing the policy foundations for an accelerated recovery from COVID-19 through resilient and sustainable infrastructure. Specifically, the pillar will: (i) support measures to increase the sustainability, resilience and efficiency of the energy sector by increasing the share of non-conventional renewable energy (NCRE) in the generation mix, promoting digitalization, decentralization, demand management and electricity access; and (ii) introduce measures to green and increase the efficiency and competitiveness of the logistics and urban mobility sectors.

Under Pillar 3, “Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19”, the programmatic series focuses on: (i) improving the contingent liability and PPP framework across the infrastructure sectors to increase fiscal resilience to crises and spur investment; and (ii) mobilizing private and long-term financing for infrastructure development through innovative models of catalytic government financing, mobilizing new funding sources and the elimination of regulatory bottlenecks preventing institutional investors from increasing their exposure to infrastructure.

14. This programmatic DPL series will deliver tangible results for the recovery and renewed, more resilient and sustainable growth over the medium-term. Specifically:

Measures under Pillar 1 enable access to up to COP1,200 billion in liquidity financing for water and electricity utilities to offset the impact of government measures related to COVID-19 and indirectly enable approximately 14.6 million lower-income users of the services to sustain access to these services; support service continuity of the urban mass transit systems in Colombia’s seven primary cities; and facilitate the financial sustainability of road infrastructure concessions and PPPs.

Measures under Pillar 2 of the series are expected to result in the award of over 1300 MW of new NCRE and the installation of over 200 MW of new NCRE into the energy mix over the next two years; the installation of over 45 MW of battery storage capacity to facilitate the integration of NCRE in non-interconnected areas; the increase in the volume of freight cargo transported by fluvial modes by 30 percent; the reduction in logistics costs as percentage of sales; an increase of the electric vehicle fleet by 60 percent; and the acceleration and expansion of sustainable urban mobility investments.

Measures under Pillar 3 of the series will result in the application of enhanced contingent liability management methods in up to 19 existing and new infrastructure PPP concessions with an


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estimated CAPEX value of COP33 trillion (approximately 3.3 percent of GDP); and the introduction of new sources of public, land-based, private and long-term finance for infrastructure.

15. The DPF series is also expected to support the GoC in meeting its climate change adaptation and mitigation objectives. The series will specifically support the reduction of greenhouse gas emissions through the promotion of NCRE and cleaner transportation. It will further directly support adaptation by providing extra resilience against the effects of El Niño Southern Oscillation and increasing instances of extreme weather. By supporting institutional governance and regulatory reforms on green multimodal transport and urban mobility as well as a cleaner and more resilient energy sector, the proposed DPF series is expected to provide significant climate co-benefits.

2. MACROECONOMIC POLICY FRAMEWORK

2.1. RECENT ECONOMIC DEVELOPMENTS

16. Colombia’s economy was on a steady path to recovery, with accelerating economic growth, when the COVID-19 crisis hit. Adequate macroeconomic policies17 have ensured gradual external and fiscal adjustments, resulting in accelerating growth since 2017. In 2019, the economy expanded at 3.3 percent, driven by strong private consumption and gross fixed investment, in a context of accommodative monetary policy, ample credit supply and strong remittances. The consumption boost from Venezuelan migrants and new fiscal incentives to businesses further improved conditions for growth. Unemployment inched down to 9.5 percent at end 2019, even as the number of informal workers increased, reflecting the absorption of new migrants. The strong domestic demand in 2019 resulted in a moderate widening of the current account deficit to 4.2 percent of GDP, which was comfortably financed by robust foreign direct investment (FDI) inflows. International reserves reached USD53.2 billion at end-2019, more than enough to cover the outstanding external short-term debt and the current account deficit. 17. Monetary policy supported an enabling growth environment in a context of gradual fiscal adjustment. The Central Bank maintained a stance supportive of economic growth while containing inflation within the targeted range of 3 percent ± 1 pp in 2019. Sound financial sector conditions were reflected in high bank capital adequacy ratios, strong bank profitability and improving loan portfolio quality at end 2019.18 The central government deficit narrowed to 2.5 percent of GDP in 2019 and the primary balance turned positive, as the authorities maintained a fiscal adjustment path consistent with the fiscal rule, implementing tax reforms and expenditure containment measures. General Government debt inched up to 52.1 percent of GDP in 2019 from 51.4 percent in 2018 (Table 2).

17 Key components of the macroeconomic framework have included a full-fledged inflation-targeting regime, a flexible exchange rate, and a Fiscal Rule for the central government, embedded in a Medium-Term Fiscal Framework. 18 The banking system’s capital adequacy ratio at 17.6 percent in December 2019 is among the highest in Latin America and is considerably above the regulatory limit. Bank profitability remained strong, with return on assets (ROA) and return on equity (ROE) increasing to 2.9 percent and 17.3 percent, respectively, in December. The quality of the banking sector's loan portfolio improved slightly, with the NPL ratio reaching 4.3 percent in December 2019. Loan loss provisions remained robust with a coverage ratio of 142.4 percent as of December 2019. In June 2019, Moody’s changed the credit outlook for the Colombian banking system to stable on improved operating conditions.


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18. Favorable real sector dynamics carried over into the initial months of 2020 but, by the end of the first quarter, the effects of the COVID-19 pandemic began to be evident. The Economic Monitoring Indicator (ISE, after its name in Spanish) points to a robust growth in January and February (or 3.6 and 4.5 percent respectively), and consumer spending had maintained momentum into the beginning of March. However, with the implementation of the lockdown in late March, activity contracted by 4.8 percent year-on-year (y/y) for that month, resulting in a GDP growth of 1.1 percent (y/y) in the first quarter, compared to 2.9 percent in 2019Q1. On the supply side, declines in the construction, mining and entertainment sectors drove the first quarter downturn. On the demand side, final consumption expenditure was relatively stable, but investment, exports, and imports contracted sharply. In particular, gross fixed capital formation fell by 4.9 percent (y/y), and exports fell by 6.1 percent (y/y) in 2020Q1. The ISE showed a deep slump of economic activity in April (-20.1%, y/y), explained by the contraction in almost all economic sectors (only public administration, education and health, and real estate did not contract). Following a partial lifting of lockdown measures and the restart of industrial operations in May, the purchasing manufacturing index (PMI) increased from 27.6 in April to 37.2 in May, indicating a continued, but milder, contraction in economic activity.19 The rate of unemployment reached 19.8 percent in April, the highest in twenty years.20 19. Colombia, like other emerging markets, initially experienced a sharp increase in risk premia and an exchange rate depreciation, both of which have been gradually reverting since April. The emerging markets bond index (EMBI) and the credit default swap (CDS-5Y) increased 215 and 160 basis points respectively between the beginning of January and end-March. Over the same period, the stock market fell 32 percent, and the exchange rate depreciated 24 percent. Since then, spreads have declined (on June 30, the EMBI was 143 bps and the CDS-5Y was 88 bps above the levels at the beginning of 2020), and the exchange rate has been appreciating (7.3 percent between end-March and June 30). Yet, in March 2020, Standard & Poor’s revised Colombia's outlook from stable to negative, citing the uncertain global outlook, but confirmed its investment grade BBB- rating. In April 2020, Fitch Ratings followed suit, downgrading Colombia's Long-Term Foreign Currency Issuer Default Rating to 'BBB-' from 'BBB', with a negative outlook. 20. The Government of Colombia has maintained access to financial markets at favorable conditions. The global uncertainty caused by the COVID-19 crisis and plummeting oil prices led to increased non-resident portfolio outflows, which, after peaking in April (USD715 million) on account of flight to quality in international capital markets, have slowed in May (USD49 million). The Government of Colombia has successfully tapped financial markets. On June 1, the Government issued USD2.5 billion in global bonds (including a new 31-year maturity bond) at the lowest historical coupon rate in the long part of the yield curve in U.S. dollars. Also, on June 17, Colombia issued COP255 billion in treasury bonds (TES) in unit value ratio (UVR), with a demand of 4.5 times the amount issued. 21. The authorities have provided a monetary and a fiscal stimulus to help mitigate the effects of the COVID-19 crisis. Specifically: The Central Bank has provided over COP 20 trillion of liquidity injection since March and could

19 A PMI below 50 indicates that manufacturing activity is decreasing. 20 The persistence of the unemployment rate around 9 percent over the last decade is an indication of deeper structural issues in the labor market which could be further amplified by the COVID-19 crisis.


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increase to COP32.8 trillion. The Central Bank has reduced the intervention rate and reserve requirement ratios, has purchased public and private securities, and has activated U.S. Dollar swap lines.21 Well-anchored inflation expectations, a negative output gap, and weaker demand due to COVID-19 quarantine and lockdown measures helped contain inflation, which declined to 2.9 in May y/y down from 3.9 percent in March.

The Government has also ramped up spending, implementing a sizable fiscal package in response to the crisis. Some COP31.9 trillion, or 3.1 percent of GDP, have been allocated so far for relief and mitigation, but this amount could potentially increase to COP48 trillion. The funds, channeled primarily through a special emergency mitigation fund (FOME), are intended to provide additional resources to the health system, increased transfers for vulnerable households, and liquidity support to businesses. Other fiscal measures include deferred tax collection for firms, lower tariffs on strategic health-related imports, and temporary discounts on pension contributions. Financing for the FOME has been primarily sourced through domestic loans from the Savings and Stabilization Fund (FAE) and the subnational pension savings fund (Fonpet), as well as local currency bonds (Titulos de Solidaridad – TDS, see Table 1).22 In addition to actions taken by the Central Bank to support liquidity, the GoC has also increased credit guarantees and established new credit lines to ensure availability of credit for firms to weather the adverse economic repercussions of the containment measures.

21 The Central Bank reduced the policy interest rate four times, on March 27, April 30, May 29, and June 30 bringing it from 4.25 before March to 2.50 percent. In addition, on April 15, it lowered the reserve requirements for current and savings accounts and other liabilities from 11 to 8 percent; and for certificates of deposit of less than 18 months from 4.5 to 3.5 percent. The estimated amount of the corresponding liquidity injection is COP9.8 trillion. To support liquidity in short-term funding markets, the Central Bank announced a COP10 trillion program to purchase securities issued by credit institutions; as of April 16, 2020, COP8.4 trillion of private securities purchases had been made. Also, on March 23 and April 14, notified purchases of government bonds during March and April, worth up to COP 4 trillion (COP2.7 trillion purchases were made). In addition, on March 16, the allotment of private debt repos was extended by COP 3 trillion, and repo operations collateralized with bank credit claims (up to COP 6.3 trillion) and local government bonds (up to COP1 trillion) were authorized from May 8 and June 30, respectively. Furthermore, to support the exchange market and promote liquidity in US dollars, swaps contracts up to USD800 million have been announced (a quota of USD400 million are still available), equivalent to 12 percent of the banks’ short-term foreign currency debt balance. Between March and June, non-delivery forwards (NDFs), worth USD 6.3 billion, have been auctioned or renewed. 22 The national government has made it compulsory for credit institutions to purchase COP9.8 trillion (0.9 percent of GDP) in Titulos de Solidaridad (TDS) to supplement finance for emergency costs due to COVID-19. Banks will be required to buy an amount of debt equivalent to as much as 3 percent of their demand deposits or 1 percent of term deposits. The bonds can be computed as reserve requirements holdings.


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Table 1. Fiscal Costs of Anti-COVID-19 Measures

COP trillion %GDP Financing sources 31.9 3.1%

Emergency Mitigation Fund (FOME) current resources 31.9 3.1% Saving and Stabilization Fund (FAE) and Territorial Pension Fund (Fonpet) 13.0 1.3% Occupational Hazard Fund (Fondo de Riesgos Laborales) 0.2 0.0% Solidarity Bonds (Títulos de Solidaridad) 9.7 0.9% Earmarking from solidarity tax (Impuesto Solidario) 0.3 0.0% Financial returns on the Emergency Mitigation Fund (FOME) 0.2 0.0% Multilateral loans 8.6 0.8%

Uses 31.9 3.1% Health system 8.2 0.8% Employment protection and economic reactivation 7.0 0.7%

Wage related subsidies 4.4 0.4% Financing of credit commission charges* 2.6 0.3%

Liquidity for Bancoldex and Findeter 0.7 0.1% Subsidies of the commission charges for the guarantees provided by the

National Guarantees Fund (FNG) 1.9 0.2%

Humanitarian aid 11.0 1.1% Transfers for vulnerable households 9.5 0.9% Financing of payments facilities** 1.4 0.1%

Facilities for utility bills (energy and gas, sewerage, aqueduct and toilet) 1.4 0.1% Unassigned** 5.7 0.6% Note: *Not included as fiscal expenditure. ** COP 2.5 trillion of unapproved uses won't be included as a fiscal expenditure. 22. The Consultative Committee on the Fiscal Rule endorsed, and the Higher Council on Fiscal Policy approved the Government’s request to activate the suspension clause of the fiscal rule, which would provide further flexibility to sustain economic activity. In May, the flexibility built into the fiscal rule allowed resetting the 2020 deficit ceiling to 6.1 percent of GDP (up from 2.2 percent established in the 2019 medium-term fiscal framework). 23 On June 15, taking stock of the further deterioration in economic conditions, the Government requested to use the suspension clause built into the Fiscal Rule and suspend the application of the deficit limits imposed by the rule in 2020-21, along with a commitment to reduce the structural deficit to 1 percent of GDP in 2022, and remit quarterly fiscal reports to strict independent monitoring by the Consultative Committee.

23 Colombia’s fiscal rule mandated a reduction of 0.8 percentage points of GDP in the central government fiscal deficit between 2019 and 2022, bringing the structural deficit of the central government to 1 percent of GDP in 2022. Flexibility parameters built into the fiscal rule allow the Fiscal Rule Consultative Committee to consider oil price and business cycle (including COVID-19 related) fluctuations in setting the fiscal path. In May 2020, the Committee invoked the countercyclical spending clause to revise the allowable Central Government fiscal deficit to 6.1 percent of GDP for 2020.


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Table 2. Colombia: Key Macroeconomic Indicators, 2016–2022

Proj. Proj. Proj.2016 2017 2018 2019 2020 2021 2022

Real sectorReal GDP 2.1 1.4 2.5 3.3 -6.7 4.5 4.0

Contributions:Private Consumption 1.1 1.4 2.1 3.1 -4.2 2.4 2.4Government Consumption 0.3 0.5 1.1 0.7 0.8 0.6 0.6Investment -0.7 0.4 0.3 0.9 -2.7 1.5 1.0Exports 0.0 0.4 0.1 0.4 -2.5 0.5 0.6Imports 0.8 -0.2 -1.2 -1.8 1.7 -0.6 -0.8

Imports -3.5 1.0 5.8 8.1 -7.4 2.6 3.3Exports -0.2 2.6 0.9 2.6 -16.8 3.9 4.4Unemployment rate (nat. def.) 8.7 8.6 9.7 9.5GDP deflator 5.1 5.1 4.5 4.3 3.8 3.9 4.1CPI (average) 7.5 4.3 3.2 3.5 3.0 3.5 3.5Fiscal accounts (Central Government)Revenues* 14.9 15.7 15.1 16.2 15.0 14.8 15.4Expenditures 18.9 19.3 18.3 18.6 23.2 19.8 18.2Fiscal balance (CG) -4.0 -3.6 -3.1 -2.5 -8.2 -5.1 -2.8Fiscal accounts (General Government)Revenues 24.3 24.5 26.3 27.3 25.5 26.2 27.0Expenditures 27.3 26.9 28.5 29.7 34.6 31.4 29.8Fiscal balance -3.0 -2.3 -2.2 -2.4 -9.2 -5.2 -2.8Gross public debt** 47.7 48.5 51.4 52.1 66.5 66.6 64.1Selected monetary accountsBase money 2.5 5.0 10.4 12.3Credit to private sector 9.2 12.1 4.4 7.8Policy interest rate 7.5 4.8 4.25 4.25External sectorCurrent account balance -4.3 -3.3 -3.9 -4.2 -5.3 -4.5 -4.2Imports GNFS 21.5 20.1 20.7 21.9 21.8 21.0 20.4Exports GNFS 14.7 15.1 15.9 15.8 12.9 12.8 12.6Foreign direct investment (net) 3.3 3.3 1.9 3.5 2.5 2.8 3.2Gross reserves (US$ billion, eop) 46.7 47.6 48.4 53.2

In months of next year's imports 9.9 9.1 9.0As % of short-term external debt 314 290 239 232

External debt 42.6 40.0 39.6 42.7Terms of trade (% change) 3.6 9.3 5.8 0.1Exchange rate (COP/US$, average) 3,054 2,951 2,956 3,281Memo itemsNominal GDP (US$ million, current) 282,825 311,884 333,569 323,777Nominal GDP (COP billion, current) 863,782 920,471 985,931 1,061,730 1,028,019 1,116,123 1,209,064Oil production (hundred thousand barrels/day) 886 854 865 886 786 794 800Oil price (Brent spot price, US$/barrel) 44 54 71 64 35 41 45

Source: Colombian autorities and WB staff estimates and projections.* In 2019 includes extraordinary Ecopetrol dividend. Since 2019 includes profits of Banco de la Republica. **Includes Ecopetrol.

Annual percentage change, unless otherwise indicated

Percent of GDP, unless otherwise indicated


Annual percentage change, unless otherwise indicated



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Table 3. Colombia: Key Fiscal Indicators for the Central Government, 2016-2022 (% of GDP)

Proj. Proj. Proj.2016 2017 2018 2019 2020 2021 2022

Total revenues 14.9 15.7 15.1 16.2 15.0 14.8 15.4Tax revenues 13.6 13.8 13.7 14.0 13.1 12.7 13.6

Net income tax and profits 4.7 5.7 6.5 6.4 6.1 5.2 5.9Value-added tax 4.8 5.5 5.7 5.8 5.3 5.6 5.8International trade 0.5 0.4 0.4 0.4 0.3 0.4 0.4Financial transactions tax 0.8 0.7 0.7 0.8 0.7 0.7 0.7Stamp and other taxes 2.8 1.4 0.5 0.7 0.5 0.6 0.7

Non-tax revenues 0.1 0.6 0.1 0.1 0.1 0.1 0.1Capital revenues 1.0 1.1 1.2 1.9 1.7 1.8 1.5

o/w Ecopetrol dividends 0.1 0.1 0.3 1.1 0.6 0.2 0.3Other 0.2 0.2 0.2 0.1 0.1 0.2 0.2

Total expenditures 18.9 19.3 18.3 18.6 23.2 19.8 18.2Current expenditures 15.3 15.9 15.9 15.8 20.5 17.3 16.2

Wages and salaries 2.4 2.2 2.2 2.2 2.5 2.3 2.2Goods and services 0.7 0.6 0.7 0.7 1.5 0.7 0.7Interest 2.5 2.6 2.8 2.9 3.2 3.2 3.2Current transfers 9.6 10.1 10.3 10.1 13.3 11.1 10.1Other 0.2 0.4 0.0 0.0 0.0 0.0 0.0

Capital expenditures 3.6 3.4 2.4 2.8 2.7 2.5 2.1Fixed capital formation 2.3 2.1 1.4 1.7 1.7 1.5 1.2Capital transfers 1.3 1.3 1.0 1.1 1.0 1.0 0.9

Primary balance -1.6 -1.1 -0.3 0.4 -5.0 -1.9 0.4Overall fiscal balance -4.0 -3.6 -3.1 -2.5 -8.2 -5.1 -2.8Structural fiscal balance^ -2.2 -1.9 -1.9 -1.6Financing needs 8.4 8.3 8.0 8.4 12.8 9.5 6.1

Overall fiscal balance 4.0 3.6 3.1 2.5 8.2 5.1 2.8Amortizations 1.9 2.5 1.0 2.8 1.1 2.8 1.8Other* 2.5 2.2 3.9 3.1 3.5 1.6 1.5

Financing sources 8.4 8.3 8.0 8.4 12.8 9.5 6.1Domestic 4.5 4.3 4.2 3.3 3.9 4.0 2.4FOME 1.4"Titulos de Solidaridad" 0.9External 1.7 1.7 1.2 1.2 4.4 3.5 2.4Carryover and other 2.2 2.4 2.6 3.9 2.1 2.0 1.3

Memo itemsRecapitalization of the National Guarantee Fund (FNG) 0.3Decapitalization of the Fondes and other entities with state participation 0.3

Transfer of pensioners from private funds to Colpensiones 0.5Nominal GDP (COP billion, current) 863,782 920,471 985,931 1,061,730 1,028,019 1,116,123 1,209,064*Includes arrears, judicial claims, and the end-of-year stock of government's deposits.Source: Ministry of Finance and WB staff estimates and projections.


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Table 4. Balance of Payments financing requirements and sources, 2016-2022 (USD million)

2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 23. The COVID-19 pandemic and related mitigation measures will trigger the first recession in Colombia in two decades and the worst in more than a century. High frequency indicators indicate that GDP will likely drop 16 percent in the second quarter, y/y. The fluidity of the crisis creates heightened uncertainty around the outlook, in particular about when economic activity will resume to pre COVID-19 levels.24 Under a baseline scenario where the gradual relaxation of the COVID-19 mitigation measures (quarantine and social distancing) and partial reactivation of the economy that started in late May will continue,25 GDP is projected to decline by 6.7 percent in 2020. Under this scenario, GDP will rebound by 4.5 and 4.0 percent in 2021 and 2022, respectively, reaching pre COVID-19 levels in mid-2022. This scenario is predicated on a robust recuperation in private consumption in the third and fourth quarters of 2020, reflecting pent up demand, and a gradual recuperation in private investment boosted by fiscal incentives. In this scenario, private consumption and investment are expected to decline by an annualized 6.1 and 11.9 percent, before rebounding in 2021-2022, reflecting continued accommodative monetary and fiscal policies and a renewed boost from in-migration. Both exports and imports are expected to decline in 2020 given weak global and domestic demand, depressed oil prices, and interruptions to international supply chains, but the decline in exports is expected to be sharper, leading to a deterioration of the trade balance. This would only be partially compensated by an improvement of the Primary Income Account, as firms slow down distribution of dividends abroad. The current account deficit would increase from 4.2 percent of GDP in 2019, to 5.3 percent of GDP in 2020. The 4G road infrastructure projects26, the

24 The standard deviation of growth projections sampled by Central Bank’s survey to analysts increased from 0.17 in Jan 2020 to 1.53 in May 2020. 25 The construction and manufacturing sectors were allowed to restart operations, following strict biosafety protocols, at end-April, while some industries and commercial services were allowed to restart in the mid May. Other services, including selected retail segments, were allowed to reopen on June 1st, while following sector specific biosafety protocols, although local jurisdictions (including Bogota) have been slower to ease restrictions. In the baseline scenario, world growth is forecasted to contract by 4.9 percent and oil prices average USD35 per barrel in 2020. The baseline scenario assumes that global growth will rebound to 4.6 percent in 2021, with average oil prices at USD 41 per barrel. 26 Supported by the World Bank Capital Markets Strengthening Facility – ASA (P167816)

2016 2017 2018 2019 2020 2021 2022Financing requirements 35,960 40,998 46,472 49,936 52,068 50,924 48,645

Current account deficit 12,036 10,241 13,117 13,740 14,081 13,048 12,939External debt amortization 23,759 30,212 32,168 32,863 35,621 37,071 34,422

Medium and long term 7,572 15,360 15,742 12,585 12,738 13,710 11,133Short term 16,187 14,852 16,426 20,278 22,883 23,361 23,289

Gross reserve accumulation 165 545 1,187 3,332 2,367 805 1,283Financing sources 35,960 40,998 46,472 49,936 52,068 50,924 48,645

FDI (net) 9,330 10,147 6,409 11,279 6,650 8,149 9,848o/w inward (net) 13,848 13,837 11,535 14,493 8,960 11,180 13,967

External debt disbursements 32,259 33,474 40,371 39,136 47,663 44,131 39,931Medium and long term 17,407 17,047 20,093 16,253 23,601 20,842 16,506Short term 14,852 16,426 20,278 22,883 24,061 23,289 23,425

Other capital flows (net) -5,629 -2,623 -308 -479 -2,244 -1,356 -1,135Source: Central Bank of Colombia and WB staff estimates and projections.


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Bogota metro project27, and improvements in investment planning and spending capacity at the subnational level are expected to support economic recovery over the medium term. However, in a downside scenario with a prolonged COVID-19 pandemic in Colombia, the economy is projected to contract by as much as 8.6 percent in 2020, with an expected recovery of about 4 and 3.6 percent in 2021 and 2022, respectively (Box 1).28 In this scenario, the scar from the COVID-19 crisis on the economy would be felt beyond 2022.

24. The central government’s deficit is expected to widen to 8.2 percent of GDP from 2.5 in 2019, as spending will increase for crisis response, and tax receipts will decline due to disruptions in economic activity and lower oil revenue. Spending is projected to increase by 4.5 percent of GDP. In itself, the projected decline in nominal GDP contributes to a 0.7 percentage point increase in the spending-to-GDP ratio. Expanded transfers for vulnerable groups, additional benefits for recently unemployed workers, and payroll subsidies are projected to cost 2.5 percent of GDP. Additional transfers under existing programs and transfers to territorial and local government would add 1.3 percent of GDP. On the revenue side, the decline in private consumption and the exemption for strategic health imports and selected food industries and services are expected to weigh on VAT (-0.5 percent of GDP). As income taxes are assessed on the previous year’s earnings, the slowdown in activity is expected to affect income taxes mostly in 2021, while the temporary delay in tax payments and withholding is expected to affect only marginally 2020 collection (-0.3 percent of GDP). The decline in oil prices is expected to mostly affect dividends from Ecopetrol (-0.4 percent of GDP). The deficit is expected to narrow during the 2021-2022 recovery, consistently with the government’s commitment to comply with the structural balance limit of 1 percent of GDP by 2022. The economic recovery would allow a gradual recuperation of revenues (in percent of GDP). As emergency spending is lifted, a zero-real growth in other outlays would still allow the spending to GDP ratio to decline. Local finances would be particularly affected by the decline in oil prices, pushing the consolidated general government deficit to 9.2 percent of GDP. 25. The CAD is expected to rise to 5.3 percent of GDP in 2020 in the baseline scenario. Given sustained low oil prices, an anticipated slow recovery in external demand and weak remittance flows, the CAD is expected to remain elevated at over 4.2 percent of GDP over the forecasting horizon. Gross external financing needs will remain sizeable in 2020, comprised primarily of private short- and medium-term debt (Table 4). Net FDI will continue to finance most of the current account deficit supplemented by increased net official inflows.

26. In both the baseline and downside scenarios, inflation is expected to remain within the Central Bank’s targeted range of 3 ± 1 percent as exchange rate pass-through pressures are tempered by weak demand. In the June 2020 Central Bank survey, inflation expectations moderated to 2.3 percent for end-2020 from 2.9 percent in the May survey, as the domestic lockdown exerted downward pressure on prices. Core inflation expectations fell to 1.7 percent for 2020. The Central Bank remains strongly committed to price stability.

27 World Bank Project P165300 28 In the downside scenario, a worsening of contagion would cause a slowdown (or a temporary reversal) of the re-opening. World GDP is forecasted to contract by 7.0 percent and oil prices average USD30 per barrel in 2020. Under this scenario, despite fiscal policy support, vulnerable firms would exit, vulnerable households would sharply curtail consumption, and travel would remain sluggish, resulting in weak global growth in 2021 (0.7 percent) and persistently low average oil prices.


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Box 1. Macroeconomic Impact of the COVID-19 Crisis

The macroeconomic impact of the COVID-19 pandemic is likely to be significant. Already its impact on the world economy is expected to be more severe and more widespread than that of the 2008 global financial crisis. The table below summarizes the projected macroeconomic impact in the baseline and downside scenarios compared with the pre-crisis projections. The impact on GDP could range from a decline of growth between 10.3 and 12.2 percentage points in 2020, when comparing pre-COVID-19 growth projections (3.6 percent) with the baseline and downside scenarios (-6.7 and -8.6 percent, respectively). The effect on domestic demand is likely to be the main transmission channel as the mandatory quarantine and lockdown cause halts in economic activity. Declining private consumption and investment are expected to contribute 4.2 and 2.7 percentage points to the GDP decline in the baseline case, respectively, as opposed to the sizable boosts which had been expected prior to the crisis. Importantly, increased government consumption and the decline in imports are expected to have some offsetting effect. Despite the reduction in imports, the COVID-19 crisis is expected to have a negative effect on the external accounts, causing the current account deficit (CAD) to increase to 5.3 percent of GDP in the baseline scenario as opposed to holding steady at 4.3 percent in the counter-factual no-crisis scenario. The value of exports is expected to fall by 16.8 percent, as opposed to an expected increase of 5.4 percent before the crisis, due to the combined impact of lower external demand and lower commodity prices, including oil (which accounted for 40 percent of total exports in 2019). In the downside scenario, the CAD would widen to 6.6 percent of GDP, with exports projected to fall by 20.4 percent in 2020. The COVID-19 crisis will also affect the fiscal accounts directly, through higher spending, and indirectly, through lower revenues. The decline in oil prices will reduce the Central Government’s oil-related revenues from 1.2 percent of GDP before the crisis to 0.6 percent of GDP. Reduced economic activity due to the lockdown would also reduce income and consumption tax revenues. This and emergency spending would cause the Central Government deficit to increase to 8.2 percent of GDP in the baseline scenario, as opposed to the narrowing of the deficit to 2.2 percent of GDP anticipated

Pre-COVID Baseline DownsideReal sectorReal GDP 3.6 -6.7 -8.6Contributions:Private Consumption 3.2 -4.2 -5.7Govt. Consumption 0.6 0.8 1.2Investment 0.8 -2.7 -3.1Net Exports -0.6 -0.8 -0.9Fiscal accounts (CG)Fiscal balance -2.2 -8.2 -8.7External sectorCurrent account balance -4.3 -5.3 -6.6Imports GNFS (annual % change) 6.0 -7.4 -8.4Exports GNFS (annual % change) 5.4 -16.8 -20.4Financing requirementsFiscal (CG) 5.6 12.8 13.2External (US$ millions) 50638 52068 54338

2020 projections

Annual percentage change

% of GDP, unless otherwise indicated


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before the crisis. In the downside scenario, the fiscal deficit could increase to as much as 8.7 percent of GDP. Ultimately, the effects of the crisis on the fiscal and external accounts would result in higher fiscal and external financing needs. In the baseline scenario, fiscal financing requirements climb to 12.8 percent of GDP, versus 5.6 percent projected before the crisis. Additional domestic and external debt financing has been identified to satisfy fiscal financing needs. Consequently, the public debt is expected to increase in 2020, as opposed to an anticipated reduction in the pre-crisis projections. Additional external financing needs of USD1.4 billion are projected in the baseline scenario, and as much as USD3.7 billion under the downside scenario. The additional external financing requirements are expected to be met through fresh financing from IFIs, and new bond issues in international capital markets, though at increased borrowing costs.

27. The COVID-19 crisis had a negative impact on the debt trajectory of the General Government, but the debt sustainability analysis indicates that general government debt still remains sustainable. In the baseline scenario, the general government’s debt to GDP ratio will increase to 66.5 percent in 2020. This is about 13 percent of GDP higher than in a counterfactual scenario without COVID-19, of which lower nominal GDP growth contributes about 5.5 percent of GDP. Under the baseline, the debt-to-GDP ratio will start declining in 2022 and fall below 52 percent of GDP by 2024 on the back of a favorable growth-interest rate differential (Figure 6). With more than 65 percent of the public debt denominated in local currency and a large part at fixed interest rates, depreciation and interest rate shocks would not have a significant impact on the debt trajectory over the short to medium term. Standard sensitivity analyses on the baseline scenario show that slower than expected economic growth by one standard deviation in the short run would increase public debt levels to a peak of 68.8 percent of GDP. However, a combined macro-financial shock29 would cause public debt to peak at 79.1 percent of GDP in 2022 and decline to 68.8 percent of GDP in 2024. In the downside scenario, public debt would increase to 68.3 percent of GDP in 2020 and would not fall below 60 percent until 2025. The combined macro-financial shock in this case would cause public debt to rise to close to 85 percent of GDP by 2022, before starting to decline in 2023. 28. The external debt sustainability analysis suggests that Colombia's external debt will increase in 2020 in the baseline scenario and will gradually begin to fall in the medium term. Colombia’s external debt is expected to rise to 56.2 percent of GDP this year under the baseline scenario on account of adverse exchange rate effects and rising fiscal pressures. As these shocks gradually fade, debt will decline from 2021, reaching 47.7 percent of GDP in 2024 (Figure 7). Debt service will increase in the medium term but will remain manageable. Furthermore, Colombia has an excellent track-record of meeting its financial obligations, and its refinancing risks are mitigated by a diversified foreign investor base. Stress tests indicate that under an exchange rate shock30 or a combined macro-financial shock31, external debt will still decline after reaching its peak (in 2020 under the exchange rate shock, or 2021 under the combined shock). In the downside scenario, external debt would increase to 60.2 percent of GDP in 2020, stabilizing in 2021, and start to decrease in 2022. it would reach 55.3 percent of GDP in 2024. In this context, both in the baseline and downside scenario, gross external financing needs will peak in 2020 and will decrease

29 Standard shocks applied to interest rate, exchange rate and GDP growth rate simultaneously. 30 One-time real depreciation of 30 percent occurs in 2021. 31 Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.


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from 2021, remaining sustainable in the medium term given sizeable non-debt-creating capital inflows. 29. The central government 2020 budget is fully financed. Total financing needs for 2020 are projected at 12.8 percent of GDP and financing sources have been already mobilized or identified. Savings accumulated in existing funds—including the Saving and Stabilization Fund (FAE), Territorial Pension Fund (Fonpet) and Occupational Hazard Fund (Fondo de Riesgos Laborales)—and deposits are expected to contribute 3.5 percent of GDP of financing in 2020. As of June 2020, domestic issuances amounting to about 2.4 percent of GDP and international issues of about 1.4 percent of GDP had been completed. Total IBRD disbursements in 2020 are expected to amount to USD 1.4 billion or 0.5 percent of GDP.32 Financing from other multilateral development institutions and bilateral partners, including the Inter-American Development Bank (IDB) and the Development Bank of Latin America (CAF), is estimated to amount to USD 2.9 billion or 1.1 percent of GDP. The government expects to raise an additional 3.9 percent of GDP in domestic and external borrowing in the remainder of 2020. In addition, Colombia also has access to a Flexible Credit Line arrangement with the IMF, of about USD10.8 billion equivalent, or about 4 percent of GDP (see next subsection). 30. The Colombian economy faces heightened external and domestic risks due to uncertainty around the duration and severity of the COVID-19 pandemic. On the external front, downside risks to growth stem from a more widespread and prolonged duration of the COVID-19 pandemic and its potential impact on international supply chains and trade, commodity prices (including oil), borrowing costs, and portfolio flows. Global trade tensions and plummeting oil prices amplify these risks. Domestically, measures implemented by the Government to contain the spread of the disease in Colombia will also result in reduced domestic activity, slowing domestic aggregate demand which has been the main driver of growth. The impact on the economy could be severe if the crisis is prolonged and domestic production is curtailed for an extended period. The negative effect could even be amplified if there are repeated waves of COVID-19 outbreaks, leading to repeated episodes of social distancing and possibly lockdowns, which would result in slower recovery and prolonged negative growth effects over the medium term. On the fiscal front, falling oil revenues and further expected increases in government spending to alleviate the crisis and facilitate the recovery pose a fiscal risk, threatening the maintenance of fiscal discipline. The accommodative monetary policy stance by the Central Bank and the wave of Government guarantees to mitigate the crisis could pose stability and moral hazard risks to the financial sector. Other downside risks stem from a slower-than-expected implementation of the 4G infrastructure program, and a slower than expected recovery in the construction sector, given its important spillovers to the rest of the economy, including through employment. A prolonged crisis due to the pandemic could sustain the fall in oil prices and further delay expected FDI, resulting in a stagnating economy and increased unemployment. 31. The macroeconomic policy framework remains adequate for the purpose of the operation. Colombia has solid fundamentals and has built strong macroeconomic buffers that mitigate to some extent the risks described above. Furthermore, Colombia has ample reserves, and has recently renewed its precautionary line of credit with the International Monetary Fund (IMF). The swift implementation of its broad response to the pandemic is expected to mitigate some of the disastrous effects.

32 World Bank commitments in 2020 are expected to amount of USD 1.850 billion for 2020.


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Figure 6. Debt Sustainability Analysis (General Government debt, % of GDP)

Baseline scenario Downside scenario

Pre-COVID scenario 1/

Source: WB staff estimates Note: 1/ It uses macroeconomic projections made before March 2020.

Figure 7. External Debt Sustainability Analysis (External debt, % of GDP)

Baseline scenario Downside scenario

Source: WB staff estimates


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2.3. IMF RELATIONS 32. On April 9, 2020 the IMF concluded the Article IV Consultation with Colombia and on May 1, 2020, the IMF Board renewed Colombia’s access to resources under the precautionary Flexible Credit Line (FCL) facility. Colombia has had access to FCL arrangements since 2009, renewed every two years. The FCL arrangement accommodates access in the face of increased global risk. The authorities treat the two-year SDR 7.848 billion FCL (equivalent to about USD10.8 billion) only as a precautionary measure. The IMF Board’s review concluded that Colombia’s economy remained resilient owing to very strong policy frameworks and well-executed policies. It noted, however, that the economy is expected to contract by 2.5 percent (y/y) due to the severe impact of the COVID-19 pandemic, creating heightened uncertainty for the outlook. The IMF expected a rebound in growth in 2021, with growth of 4.2 percent. The IMF Board commended the early actions taken by the authorities to mitigate the spread of COVID-19, as well as the creation of a crisis mitigation fund to support the health sector, households and businesses, in light of the significant disruption to economic activity. Prudent use of countercyclical spending was encouraged, as was accommodative monetary policy, provided inflation expectations remained anchored. In the context of heightened volatility and dislocation in financial markets, the Central Bank’s actions to support market liquidity and funding were deemed timely and appropriate. Continued regulatory and supervisory flexibility and the use of appropriate macroprudential policies were also encouraged. For the recovery phase after the crisis, the need to appropriately calibrate the policy mix to support the recovery, enhance resilience, and rebuild buffers was highlighted. In that context, the IMF Board welcomed the authorities’ strong commitment to the fiscal rule and to enhancing transparency. To safeguard social spending and public investment, the Board encouraged additional revenue mobilization over the medium term through higher structural taxes and improvements to tax administration. Colombia’s progress toward further reducing poverty and inequality was welcomed and the IMF Board encouraged further efforts to tackle informality, integrate migrants to increase productivity, and enhance external competitiveness. The IMF and World Bank maintain close collaboration.

3. GOVERNMENT PROGRAM

33. The Government of Colombia has put in place a broad program of measures to contain and mitigate the impact of the COVID-19 pandemic focused on saving lives, protecting the poor and vulnerable and sustaining firms. These emergency response measures cover four main areas: (i) ensuring fiscal space for the response; (ii) supporting the capacity of the health system; (iii) providing income and nutrition support to poor and vulnerable households; and (iv) maintaining liquidity and access to finance for firms, including utilities. Box 2 summarizes key elements of this response program.


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Box 2: Summary of Government of Colombia COVID-19 Emergency Response Measures In response to the COVID-19 pandemic, the GoC instituted a package of comprehensive emergency response measures. On March 21, 2020, the Government created the Emergency Mitigation Fund (Fondo de Mitigatción de Emergencia, FOME) to finance additional spending associated with the emergency response. The size of the FOME, COP21.4 trillion, represents approximately 2 percent of GDP. Summarized below are key components of the Government response program to date. Strengthening the Health Sector: The Government has taken comprehensive action in the health

sector in response to the emergency through both: (i) the provision of enhanced health services, medicines, equipment and devices, infrastructure and supplies; and (ii) the implementation of reforms and guidelines related to social distancing and biosecurity protocols, sector financing, worker and at-risk population protection.

Enhancing Social Protection: The Government is providing additional cash transfers to the poorest and most vulnerable either through existing cash transfer programs or newly introduced transfer schemes. The Government anticipates reaching 2.6 million low-income families with children, more than 204,000 low income youth, and nearly 1.7 million elderly poor through existing programs. The Government will further reach 3 million additional vulnerable households. Complementary measures have included nutritional supplement programs for vulnerable groups as well as the transfer of 20,000 pension accounts of low-income beneficiaries from private to public accounts to mitigate the impact of a market downturn.

Protecting Children, Youth and Learning: The Government has implemented mandatory distance learning for all students, facilitated access to digital and physical learning materials, introduced an adapted school feeding program and introduced a financial relief package for 100,000 existing and potential low income and vulnerable beneficiaries of ICETEX higher education student loans.

Supporting Firms and Employment: The Government has taken measures to support firms, particularly MSMEs and companies in highly affected sectors. A series of liquidity lines under the umbrella Colombia Responde program through Bancoldex, and in the agricultural sector through Banco Agrario and Finagro, have been launched to provide working capital to firms and sustain employment alongside an expansion of access and coverage for vulnerable firms to guarantees through the Fondo Nacional de Garantias. Additional fiscal relief has been made available to firms through postponed income and Value Added Tax (VAT) tax payments and temporary reductions in pension contribution requirements.

Supporting Wage Subsidies: Firms that lost at least 20 percent in their revenue and have not laid off employees, will receive a subsidy equivalent to 40 percent of the minimum wage, per registered employee (i.e. COP 350,000), to cover payroll obligations. This measure is estimated to benefit 6 million employees and cost up to COP 2 trillion per month for three months.

Ensuring Access to Infrastructure Services for the Poor and Vulnerable: The Government has provided targeted and temporary electricity and water tariff deferrals at no cost for over 14 million of the most vulnerable beneficiaries; mandated the reconnection of previously disconnected households to water and electricity services; temporarily suspended tolls on inter-city roads to facilitate the supply of critical goods; and temporarily suspended tariff increases for critical services; amongst other measures (see Annex 6 for further details).


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34. Following these emergency measures to save lives and protect the poor and vulnerable, the GoC is focusing increasingly on protecting the economy from the impact of COVID-19, including on measures to ensure continued access to critical electricity, water and transport infrastructure services for firms and households. Specifically, the Government has provided a concessional line for liquidity support for electricity and water utilities through Findeter to offset operating losses related to the temporary and targeted tariff deferrals for strata 1 and 2 consumers; introduced liquidity support for inter-city transport service firms through the Transporte Responde credit line under Bancoldex; introduced a temporary suspension of import duties for utilities for critical inputs; and introduced a series of measures to enable utilities, concessionaires and municipalities to negotiate contracts and mitigate the impact of COVID-19. These measures provide essential support to utilities and providers of critical electricity, water and transport services adversely impacted by COVID-19 to sustain the provision of critical infrastructure services. See Annex 6 (Table A6.1) for a more detailed presentation of these measures. 35. Building on these measures to ensure the continuity of critical infrastructure services to firms and households, the GoC has prioritized the development of resilient and sustainable infrastructure as an important component of economic recovery from COVID-19 in the medium term. Specifically, the Government is advancing reforms towards the: (i) transformation of the energy sector to increase its efficiency, competitiveness and resilience; (ii) promotion of logistics competitiveness, multi-modal freight transportation and green urban mobility; and (iii) measures to ensure sound fiscal management of infrastructure and the mobilization of alternative sources of public and private financing of infrastructure.

36. The GoC continues advancing its program of transition to clean energy and increasing energy sector competitiveness. The Ministry of Mines and Energy (MME) launched the “Mission for the Energy Matrix Transition and Modernization of the Power Sector in Colombia”33 to develop a comprehensive roadmap of reforms to modernize the institutional and regulatory framework for the sector. The reform program aims to enable the entry of new market agents; mainstreaming of new technologies; and introduction of new market mechanisms with a view to enhance competitiveness, reliability, compliance with emission reduction targets and innovation. The roadmap for reform outlined in the Mission was published in June 2020.

37. In parallel, the GoC is working on the Clean Growth and Sustainable Development Law that aims to facilitate the transition towards a low-carbon economy, including the extension of carbon pricing instruments for non-liquid fossil fuels (i.e. coal), and the creation of a fund to promote NCRE. Furthermore, the MME launched the first ever long-term non-conventional renewable energy (NCRE) auction in Colombia in October 2019 which successfully awarded 1,374 MW of clean energy contracts at very competitive prices while attracting new investors to the sector.

38. In the transport sector, the GoC has maintained momentum on a broad program of policy reforms, incentives and investments to promote competitive and green logistics, connectivity and urban mobility, which together will support the recovery from COVID-19 through investment in resilient and sustainable transport infrastructure. Key elements of the Government program include:

33 https://energiaevoluciona.org/transformacion


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The recent approval of a National Logistics Policy to enhance competitiveness and reduce costs; The development and rehabilitation of river and rail transportation through a planned Railway

Master Plan and related instruments; The Port Expansion Plan through CONPES34 based on an ongoing review of sector needs, port

capacity and concessions; The launch of the Colombia Rural Program to strengthen the tertiary road network and improve

connectivity within rural and urban trade corridors; The launch of the National Program for the Replacement and Renovation of the Cargo Fleet to

support the greening of the road-based cargo fleet; The approval of the Electromobility Law to accelerate the integration of electric vehicles in the

national fleet; and The recent approval of a National Policy on Urban Mobility through CONPES to promote the

integration of a clean fleet and a more sustainable financial model to promote the expansion and operation of mass transit.

39. The Government also remains committed to a program of reforms to enhance the fiscal sustainability of infrastructure investment and to incentivize long-term private and alternative financing for sustainable and resilient infrastructure. The Government has strengthened the Fiscal Commitment and Contingent Liability Framework (FCCL) through regulatory and institutional capacity measures with the aim of minimizing fiscal risks associated with infrastructure concessions. Furthermore, the Government is engaged in a program of regulatory and policy reforms to specify and update the risk allocation frameworks for PPPs in the aviation, fluvial transportation and cargo rail sectors. Additionally, the Government maintains in its regulatory agenda in the near-term a program of reforms to the PPP framework including the introduction of updated guidelines for unsolicited private initiatives and other key measures. The GoC is further engaged in a process to diversify sources of infrastructure financing beyond traditional budgetary sources through the creation of the National Fund for Infrastructure Development (FONDES), the Fondo de Fuentes Alternativas de Pago (FIP) and the development of innovative land-value capture instruments for infrastructure development. Additionally, the GoC is addressing specific business and financial sector bottlenecks to mobilize long-term domestic and international financing for infrastructure in the framework of the ‘Misión de Mercado de Capitales’.35 Specific reforms under the framework of the Mission with a direct impact on infrastructure finance include, among others, reviewing investment regulations to incentivize pension funds to invest in longer-term assets that match the maturity of their liabilities; the diversification of the domestic long-term investor base by enabling public pension funds to invest following commercial risk-return criteria; and improving professionalism and efficiency in the asset management industry.

34 The Consejo Nacional de Política Económica y Social (CONPES) is the Government’s advisor council for social and economic development. The CONPES issues documents to define the Government’s national policies and to validate development projects to be financed internationally. 35 The high-level Mission was tasked in 2018 to conduct a comprehensive review of capital markets in Colombia and to develop a program of recommendations to strengthen, develop and deepen the functioning of efficient capital markets in the framework of the proper implementation of monetary, fiscal and private sector financing policies. The Mission presented its findings – including a specific pillar focused on mobilizing long-term private finance for infrastructure – in August 2019. The recommendations of Mission include a comprehensive policy and regulatory agenda for capital markets deepening for the next five to ten years.


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40. Several key reforms in the GoC’s program supported by this programmatic DPL series will help Colombia achieve its NDC commitments. Such reforms include: (i) the long-term contract auction for NCRE; (ii) the promotion of multimodal freight transportation, including an increase in freight transportation through cleaner fluvial and rail modes; (iii) an increase in the electric vehicle fleet through the Electromobility Law; and (iv) the development of green urban mobility systems which would both incorporate an increased proportion of clean fleet into mass transit systems and offer an alternative to individual motorized transport. See Box 3.

Box 3: Meeting Colombia’s Nationally Determined Contribution (NDC) commitments through Sustainable and Resilient Infrastructure

4. PROPOSED OPERATION

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION

41. The Development Objective (DO) of this programmatic series of operations is to sustain access to critical infrastructure services for firms and households following the COVID-19 crisis, while establishing the policy foundations for recovery through sustainable and resilient infrastructure. 42. The proposed series of operations builds on robust World Bank Group advisory and financing engagements with Colombia. Most recently, the Bank has supported GoC with a series of just-in-time

The proposed DPL Series will support Colombia to meet its Nationally Determined Contribution (NDC) commitments. In 2015, Colombia pledged to unconditionally reduce its GHG emissions by 20 percent from business as usual (BAU) by 2030, to be increased up to 30 percent from BAU conditioned on international support. The country has also set an ambitious target of achieving carbon neutrality by 2050. Emissions remained almost constant between 2008 and 2012, peaked in 2016 (88 Mt CO2e), and then decreased by 12 percent from 2016 to 2017 (75 Mt CO2e). The land use, land use change and forestry (LULUCF) sector is the largest contributor to greenhouse gas (GHG) emissions accounting for 55 percent of economy-wide emissions in 2019.

Nonetheless, the energy sector – including both energy and transport-related energy consumption – accounts for the second-largest share of GHG emissions at 35 percent. Colombia’s total installed power generation capacity is 17.5 GW and production stood at 65 TWh/year at the end of 2019, with a projection to expand to 20 GW and 104 TWh/year by 2050. The Colombian electricity sector has an emission factor of 164g CO2/kWh, comparatively low due to the significant dependence on hydropower. Nonetheless, this dependence has become a challenge for energy security due to frequent droughts and extreme weather events. Expanding renewables as an alternative to fossil fuels to meet growing energy demand has important potential to prevent future increases in emissions. The mitigation potential from increasing renewables in the national grid is estimated at around 38 MtCO2e by 2030. Further, the promotion of non-road freight transportation and green urban mobility have the potential to reduce the energy intensity of transportation services.

Source: Adapted from UNDP and BMZ reports and World Bank1including updates from XM (2020)


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advisory engagements in the electricity, transport, water and subnational finance sectors to assess the impact of COVID-19. These assessments examine the impact of COVID-19 and COVID-19 related mitigation measures on demand, traffic, revenue collection and shift in consumption priority areas in the sectors. Programmatic engagements are focused on supporting the energy transition; logistics, green multimodal transport and urban mobility; PPPs, contingent liability management and the private financing of infrastructure. Approximately USD7 million in trust fund resources have been leveraged to support the analytics and policy advisory underpinning this proposed DPL series. See Table 5 below for details.

Table 5: Linked World Bank Lending and Advisory Engagements in the Infrastructure Sector

Sector/Theme Activity Assessing the Impact of COVID-19 in the Infrastructure Sectors

Colombia: Assessing the COVID-19 Impact in the Water Sector and Policy Recommendations ASA (P111479) Colombia: Assessing the COVID-19 Impact in the Transport Sector and Policy Recommendations - Toll Roads, Ports, Airports Urban Transport – ASA (P172319) Assessing the COVID-19 Impact in the Energy Sector – ASA (P172319) Assessing the COVID-19 Impact on Subnational Fiscal Capacity

Green Multimodal Transport and Urban Mobility

Support the National Urban Transport Program Project (P117947, Ongoing) Support to the Bogota Metro Line 1 – Phase 1 Project (P165300) Integrated Transport System of the Aburrá Valley - ASA (P169735) Scaling-Up Clean Bus Implementation in LAC – ASA (P164403) Greening and Modernizing Colombia's Trucking Sector – ASA (P170495) Strengthening Colombia’s Ministry of Transport –ASA (FY20)

Clean Energy Transition and Competitiveness

Grant to support the development of a CTF Clean Energy Development Project Energy Sector Engagement Programmatic Approach – ASA (P158486)

Water Rio Bogota Environmental Recuperation and Flood Control Project (P111479) Plan PAZcifico: Water Supply and Basic Sanitation Infrastructure and Service Delivery Project – (P156239) Support for Regional Water Market Structuring in Municipality Clusters ASA (linked to P156239)

Sustainable Finance Colombia Government Debt and Risk Management Program – ASA (P166116). Capital Markets Strengthening Facility – ASA (P167816) Financial Sector Deepening Programmatic Approach – ASA (P169580)

Crosscutting – Transport, Energy

Mainstreaming Sustainable and Competitive Infrastructure for Low Carbon Development Programmatic Approach – ASA (P172319)

43. In the energy sector, the WBG supported advisory program includes assistance in the areas of energy efficiency, energy access and overall reform of the electricity distribution sector in the framework of the Energy Mission. Support has included advisory services financed by a grant for the Clean Energy Development Project that has enabled the design of the double-sided non-conventional renewable energy (NCRE) auction model. 44. In the transport sector, the WBG advisory program includes support for green multimodal transport, institutional strengthening and sustainable urban mobility. The WBG has a longstanding


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partnership with Colombia on urban mobility and currently has significant advisory support in place including: (i) a grant through the NDC Partnership to assist the national government in developing a second generation national program to promote financially sustainable green urban mobility; (ii) technical assistance with the support of the Korean Green Growth Trust Fund to assist the metropolitan region of Medellin in the integration of electric and clean vehicles into the bus rapid transit system fleet; and, amongst others (iii) technical assistance with the City of Bogotá on land value capture linked to the Metro investment, tariff subsidy reform and system modernization. The proposed DPF series also complements the ongoing National Urban Transport Program and Bogota Metro Line 1 investment operations financed by the Bank. 45. The Bank has maintained an advisory engagement on mobilizing long-term private financing, contingent liability management and strengthening the PPP framework. The Government Debt and Risk Management Program (GDRM) is supporting the Ministry of Finance (MHCP) to strengthen its contingent liability management framework for infrastructure PPPs and concessions in areas directly related to this DPL series. Further, through the Capital Markets Strengthening Facility (CMSF), the Bank is supporting the GoC with policy advisory work on deepening access to long-term private financing for sustainable and green infrastructure, both within and in parallel to the Misión de Mercados de Capitales. The CMSF Program supports policies and regulations with direct or indirect impact on real sector financing as well as demonstration transactions such as the successful Green and Social Bond to renew the bus fleet of the TransMilenio bus rapid transit system in Bogotá. Both the GDRM and CMSF programs are supported by the Swiss State Secretariat for Economic Affairs (SECO).

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS 46. This programmatic DPF series supports a reform program in three pillars: (i) Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19; (ii) Resilient and Sustainable Infrastructure for Recovery from COVID-19; and (iii) Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19. 47. The three pillars of the DPF series are aligned and consistent with the approach set out in the ‘World Bank Group COVID-19 Crisis Response Approach Paper – Saving Lives, Scaling-Up Impact and Getting Back on Track’ discussed by the Board on June 25, 2020. Specifically:

Pillar 1 of the DPF series is consistent with Pillar 3 of the Approach Paper, ‘Ensuring Sustainable Business Growth and Job Creation’, through support for essential measures that will ensure the continuity, resilience and sustainability of critical infrastructure services for the economy and households following the COVID-19 crisis; and

Pillars 2 and 3 of this DPF series are consistent with Pillar 4 of the Approach Paper, ‘Strengthening Policies, Institutions and Investments for Rebuilding Better’, through: (i) support for the policy foundations for an accelerated recovery from COVID-19 through investment in green and resilient infrastructure that will have a direct and positive impact on job creation, competitiveness and growth; and (ii) policy measures to ensure sound financial management of infrastructure investment and the leveraging of long-term private and institutional investment for resilient and


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sustainable infrastructure. Pillar 1: Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-1936 48. Overall Rationale and Impact – Pillar 1. Utilities companies and transport service providers under PPP and concession arrangements are facing unique and unprecedent operational challenges since the start of the pandemic. They are working to provide uninterrupted service while facing major financial constraints, due to revenue collection shortfalls, provision of services to non-paying customers and increased operational burdens from social distancing and other COVID-19 related requirements. Even while managing capital and operating expenses tightly, they will need temporary financial support. Pillar 1 supports a series of measures that the GoC is taking to mitigate the adverse financial impact of the COVID-19 pandemic on utilities and PPPs to secure their financial sustainability and in turn the continued provision of basic services to the population. A. Targeted and temporary support to utilities and PPPs facing financial strain from declining demand and payment deferrals 49. Prior Action #1. The Republic of Colombia has established a concessional liquidity line of credit through Findeter for public service companies, including in the electricity and water and sanitation sectors, through December 31, 2020, to mitigate the financial impact caused by targeted tariff deferrals directly linked to COVID-19, as authorized by Legislative Decree No. 581 dated April 15, 2020 and published in the Official Gazette on April 15, 2020 and in accordance with the terms and conditions set forth in Findeter's website at https://www.findeter.gov.co/creditodirecto/servicios_publicos.html. 50. Rationale. As part of the package of emergency COVID-19 response measures aimed at protecting the poor and vulnerable, the GoC established a 36-month voluntary deferral for payment of electricity and water and sanitation service tariffs targeted to socio-economic strata 1 and 2,37 limited to two tariff cycles for energy and 60 days for water and sanitation (Decrees 517 and 528).38 These deferral measures

36 The Colombian authorities issued decrees and regulations supporting the Program prior actions under Pillar 1 of this DPF under emergency powers. These decrees and regulations are subject to constitutional or legal review by competent courts as required by the Colombian constitutional and legal framework. This judicial review has been completed for the measures supported indirectly by Prior Action 1 of this DPF. Specifically, Decree 517 and Decree 528 which established the temporary and targeted tariff deferrals for electricity and water services were declared “exequible” (in agreement with the constitution) as evidenced by the Constitutional Court sentences C-187 and C-203 of 2020, respectively. Further, Decree 581 supported under Prior Action 1 was declared in agreement with the constitution as evidenced by the Constitutional Court sentence C-251 of 2020. Decrees 575 and 768, supported through Prior Actions 2 and 3 of this DPF, remain under review by the Constitutional Court. The authorities have provided assurances to the Bank that they have issued these decrees in compliance with the appropriate legal requirements. 37 Colombia uses strata to categorize neighborhoods and areas with similar social and economic characteristics. Throughout the country, houses, homes, apartments and other buildings are given a number on a scale of 1-6, with 6 being the highest on the socio-economic scale and 1 being the lowest. This categorization was established to allow cross-class subsidies that would help those in the lower strata pay for utilities. 38 The legal framework for public services is provided by the Public Services Law introduced in 1994 (Law 142 of 1994) and the Electricity Law of 1994 (Law 143 of 1994). The most common private sector participation models in the water sector in Colombia are mixed public-private companies, concession and lease contracts. Private companies started operating in 96 municipalities between 1996 and 2006. The existing concession and lease contracts introduced after 1994 allow private operators to exploit the public infrastructure or to participate as shareholders of municipal utilities. The tariff is not specifically part of the lease, or concession contract. Tariffs are regulated by the water sector regulator (CRA). Private operators in the water sector do not have


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were subsequently extended for a further month for electricity and two months for water. Poor and vulnerable households expend a significant proportion of their income on user fees for basic services.39 The ability to temporarily defer these tariff payments created a critical buffer to protect low-income and vulnerable households in the immediate aftermath of the COVID-19 outbreak and the associated loss of income due to the suspension of economic activity.40 See Annex 6 for a further description of these and associated measures. 51. The introduction of tariff deferrals for electricity and water supply and sanitation services to protect the poor have, however, had a direct impact on the financial sustainability of utilities. The direct financial impact of the electricity and water deferrals for strata 1 and 2 is estimated at USD532 million (USD 172 million for electricity and USD360 million for water supply and sanitation).41 Utilities are prohibited from charging fees and interest associated with such deferrals. In the electricity sector, the impact of tariff deferrals on utilities are compounded by declining energy demand and growing payment delinquency. These potential financial constraints are especially relevant for public electricity utilities, which are often less well capitalized and already suffer from long-delayed investments and maintenance. In the water sector, the impact of tariff deferrals on utilities are similarly compounded by associated measures to reconnect users, provide emergency water supply to vulnerable groups, the introduction of biosecurity measures in utility operations and the potential for payment delinquency. The need for liquidity support for utilities is critical to ensure a continuity of operation for essential basic electricity and water services to firms and households as Colombia moves towards securing the economy from COVID-19. 52. The Decrees that established the tariff deferrals for vulnerable strata (Decrees 517 and 528), as well as Decree 581 establishing the liquidity line, were (as every decree issued by the Government under the powers granted by Colombia’s Constitution during a state of economic, social and ecological emergency) subject to automatic review by Colombia’s Constitutional Court.42 All three decrees were declared constitutional with respect to form and substance by the Constitutional Court. The Court highlighted that tariff deferrals create liquidity problems for the utilities and therefore it is critical to guarantee their financial sustainability through their access to credit on favorable terms. In its review, the Court found central that the deferral measures were conditioned to the provision of interest free credit lines covering one hundred percent of the deferred amounts. The issuance of these Decrees was also

contractual tariffs but rather charge the regulated tariff set under the CRA methodology. It is the case that for both the water and electricity sectors, utilities de facto bear any regulatory risk associated with tariff setting and adjustment. In this context, it is important to note that both the targeted and time bound deferrals (supported under emergency decrees 517 and 528) and the associated mitigation measure supported under this PA1 were widely consulted with Colombia’s National Association of Public Services and Communications Service Providers (Andesco), the Colombian association of electricity providers (ASOCODIS) and developed together with CRA and CRE. 39 Strata 1 and 2 households are estimated to pay 4.20 percent and 3 percent of monthly household income on electricity and water tariffs respectively. 40 It is expected that approximately 50 percent of eligible strata 1 and 2 households will take advantage of the payment deferral measure in the electricity sector, benefitting an estimated 4.6 million households and 14.7 million beneficiaries. Further, it is estimated that 80 percent of strata 1 and 2 households will directly benefit from the tariff deferral measures in the water and sanitation sector, benefitting an estimated 4 million households and 14.7 million beneficiaries. 41 These estimates are based on the assumption that approximately 50 and 80 percent of eligible strata 1 and 2 will avail the voluntary deferral option. 42 As established in rulings C-187 and C-203 of June 18, 2020; and C-251 of 2020.


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preceded by intersectoral discussions, widely consulted with Colombia’s National Association of Public Services and Communications providers (Andesco), the Colombian association of electricity providers (ASOCODIS), and developed together with the water sector regulator (CRA) and the Energy Regulatory Commission (CRE). 53. Substance of the Prior Action. In response to the urgent need for liquidity for electricity and water utilities, the GoC has created a concessional liquidity line of credit administered by Findeter.43 The main objective of the credit line is to provide liquidity support to maintain the operational solvency of utilities that are providing basic domestic infrastructure services (i.e. electricity, water supply and sanitation and gas) to low income (Strata 1 and 2) households that benefit from the payment deferrals. The estimated maximum value of the liquidity line is COP1,200 billion (USD320 million). The credit line will be financed by the Ministry of Finance and Public Credit through the purchase of Findeter bonds. The decree enables Findeter to operate the credit line as a first-tier lender to eligible utilities. The credit line will offer debt to utilities through December 2020 for a tenor of up to three years, with a three-month grace period and at an interest rate of zero percent. A framework for eligibility, validation and governance has been developed for utilities which includes compliance with biosecurity measures and other protocols associated with the continuity of essential services in the context of the COVID-19 emergency. The credit line is calibrated to cover only the operating deficit generated by the short-term tariff deferral for strata 1 and 2 measures.44 54. Expected Results. The GoC expects that as a result of the measure at least COP600 billion will be disbursed to utilities through the Findeter credit line. This amount corresponds to approximately 50 percent of the total estimated billing for the period of the deferrals for strata 1 and 2 consumers of electricity and water supply and sanitation services. This injection of concessional liquidity support will enable utilities to offset the operating losses directly associated with the deferral measures and thereby maintain the continuity of essential electricity and water public services at minimum service standards to all consumers, including the poor and vulnerable. The amount disbursed could eventually be much higher depending on the demand from utilities. It should be noted that, while the Findeter credit line is designed to cover 100 percent of the liquidity demands due to tariff deferrals for the most vulnerable, the liquidity needs of the utilities due to loss of revenue collection, demand reduction and subsidy deficit are projected to be higher in the short and medium term. The Bank and GoC are collaborating on a series of ongoing assessments of the impact of COVID-19 in the electricity and water sector that aim to continuously monitor these potential residual liquidity shortfalls and develop strategies to mitigate them as the COVID-19 crises evolves. See Annex 6 for more details. 55. Prior Action #2. The Republic of Colombia has established measures to support the public transport system during the state of emergency, including: (i) providing the legal basis for municipalities to amend concession contracts under the principle of financial sustainability; and (ii) allowing the National Government to co-fund operation costs for mass transit systems, as evidenced by Legislative Decree No.

43 https://www.findeter.gov.co/creditodirecto/servicios_publicos.html 44 Liquidity needs that may arise as a resulted of associated and compounding factors summarized elsewhere in this document will likely require additional measures. The Bank is support GoC to monitor and track the evolving impact of COVID-19 on utility financial sustainability in the electricity, water and general transport sectors. This ongoing analytical support will provide early information on emerging risks, needs for liquidity and other support and identify potential solutions. The government is currently exploring multiple possible measures including further liquidity support on commercial terms through MDBs, bilateral development finance and the private sector.


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575 dated April 15, 2020 and published in the Official Gazette on April 15, 2020. 56. Rationale. The GoC, through the National Urban Transport Program (NUTP), has been supporting since 2006 the implementation and operation of seven bus rapid transit (BRT) systems in the largest urban agglomerations. Law 310 of 1996 provided the legal basis for the National Government to support up to 70 percent of the CAPEX for such systems. Conversely, the Law required operational expenditures to be covered exclusively by municipalities, which were expected to recover costs under a financial sustainability framework combining fare revenues and other local sources of funding. Nearly 90 percent of BRT services are under concession with private operators who are paid primarily on a per-km basis. BRT managing authorities, which are constituted as SOEs with national and municipal participation, are responsible for ensuring service quality and remunerating concessionaires based on performance. 57. In the immediate aftermath of COVID-19, passenger ridership levels fell at an average of 85 percent. However, operating costs remained relatively stable as municipalities struggled to keep public transport open to support essential service workers under strict social distancing protocols. The national government has further instituted a series of biosecurity protocols including measures requiring that customers of mass transit systems maintain a minimum distancing of 1 meter at stations and onboard vehicles. As a result, systems are limited to a maximum occupancy level of 35 percent of full operating capacity. The resulting divergence between revenues and costs generated estimated losses of approximately USD50 million across the seven mass transit systems during the period between March 16 and May 6, 2020. An estimated 89 percent of these losses correspond to the systems in Bogotá, Cali and Medellin, the latter including its BRT and rail systems. While ridership is expected to gradually increase through 2020 as the economy progressively reopens, operating deficits are expected to persist. The cumulative operating deficits incurred by the seven mass transit systems through the end of 2020 is estimated at between USD450 and USD500 million. Measures to support municipalities and operators of mass transit systems to cover these operating shortfalls and maintain an essential public transport service are critically required. 58. Substance of the Prior Action. Ministerial Decree 575 contains two measures aimed at supporting municipalities operating public transport systems. First, the decree provides a legal basis under which municipalities can amend concession contracts including levels of service and remuneration mechanisms under the principles of financial sustainability and cost recovery. For example, such amendments may recognize losses in efficiency in operations, as bus services are mandated to run at 35 percent capacity or recognize increased labor and maintenance costs as a result of the implementation of safety and sanitation protocols. Second, the decree authorizes the National Government to temporarily support operating costs and provide short term funding to municipalities to cover operating deficits incurred by public transport systems as a result of the decrease in ridership and revenues directly attributable to COVID-19. 59. Expected Results. The measure will enable mass transit systems to maintain a full and reliable supply of public transit services under enhanced biosecurity protocols despite the higher operating costs associated with adapting operations to social distancing requirements related to COVID-19. The measure will have the direct result of ensuring critical mobility services for: (i) essential medical, public service and administrative personnel required in the context of the COVID-19 emergency; (ii) low-income, vulnerable


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groups, and particularly women,45 who lack access to alternative and more costly sources of individual modes of transport; and (iii) employees in firms returning to work as the economic activity restarts progressively. It is estimated that low-income residents – as a result of their longer average commuting distances relative to higher income residents – will disproportionately benefit from the measure. 60. Prior Action #3. The Republic of Colombia has allowed to extend in time PPPs and concession contracts, beyond the limits under current regulations, to restore the loss of financial balance of projects, resulting from the non-collection of tariffs and tolls linked to the COVID-19 emergency measures, as evidenced by Legislative Decree No. 768 dated May 30, 2020 and published in the Official Gazette on May 31, 2020. 61. Rationale. Emergency measures adopted by the GoC to address the COVID-19 crisis have had a significant impact on the execution and operation of infrastructure projects. The lockdown has constrained access to construction supplies, limited access to work and depressed revenues for projects in operation. As the COVID-19 lockdown began in March 2020, total traffic volumes on toll roads dropped by approximately 65 percent between March and May 2020 compared to pre-pandemic levels. The highest drop in traffic volumes were attributed to light vehicles and inter-city buses. Truck traffic, in general, remained at approximately 93 percent of the pre-COVID-19 levels. Further, as part of the emergency measures enacted by the GoC to guarantee the provision of essential goods around the country, a temporary waiver on tolls for all concessioned and publicly managed toll roads was put in place on March 27, 2020 (Decrees 482/20 and 569/20) through May 2020. COVID-19 measures have affected the financial balance of a potential universe of 52 toll road projects. It is estimated that, as a result of these measures, toll road concessions under ANI management lost approximately USD102 million in revenues between April and May 2020. Preliminary estimates suggest that traffic levels will recover to approximately 85 percent of pre-COVID-19 levels during the second half of 2020. Such reduction in traffic levels will affect toll revenues by an estimated USD9 million per month for all concessions managed by ANI. ANI concessions do not have guaranteed traffic volumes. Decree 76846 took into account feedback from several consultation groups, including the concessionaries. Prior Action 3 aims at mitigating the above-mentioned commercial and tariff impact on the concession contracts affected by emergency measures adopted by the GoC and helping restore the financial balance of such contracts. Adopting measures to restore the financial viability of infrastructure contracts with the private sector is critical to avoid unnecessary project defaults or financial restructuring. 62. Substance of the Prior Action Legislative Decree 768 allows infrastructure concessions, under both the PPP Law 1508 of 2012 and the Public Procurement Law 80 of 1993, to be extended beyond the limits established under each regulatory framework and associated related contracts for a period exceeding the term of the mandatory preemptive isolation measures imposed in the context of COVID-19. The GoC, through ANI, is preparing policy implementation guidelines outlining the parameters and criteria for negotiating contract extensions under the framework of Decree 768. These guidelines will

45 Women use public transport disproportionately as compared to men. In Bogota, 20.7 percent of women use conventional public transportation as compared to 15.5 percent of men; and 17.1 percent for women use TransMilenio against 16.3 percent of men. 46 As mentioned in Footnote #34, this Decree remains under review by the Constitutional Court. The authorities have provided assurances to the Bank that they have issued this decree in compliance with the appropriate legal requirements


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include an empirical methodology to support the proposed extension and includes considerations related to: (i) risk recalibration; (ii) changes in traffic volumes; and (iii) financial impact analysis, including the potential to adjust net present value of the concessions agreed during financial closure, to reflect the extended contract period. Consultations on the guidelines are being undertaken with private and public stakeholders including the Office of the General Comptroller (i.e. Contraloria). 63. Expected Results. This action will allow the GoC to amend concession contracts under construction or in operation under a financial viability principle, to mitigate the impact of COVID-19 emergency measures on the sector and restore confidence from investors. Pillar 2: Resilient and Sustainable Infrastructure for Recovery from COVID-19

A. Clean energy as a driver of the COVID-19 recovery 64. Overall Rationale and Impact – Pillar 2A. Measures under this Pillar are designed to contribute to economic recovery and help create new employment opportunities following the pandemic, while accelerating the shift to a more resilient and cleaner energy future. Specifically, the Prior Actions and Indicative Policy Triggers (PTs) under this Pillar will help promote larger shares of renewable energy such as wind and solar PV; enhance electricity grids; improve electricity security by lowering the risk of outages, boosting flexibility, reducing losses and improving efficiency (through the use of emerging technologies such as smart metering and energy storage systems); and close the energy gap through the use of clean technologies. In addition to promoting more resilient and inclusive growth in the future, these measures will also help put Colombia on a stronger footing to withstand natural disasters and to meet its climate targets. 65. Prior Action #4. The Republic of Colombia has introduced a mechanism to promote long-term NCRE Power Purchase Agreements (PPA) through a double-sided auction process to reduce power market concentration, spur the development of NCRE in the country and promote the entrance of new energy sector actors, as evidenced by Resolution No. 4-0590 of the MME dated July 9, 2019 and published in the Official Gazette on July 9, 2019. 66. Rationale. Colombia already has a relatively clean power sector with approximately 80 percent of electricity generated through hydropower. Conversely, however, Colombia is highly vulnerable to the hydrological impact of climate change.47 The contribution of hydropower to the overall energy generation mix is declining while energy demand is expected to grow between 32 and 41 percent by 2030.48 Fossil fuels are likely to cover the resulting deficit unless countervailing measures are adopted. Colombia is endowed with abundant clean energy resources that could contribute to enhance the resilience of the sector and reduce GHG emissions. However, these resources are largely untapped due to market barriers. The National Energy Plan of 201549 set an ambitious target for the increase in NCRE generation from 22.4

47 Specifically, the El Niño Southern Oscillation, or ENSO events, have had an impact on reservoir levels and weather patterns. 48 UPME. Plan de Expansión de Referencia Generación – Transmisión Colombia 2015-2029. See:https://www1.upme.gov.co/Energia_electrica/Planes-expansion/Plan-Expansion-2015-2029/Plan_GT_2015-2029_VF_22-12-2015.pdf 49 Unidad de Planeación Minero-Energética (UPME). Plan Energético Nacional (National Energy Plan). Bogotá, Colombia. See:


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MW in 2018 to 1,500 MW in 2022. However, the short-term energy contracts (i.e. 2-3 years) that are the norm in the Colombian power market do not provide the required incentives for the development of renewable energy projects. Renewable energy projects require long-term PPAs to achieve bankability. Short-term contracts have benefitted incumbent thermal generators that are able to obtain corporate financing and enter into short term contracts with distributors, creating a significant barrier for new actors.50 Creating the enabling environment for the development of NCRE and long-term PPAs is of critical importance to help Colombia: (i) achieve reliable and clean energy supply; (ii) diversify its energy sources; (iii) achieve a sustainable power market in the long term; (iv) increase competition; and (iv) meet its climate change mitigation targets as stipulated in the National Development Plan (NDP) 2018-2022 and Nationally Determined Contribution (NDC).51 67. Substance of the Prior Action. Ministerial resolution 4-0590 defines the mechanism to promote long-term NCRE Power Purchase Agreements (PPA). The auction scheme established through the measure includes a series of innovative characteristics including: (i) a two-sided auction design whereby both sellers and buyers participate by placing bids; (ii) the obligation for the demand-side to participate in the auction (retailers must contract 10 percent of their energy requirements from renewable sources by 2022); (iii) long term 15-year PPAs; (iv) Pay-as-contracted PPAs with the obligation to sell a fixed volume of energy regardless of actual plant production with any differences between actual generation and contractual obligations traded in the spot market;52 (v) technology specific for NCRE and reduced project size threshold criteria;53 and (vi) mechanisms to mitigate transmission risk by providing flexibility through a grace period to enter into operation. 68. Expected Results. The measure supports the first long-term NCRE auction in Colombia which concluded in October 2019 with the award of nine renewable projects under 15-year PPAs totaling 1,374 MW of capacity (i.e. 1,077 MW from wind and 297 MW from solar PV). The process resulted in historically low average prices of approximately USD28 per MWh for energy, very close to the lowest price observed in recent international auctions. The total energy awarded represents a 40-fold increase in the current NCRE installed capacity and will both directly contribute to Colombia’s climate change mitigation and renewable energy targets. The auction attracted significant interest from both the sellers and buyers with 53 prequalified bids across 56 projects. Participants included new market actors and new international investors. An estimated 200MWh corresponding to the auction is estimated to be installed by December 2022. The auction is expected to mobilize an estimated USD2.2 billion54 in capital investment. As such, the measure will provide an important stimulus to the recovery from COVID-19 through investment in sustainable and resilient infrastructure.

http://www1.upme.gov.co/Documents/PEN_IdearioEnergetico2050.pdf 50 Long-term PPAs provide more certainty to investors, particularly those not currently engaged in the Colombian market. 51 A first technology agnostic auction was launched in February 2019 but was cancelled as a result of limited participation. After extensive consultations with stakeholders, and with the support of the World Bank Group and other development partners, a new auction was launched in July 2019. 52 Moving from ‘pay-as-generated’ to ‘pay-as-contracted’ is an important change in contract risk allocation that shifted generation variability risks from buyers to sellers. 53 Auction products differentiated by blocks were also introduced to help mitigate the risk faced by the supply-side 54 Renewables Now. Colombian renewables auction closes with 1,298 MW of wind, solar. October 23. See: https://renewablesnow.com/news/colombian-renewables-auction-closes-with-1298-mw-of-wind-solar-673555/


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69. Additionally, the auction is expected to enable the harnessing of wind energy in the Guajira peninsula, one of the poorest areas of the country, maximizing socio-economic benefit sharing from renewable energy. In the short term, COVID-19 is expected to cause some delays in the construction of transmission lines, which in turn will have an impact on the implementation plans of some of the awarded projects. Nonetheless, this impact is expected to be modest in magnitude and duration. 70. Prior Action #5. The Republic of Colombia has established rules for the installation of energy storage systems with the purpose of mitigating bottlenecks caused by the lack of adequate transmission networks in the national interconnected system, allowing for the absorption of a larger share of NCRE in the energy mix, as evidenced by Resolution No. 098 of August 30, 2019 of the CREG and published in the Official Gazette on September 6, 2019. 71. Rationale. Electric energy storage is poised to become an important element of the electricity infrastructure of the future. The benefits of using energy storage systems are multiple including load shifting (reducing peak demand); congestion reduction (deferring the need for transmission investments); backup power; NCRE energy integration; and associated reduced GHG emissions. The Generation and Transmission Expansion Plan 2015-2029 identified the need for energy storage systems as an efficient mechanism to ensure reliable electricity supply in certain areas of Colombia – particularly in congested areas where significant delays are anticipated in the construction of distribution and transmission lines (i.e. the Atlántico region). The NCRE scale-up plans of the Government also increase the need for additional flexibility in the system to balance the variable generation of NCRE energy projects and reduce the potential bottlenecks in the grid nodes where this energy will be introduced. 72. Substance of the Prior Action. The Ministerial resolution establishes transparent rules for the use of energy storage systems including aspects relate to the operation, responsibilities and remuneration for providing capacity and ancillary services to the grid. The measure thereby explicitly clarifies the inclusion of storage in the electricity system as a transmission asset. Furthermore, the measure ensures the remuneration for specific ancillary services that storage can provide to the grid. 73. Expected Results. The measure is expected to enable the installation of 45 MW of energy storage during the effectiveness period of this programmatic DPF series under a centralized procurement process led by the planning agency UPME. In addition, the measure provides a necessary framework for the private sector to include energy storage projects as part of NCRE projects under implementation or as stand-alone assets. The measure is expected to contribute to Colombia’s climate change mitigation targets by enabling the integration of NCRE into to the electricity grid. Specifically, the availability of storage will mitigate the periodic curtailment risk of NCRE due to congestion or frequency unbalance issues in the electricity grid. 74. Indicative Policy Trigger #1. The Republic of Colombia has submitted to Congress the Law for Clean Growth and Sustainable Development55 to facilitate the transition towards a low-carbon economy

55 Colombia has a solid track record of delivering on reform programs. The GoC also has a well-structured and transparent process for development of Laws and associated consultations with stakeholders and through the congressional review process. The development of the Green Growth and Sustainable Development bill has been led by the Ministry of Finance and has benefited from a broad program of multisectoral technical and legal discussions in the formulation process – at both the national and


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which, among other objectives, would: (i) extend the scope of the current carbon pricing instrument to incorporate non-liquid fossil fuels (i.e. coal); and (ii) create a single energy fund for the promotion of NCRE and energy efficiency projects.56 The expansion of the Carbon Tax to non-liquid fossil fuels will create a direct incentive for the promotion of indigenous renewable energy resources in the country and the diversification of the energy mix. An increased share of NCRE in the energy mix will reduce GHG emissions, enhance energy security and resilience. Further, investment in NCRE will directly contribute to the generation of new green employment and sustainable growth opportunities as a stimulus for recovery from COVID-19. Tentative date: First semester 2021. 75. Indicative Policy Trigger #2. The Republic of Colombia, through a Ministerial Decree, has defined the rules for providing energy services in non-interconnected areas, including through the use of NCRE, which currently suffer from a lack of energy access and poor quality of service. This measure will include, for example, guidelines on the level of service, the type of technologies to be used and the role of the public sector. The planned measure aims to improve electricity access by promoting the use of renewable energy technologies and facilitating the entry of new developers in non-interconnected areas (ZNI as per its acronym in Spanish). Electricity coverage in Colombia was estimated at 97 percent at the end of 2019, leaving approximately 500,000 homes without service. Of these, approximately 207,000 are in non-interconnected areas. Investments of close to USD 1.5 billion are estimated to be required to achieve universal energy access. Prior to the COVID-19 crisis, the country aimed at closing the access gap by 2030 by scaling up the use of distributed renewable technologies and solar home systems with a relatively high standard of service. In the context of the post COVID-19 recovery, this target remains highly relevant, but fiscal constraints and reduced revenues in the sector may delay government plans. Fiscal constraints aggravated by COVID-19 create a greater need to access private sector financing to achieve last mile electricity connectivity for the poor and vulnerable. In the context of the Mission for the Energy Matrix Transition and Modernization of the Power Sector in Colombia proposes the aggregation of large areas to reach PPP agreements with the private sector to finance, develop and operate off-grid systems. The proposed measure is expected to reflect this recommendation of the Mission on the aggregation of large ZNIs under PPPs. As such, the measure is expected to both: (i) serve as a critical stimulus in the recovery from COVID-19 through investment in green infrastructure; and (ii) expand the access to electricity service for poor and vulnerable households in lagging regions. Tentative date: Second semester 2020.

international levels. The proposed Law is firmly aligned with government priorities. Inputs reflected in the formulation of the bill include the results of the Green Growth Mission, as well as the National Development Plan 2018-2022 provisions related to the construction of economic incentives that lead to sustainable growth and low emissions. Several provisions in the proposed Law respond to needs identified by the MHCP as a product of budget processes, modeling and research, among others. At the international level, the bill is based on the consultations and experiences of the Coalition of Ministers of Finance for Climate Action, OECD recommendations, and other fora associated with climate finance and sustainable development. The introduction of the Law has been planned in three phases: (i) creation of a conceptual framework, supported by a team of consultants, including the definition of the issues to be led by the Ministry of Finance; (ii) government process for the coordination and design of the instruments, with the participation of different entities of the National Government (throughout this phase, sector experts, members of the academy and renowned environmentalists in the country have been consulted); and (iii) and the third and last stage corresponds to the presentation to the Congress of the Republic. Phases (i) and (ii) have been completed and the GoC anticipates submission to Congress in accordance with the specified timeframe. 56 Three pillars of instruments are proposed as part of the law: (i) mechanisms to incentivize investment and channel efficient spending against climate change and environmental pollution; (ii) economic instruments and incentives; and (iii) other enabling mechanisms for the transition.


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76. Indicative Policy Trigger #3. The Republic of Colombia, through the Regulatory Commission for Electricity and Gas (CREG), has approved a Resolution for the deployment of Advanced Metering Infrastructure (AMI) systems to provide necessary information to enhance energy sector efficiency. Specifically, the proposed measure would generate critical operational benefits for utilities and consumers. Utilities will be able to increase efficiency with widely installed AMI through the ability to remotely monitor and communicate with the metering system. The ability to remotely access the AMI system is of critical importance in the COVID-19 or similar future contexts where physical access to network infrastructure is constrained. Consumers will benefit from widely installed AMI through improved information for decision making on consumption, more accurate billing, a reduction of peak loads and overall cost savings. Robust underlying digital infrastructure is key for COVID-19 recovery and growth of the digital economy. Efficient distribution is at the center of the ongoing energy transition, with digitalization and distributed energy resources (DER) driving the change. The NDP 2018-2022 has established a goal of reaching 36 percent of electricity clients through the installation of advanced metering infrastructure (AMI) by 2022 (i.e. a target of over 5.2 million end users by 2022 compared to a baseline of 200,000 users in 2018). Further, the proposed measure is complemented by Ministerial resolutions 40072 of 2018 and 40483 of 2019 of the Ministry of Mines and Energy which specify the mechanism to deploy AMI in public electricity services and establishes a requirement that 75 percent of the customers should use AMI by 2030. Tentative date: First semester 2021. B. Multimodal transport, sustainable logistics and urban transport as a driver of the COVID-19

recovery

77. Overall Rationale and Impact – Pillar 2B. The measures under this Pillar will help accelerate Colombia’s recovery from COVID-19 by increasing the efficiency, competitiveness and resilience of the logistics and urban mobility sectors through investments in multimodal transport and greener infrastructure. Investments in multimodal and sustainable logistics infrastructure, particularly rail and fluvial modes, and in capacity, access and digitalization of foreign trade terminals, will reduce logistics costs and enhance foreign trade competitiveness to support growth for recovery. Urban transport measures will promote the integration of a clean fleet and a more sustainable financial model to support the expansion and the operation of mass transit systems. As lockdown measured are eased, these actions will promote public transport systems as safe and reliable to commuters and prevent pollution from returning to pre-pandemic levels. Overall, the actions under this Pillar are critical for a financially sustainable and competitive recovery to strengthen the mobility and connection of people and goods, while transforming the logistics and transport sectors into greener and more resilient systems. 78. Prior Action #6. The Republic of Colombia has updated its national logistics policy to reduce logistics costs and improve efficiency of foreign trade operations, including through the issuance of guidelines for coordinated investments in: (i) multimodal infrastructure, particularly promoting rail and fluvial modes and specialized logistics infrastructure; and (ii) exports and import processes, particularly in capacity, access and digitalization of foreign trade terminals, as evidenced by CONPES document No. 3982 of January 13, 2020. 79. Rationale. While recent investments in infrastructure have improved Colombia’s standing in global logistics and trade rankings, logistics costs continue to act as a drag on competitiveness. Logistics


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costs are estimated at 13.5 percent of total sales (i.e. 17.3 percent for small firms and 38 percent for firms dedicated to export and import activities),57 compared to 9 percent for OECD countries. An estimated 9.6 percent of deliveries do not arrive on time. In 2018, Colombia ranked 58 out of 160 countries in the World Bank Logistics Performance Index. While this constituted an improvement with respect to 2016, Colombia still lags behind regional comparators such as Brazil, Mexico, Chile and Panama. Similarly, export border compliance costs and processing times in Colombia are 18 percent and 50.6 percent higher, respectively, than the Latin America and Caribbean average.58 Modern multimodal transport is virtually non-existent in Colombia, and 73.5 percent of total freight volume is moved by truck. The trucking sector is characterized by an inefficient, ageing and polluting vehicle fleet which directly contributes to increased transport and logistics costs and GHG emissions. Public and private investments have focused on new transport infrastructure, with less attention given to the complementarity of transport modes and to mechanisms for strengthening logistics services and trade facilitation. The COVID-19 pandemic is causing unprecedented disruptions in global and local supply chains. Companies will face a lengthy recovery to normal operations in the wake of the virus outbreak. Lead times could more than double, compounded by the shortage of air and ocean freight options to move globally. In this context, ensuring the development of multimodal transport and efficient logistics to facilitate trade is essential to lower logistics costs, improve foreign trade competitiveness and support recovery from COVID-19. 80. Substance of the Prior Action. The updated National Logistics Policy through CONPES includes a series of measures in the short medium and long term to: (i) promote the development and integration of multiple freight transport modes; and (ii) enhance logistics efficiency and competitiveness. Specific actions include: (i) investment guidelines for the reactivation of rail and fluvial transport, with targets for modal shift; (ii) detailed guidelines and timeframe for Rail and Port Expansion Plans; (iii) a framework to develop Specialized Logistics Infrastructure (Infraestructura Logística Especializada – ILE), including private financing, to facilitate intermodal freight transport; (iv) the digitalization of ports and airports; (v) the launch of a single center for monitoring and control of foreign trade to streamline import and export procedures; and (vi) updating and harmonizing regulations for cargo transport companies. 81. Expected Results. The cumulative impact of the measures under the National Logistics Policy are expected to increase the volume of freight transported by cleaner modes and to enhance overall logistics competitiveness and efficiency. Specifically, the measures are expected to contribute to: (i) increasing the share of fluvial freight transport by 30 percent in 2022; (ii) reducing logistics costs as percentage of sales from 13.5 in 2018 to 12.9 in 2022; and (iii) reducing the average export processing times in maritime terminals from 156 hours in 2018 to 125 hours in 2022. Further, the promotion of non-road freight transport will have a direct impact on reducing GHG emissions from the transport sector. Lastly, the measure will incentivize investments in sustainable transport and logistics services, ultimately reducing logistics costs and enhancing economic competitiveness to support recovery from COVID-19. 82. Prior Action #7. The Republic of Colombia has enacted the Electromobility Law, which promotes the use of electric vehicles (both for public transit and private use) through financial and non-financial incentives, in order to contribute to sustainable mobility and the reduction of greenhouse gas emissions,

57 National Logistics Survey, 2018. 58 According to the World Bank’s Doing Business 2020 report, Colombia’s export border compliance costs and times were US$ 630.0 and 112 hours, while for Latin American and Caribe they were US$ 516.3 and 55.3 hours, respectively.


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as evidenced by Law 1964 dated July 11, 2019 and published in the Official Gazette on July 11, 2019. 83. Rationale. Colombia has made significant recent progress towards achieving greener and more sustainable transport. The TransMilenio BRT system in Bogotá began testing an articulated electric bus in June 2017 and the bus tendering program launched in June 2019 contemplates the incorporation of approximately 600 zero-emission buses over the next few years. In Medellín, 17 of 64 electric buses procured in 2019 have already begun to operate in the Metroplús BRT system. These initiatives constitute early advances towards a potentially much more comprehensive modernization of the bus and automobile fleets towards zero or low emission technologies.

84. The transport sector in Colombia is the third highest GHG emitter among productive sectors in Colombia, contributing approximately 14 percent of total emissions. The transport sector is one of six priority sectors in the national Electromobility Strategy focused on climate change mitigation and meeting NDC targets.59 Approximately 70 percent of urban pollutants in Colombia are caused by the transportation sector. Further, road-based transport contributes 90 percent of the total GHG emissions in the sector. While the trucking fleet and buses are the greatest contributors of urban pollutants (30 percent and 26 percent respectively), the increase in use of gasoline-powered private vehicles has contributed to emissions increases of particulate matter of between 7.5 percent and 14 percent.60 The COVID-19 pandemic has placed considerable strain on the finances of urban public transport systems. However, the crisis also provides an opportunity to accelerate the transition to more environmentally sustainable technologies to prevent pollution from returning to pre-pandemic levels. The promotion of electric and low-emissions modes of transport can be an important catalyst to a greener recovery from COVID-19. 85. Substance of the Prior Action. The Electromobility Law aims to incentivize the use of electric vehicles for both for public transit and private use through financial and non-financial incentives. The Law institutes a series of specific measures including: (i) a new framework for the participation of the National Government in the integration of electric vehicles in the national fleet: (ii) discounts for electric vehicles for technical, mechanical and pollution emissions inspections, mandatory insurance and the vehicle registration tax; (iii) differentiated rates for parking of electric vehicles; (iv) exemption from vehicle use and congestion restrictions for electric vehicles; (v) mandatory charging stations in new residential and commercial buildings; and (vi) minimum number of public charging stations in municipalities. Most importantly, the Law sets targets for public and private electric mobility. Specifically, the Law targets: (i) 10 percent of new public buses should be electric or zero emissions by 2025 and 100 percent in 2035; and (ii) 30 percent of the national and municipal government vehicles should be electric by 2025. 86. Expected Results. The Law is expected to directly contribute to an increase in the private and public electric vehicle fleet. Specifically, the electric fleet is expected to increase by 60 percent by December 2022 as a result of the measures supported under the Law. The Law will correspondingly have a direct impact in curbing GHG emissions and environmental pollutants. Lastly, the measures under the Law will incentivize investment in green urban mobility as a driver of recovery from COVID-19. 87. Prior Action #8. The Republic of Colombia has approved a national policy for improving regional

59 National Electromobility Strategy, 2019. 60 National Planning Department, 2018.


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and urban mobility, to promote sustainable public transport and non-motorized modes of transport through: (i) an updated and expanded co-financing scheme from the National Government; (ii) an updated governance framework; and (iii) the issuance of guidelines and tools to reduce negative externalities associated with transport, as evidenced by CONPES document No. 3991 of April 14, 2020. 88. Rationale. Over the past two decades, the GoC has channeled over USD11.0 billion in funding under the NUTP to promote improved municipal public transport systems in large and medium -sized cities. The program was built around an eligibility framework focused on governance structures, minimum service standards and a financial sustainability framework. Nonetheless, urbanization and sustained economic growth in this period has also correlated with significant urban sprawl and increased motorization rates. Between 2001 and 2018, the growth rate of private four-wheeled vehicles in Colombia averaged 8.7 percent (11.8 percent for two and three-wheelers) annually. These growth rates led the number of total registrations to increase nearly fourfold, from 3.3 million to 13.8 million in the same period. The proliferation of two and three-wheel vehicles has also led to an increase in informal transport services, hampering ridership across all formal public transport systems. In second-tier cities, the modal share of informal transport modes (i.e. two, three, and four-wheelers) ranges from 30 to 60 percent. As a result, since 2016, ridership in mass transit systems has stagnated and, on average, reached only 43 percent of the ridership forecasts used at the feasibility stage of public transit projects.61 Increased motorization and the proliferation of informal modes has also led to increased congestion, road traffic accidents and GHG and local pollutant emissions. Further, the overall financial sustainability of public transport concessions is under threat as they were financially structured around ridership forecasts that will not be met under the business as usual scenario. 89. Against this backdrop, the NDP 2014-2018 and 2018-2022 gave municipalities the legal basis to introduce funding instruments under the “who benefits pays” principle. This principle aims to internalize externalities of private vehicle usage to curb use intensity, congestion, pollution, GHG emissions, and traffic-related deaths and accidents, while providing the instruments to support the financial sustainability of public transport systems. Specifically, these financial sustainability measures include reframing the cost structure of transport concessions, launching next-generation tenders for bus operations and securitizing sources of funding to cover revenue shortfalls. Furthermore, following the enactment of green growth, air quality, and logistics improvement policies between 2017 and 2019,62 the NDP 2018-2022 envisaged the need to reframe, improve and update the pillars of the 2002 National Urban Transport Policy. More recently, the COVID-19 lockdown throughout Colombia has placed considerable financial strain on public transport systems (see Prior Action 3). As Colombia eases lockdown restrictions, commuters have opted to use individual vehicles at a faster pace than public transport as a result of distancing measures and the perceived higher risk of infection in the latter. The previously identified needs to update the 2002 urban mobility policy, coupled with the rapidly changing urban mobility landscape catalyzed by COVID-19, calls for an updated regional and urban mobility policy that prioritizes sustainable, low-carbon, and non-motorized urban mobility.

61 It should be noted, however, that despite the missed ridership targets, the ex-post cost benefit analysis undertaken for these projects result in positive socioeconomic rates of return. 62 National Green Growth Policy, CONPES 3934, 2018; National Policy for Air Quality Improvement, CONPES 3943, 2018; National Logistics Policy, CONPES 3982, 2020


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90. Substance of the Prior Action. The National Policy on Urban and Regional Mobility outlines a series of measures including: (i) guidelines for GoC co-financing of urban transport investments; (ii) updated institutional arrangements and a corporate governance framework for planning, managing and regulating public transport; (iii) measures to strengthen national and subnational institutions taking part in planning, implementation, management and evaluation of urban mobility systems, leading to comprehensive urban and regional mobility strategies and investments; (iv) new standards for public transport systems in terms of coverage, integration, safety, emissions, accessibility and affordability, and data sharing standards for improved planning and user information; (v) introduction of a new policy focus on promoting non-motorized transport through traffic-calming zones, cycling corridors, bike-sharing schemes and pedestrian-only streets; (vi) improved regulations for technically structuring and setting public transport fares; and (vii) new funding and financing mechanisms for mobility systems including road pricing, congestion and pollution charges, and on-street parking management schemes. The Policy further includes a specific action plan for the abovementioned measures, defining responsibilities, timelines and expected results. 91. Expected Results. The policy actions are expected to catalyze institutional changes and improved financing mechanisms that will lead to a shift in commuting patterns towards safe, green and low-carbon modes, including non-motorized and public transport. Specifically, the implementation of the action plan under the National Urban and Regional Mobility Policy is expected to: (i) increase the share of non-motorized transport modes in total daily trips; (ii) upgrade, green and improve public transport systems; and (iii) improve the financial sustainability of urban mobility systems. The Policy is further expected to enable the national government to enter into new co-financing schemes to promote investment in new and expanded public transit systems. 92. Indicative Policy Trigger #4. The Republic of Colombia, through CONPES, has approved policy guidelines related to the contractual risk framework for airport projects that contemplate private participation and concessions, including a definition of the risk allocation structure between the public and private sector. Following the success of the 4G Toll Roads Program, the National Infrastructure Agency (ANI) has launched a program of fifth generation infrastructure investments (5G) which extend the focus on enhancing connectivity and logistics efficiency to sectors beyond the roads sector. The first wave of planned concessions under the 5G program will include three airport projects. However, the risk allocation framework under the existing PPP framework does not adequately adapt to the airports sector. Specifically, the proposed measure will include a sector-specific risk allocation framework for PPPs and concessions covering property; environmental and social; network; design; construction; operation and maintenance; commercial; financial and liquidity; economic and exchange rate; regulatory; and force majeure risks. The measure is expected to increase the viability of PPPs and concessions in the airports sector and enable the mobilization of private finance for sector investment. This measure is particularly relevant for a COVID-19 recovery scenario as air travel is progressively reestablished. While the proposed measure remains timely given its focus on specifying the risk allocation framework for PPPs in the sector, a risk persists that downstream project pipeline development and concessions will be delayed due to a slower recovery of demand post-COVID-19. Tentative date: First semester 2021. 93. Indicative Policy Trigger #5. The Republic of Colombia, through one Ministerial Resolution and one Ministerial Decree has established: (i) the definition of low and zero emission vehicle typologies; and


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(ii) national guidelines for electric vehicle charging infrastructure, including safety, standardization and interoperability. Following the approval of the Electromobility Law and the launch of the National Electromobility Strategy in 2019, these policies will support and regulate critical measures to facilitate the implementation of key provisions enabled by the law. The resolution will define the typologies for low and zero emission vehicles, as required by the NDP 2018-2022, and complement a recently published resolution63 that defined zero and low emission energy sources. This resolution is the first step to: (i) support the regulation and implementation of the financial and non-financial incentives to electric vehicles instituted in the Electromobility Law; and (ii) allow public transport systems to plan their fleet renewal program for this type of technology. The decree will lay out the technical and operational requirements for the installation of charging infrastructure that will support the growth of the public and private fleet of electric vehicles, in line with the goals established in the Electromobility Law and in the NDP 2018-2022. These policies are expected to directly contribute to an increase in the public and private electric vehicle fleet, and in curbing GHG emissions and environmental pollutants. Tentative date: First semester 2021. Pillar 3: Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19 94. Overall Rationale and Impact – Pillar 3. The proposed measures supported under this Pillar aim at enhancing the fiscal sustainability of infrastructure investment and strengthening the enabling environment to mobilize private finance in infrastructure. This will be achieved through improved measurement and monitoring of contingent liabilities; the development of innovative alternative funding sources with low fiscal impact; the introduction of an innovative blended finance vehicle to leverage private sector financing for infrastructure; supporting infrastructure projects with strong climate change mitigation and adaptation focus; and the harmonizing of investment regulations to attract long-term investors to the infrastructure sector. A. Improving the contingent liability and PPP framework across infrastructure sectors as a measure to increase fiscal resilience to crises 95. Prior Action #9. The Republic of Colombia has updated the methodology for evaluating contingent liabilities in infrastructure projects with an application in the transport sector, as evidenced by Resolution No. 4859 of the MHCP dated December 23, 2020 and published in the Official Gazette on December 27, 2019. 96. Rationale. The MHCP actively manages the contingent liabilities from PPP projects and concessions through a careful analysis of risks and by dedicating budgetary resources to a contingency fund. The risk evaluation considers GDP growth and road interruption impacts on the revenues from toll roads.64 Colombia is one of the few emerging market countries that has a significant contingency fund and keeps a cash reserve against contingent liabilities. However, dated risk evaluation methodologies, and the lack of technical capacity in project implementing agencies to effectively assess and monitor contingent liabilities in a sustainable manner, are key challenges in the management of contingent liabilities from

63 Resolution 40177 of July 3, 2020. 64 According to the WB study, five major disaster events with the highest losses, led to an impact between 0.27% and 1.06% of GDP each. This impact also includes the loss of revenues from the toll roads which were directly impacted by such events.


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PPPs and concessions.65 These risk factors could result in an overestimation, or underestimation, of losses when contingent liabilities materialize and create risks for, and reduce the effectiveness of, the contingency fund. 97. Substance of the Prior Action. The measure introduces a revised methodology to evaluate the risks from infrastructure projects developed under the PPP and public concessions framework. The improved methodology gives more flexibility in evaluating risks and tailoring the analysis in line with data availability and factoring in the stage of the infrastructure asset over its expected lifecycle. The improved methodology is more granular and allows the government to tailor the quantification and mitigation of risks on a project-by-project basis.

98. Colombia has a high exposure to natural disasters and extreme weather events related to climate change. Colombia ranks 10th globally in terms of economic risk posed by three or more hazards and has the highest recurrence of extreme events in South America.66 Approximately 86 percent of all assets are in areas exposed to two or more hazards. Between 1970 and 2015, 155 extreme events (i.e. flooding, earthquakes and volcanic eruptions, amongst others) occurred, affecting 17.8 million people with significant impact on GDP.67 Extreme weather and climate-related disasters are exacerbating these conditions, resulting in increased risk particularly for the most vulnerable.68 Road interruptions are critically impacted by these natural and climate-induced disasters. As such, the proposed enhanced risk evaluation enabled by this measure indirectly factors in natural and climate-induced disaster events. Further, projects screened would also need to follow the nationally approved policies on green growth, i.e. Política de Crecimiento Verde as established in the CONPES 3934 whose purpose is to boost the productivity and economic competitiveness of the country while ensuring the sustainable use of natural capital and social inclusion. 99. The revised methodology will also enable the calibration of risk estimation to the progress of the work, based on precise and robust formulas that allow sufficient provision for explicit contingent liabilities. Specifically, the enhanced model: (i) applies the time series approach; (ii) includes scenario analysis; and (iii) allows econometric adjustments depending on the type of risk. The methodology aims to assist project implementing agencies and institutions to accurately estimate contingent liabilities associated with PPP and public concession investments. MHCP has initiated a process of building institutional capacity towards the application of the revised methodology through an initial launch workshop with World Bank support on March 6, 2020 targeting an audience of line ministry, subnational, implementing agency and state-owned enterprise officials. Further dissemination training activities are also planned, also with World Bank support, through the development of a digital platform and regional training events. 100. Expected Results. The measure will directly contribute to the improved identification and

65 INVIAS is implementing phase 1 of a pilot for 6 strategic geotechnical corridors in order to establish a risk analysis methodology, incorporating social and environmental losses, in agreement with the Universidad de la Salle and the Universidad del Quindío. This study will set the foundations for improving the estimation of contingent liabilities for damage to roads that are not concessioned due to hydro-meteorological events and other extreme events that are consequence of climate change. 66 https://climateknowledgeportal.worldbank.org/country/colombia/vulnerability 67 Project Performance Assessment Report, Disaster Risk Management Policy Loan, IEG, 2017. 68 https://climateknowledgeportal.worldbank.org/country/colombia/adaptation.


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management of contingent liability of infrastructure PPPs and concessions projects in a manner compatible with the observed and anticipated climate change impacts and emission trajectories. It is expected that the revised methodology will be applied to all existing and new PPPs and public concessions. By December 2022 MHCP anticipates applying the methodology to 19 existing and new infrastructure PPPs and concessions with an estimated total CAPEX value of COP22.0 billion. The enhanced framework for estimated contingent liabilities and risks is expected to increase investor confidence in the Colombian PPP and concessions framework and correspondingly increase private investment in infrastructure and enhance the efficiency of financing for infrastructure. Further, the measure will contribute to sound macroeconomic and fiscal management and reduce vulnerability to macroeconomic and financial shocks including those that are induced by climate change. The measures are, as such, a critical instrument to ensuring the fiscal sustainability of infrastructure investment in a context of recovery from COVID-19. B. Leveraging private and long-term financing for infrastructure development 101. Prior Action #10. The Republic of Colombia has approved the National Fund for Infrastructure Development (FONDES) and issued guidelines and secondary regulations specifying the operating framework for the fund which would act as a catalytic fund to leverage financing from the private sector, as evidenced by Law 1955 dated May 25, 2019 and Decree No. 277 dated February 25, 2020 and published in the Official Gazette on May 25, 2019 and February 25, 2020, respectively. 102. Rationale. Colombia is near the completion of the development and structuring of an ambitious USD26 billion 4G Toll Roads Program to support national objectives to enhance connectivity and logistics competitiveness. The Government has recently launched a 5G Program promoting connectivity infrastructure across multiple modes. The 5G Program preliminarily includes 9 projects in a first round in the toll roads, railway, airport and fluvial transport sectors. The overall investment requirement for the first phase of the 5G Program is estimated at USD13.5 billion and would contribute to the creation of approximately 90,000 jobs. Several additional large-scale infrastructure investments are being developed and structured in the sustainable urban mobility, wastewater management and flood protection and environmental management sectors. 5G contracts will include clauses focusing on social, environmental, financial and institutional sustainability. Noting the extent of climate change impacts in Colombia, sustainability is considered in the context of climate change, leading to the selection of the projects that are more resilient to climate change. 103. The cumulative size of the planned 5G Program, and other large-scale investments, will far exceed the capacity of both: (i) traditional sources public financing to cover availability payments in the context of PPPs and concessions; and (ii) the national financial system of banks and institutional investors. Colombia will need to develop a range of innovative financing instruments, including blended finance, to meet the financing needs of its ambitious forward infrastructure investment program. In this context, the GoC is well placed to leverage and deepen the role that the National Infrastructure Development Bank (Financiera de Desarrollo Nacional - FDN) has played in mobilizing private and long-term financing for infrastructure. FDN is committed to the development of products and services based on sustainability, adaptation and climate change criteria that are tailored to the needs of the country. In 2014, FDN took a step forward in the process of incorporating best practice environmental standards and declared its commitment to the Green Protocol for the financial sector led by the association of Banks (i.e.


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Asobancaria) and supported by the Government. Additionally, FDN is aligned with the CONPES on Green Growth through its commitments to strengthen technical capabilities between 2018 and 2021 to promote green growth investments through infrastructure projects with strong climate change mitigation and adaptation focus. The ability to achieve alternative and sustainable financing solutions for infrastructure will be essential to supporting recovery from the COVID-19 crisis through sustainable economic growth and employment generation. 104. Substance of the Prior Action. The measure creates a dedicated fund to support the financing of infrastructure. FONDES has been structured as a vehicle to leverage the mobilization of private sector investment for infrastructure through blended finance and credit enhancement instruments. The FONDES will be managed by FDN and report to an independent board of directors. The governance model of the Fund aims to ensure professional management according to private sector principles and leverage the successful role of FDN in mobilizing private sector financing for infrastructure. In addition, FDN will identify criteria for climate-friendly private investments in green infrastructure and will establish the financial or coverage programs and instruments required to promote such investments. To further support this effort, FDN will also create an enabling environment for such investments by defining and developing the respective technical capacities for the development of hard and soft instruments needed to implement new green investment and risk coverage programs linked to the adaptation to climate risks and promotion of low-carbon infrastructure. The initial source of financing for FONDES originates from government privatization transactions, with an initial capitalization of COP2.4 billion (an estimated USD657 million). It is envisioned that Fund will continue to receive revenues from future divestment and other sources of public income. 105. Expected Results. The measure is expected to directly support the financing of the Government’s 5G Program and other major planned national infrastructure projects in the sustainable urban mobility, wastewater and environmental protection and climate change adaptation and mitigation sectors. Specifically, the Fund is expected to support blended public-private finance solutions and attract long-term domestic and international investors to the GoC infrastructure investment program. 106. Indicative Policy Trigger #6. The Republic of Colombia has enabled the use of two complementary land-based finance instruments to support the financing of strategic national infrastructure investments. Specifically: (i) through CONPES, a national betterment levy associated with infrastructure projects; and (ii) through the National Department of Planning, a decree to regulate the use of public land-based equity associated with PPP infrastructure projects. First, the government plans to approve a CONPES document on the ‘Implementation of the National Betterment Levy’ which will: (i) regulate the national betterment levy instrument69; (ii) define the pipeline of projects that may be financed using the national betterment levy; (iii) establish the institutional arrangements and guidelines for the implementing agency responsible for the betterment levy; and (iv) establish the strategy for coordination between the national and local level to ensure the optimal implementation of the instrument. Secondly, the Government plans to issue

69 The CONPES document will regulate the instrument, including: (i) the distribution mechanism of the collection produced by the betterment levy in a specific area; (ii) the appraisal methodology of the land that will be subject to the levy; (iii) the socialization mechanism of the levy among the owners that will be subject to the levy; (iv) the methodology for assessing the rate payable by land owners who will benefit from the infrastructure works; (v) the management mechanism for the levy; and (vi) methodology for collection.


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a decree to regulate the implementation of a mechanism to enable the use of publicly held land as equity in and associated with the development infrastructure PPP projects. The mechanism would: (i) establish the general framework to include property rights within the PPP administrative framework; (ii) define the methodology for calculating the value of the land and the property to be integrated into the PPP project structure; (iii) establish the mechanism and the allocation of the benefits in the PPPs framework; and (iv) define the strategy for coordination between national and local governments towards the implementation of the instrument. These measures are expected to generate additional financing sources for urban infrastructure and the 5G connectivity infrastructure program and, as such, enable investment in infrastructure as a stimulus to the recovery from COVID-19. Tentative date: First semester 2021. 107. Indicative Policy Trigger #7. The Republic of Colombia, through the Ministry of Finance and Public Credit, has issued a decree harmonizing the regulatory treatment for pension funds to invest five percent of their assets under management (AUM) through private capital funds for infrastructure concessions under Law 80 of 1993. There is currently an inconsistency in how investment regulations for private pension funds are applied to infrastructure across the PPP Law 1508 of 2012 and public procurement Law 80 of 1993 which covers public concessions. Pension funds can invest up to five percent of their assets in PPP projects that fall under the PPP Law 1508 through either infrastructure project bonds or infrastructure debt funds. This model has been successfully applied to the 4G Toll Road Program creating infrastructure as an asset class for long term investors that has proved to be more stable than other assets including equities. By contrast, however, current investment regulations only allow pension funds to invest in infrastructure projects under Law 80 through project bonds and not through infrastructure debt funds. Infrastructure debt funds have been proven safer for pension funds as they can outsource risk management to specialized asset managers in infrastructure investments. Project bonds are conversely not always aligned with the risk profile of pension funds. Many infrastructure concessions in Colombia are planned under Law 80 and, as such, prevailing regulations constrain the ability of pensions funds to make sustainable long-term investments in this infrastructure pipeline. The proposed measure seeks to eliminate this regulatory inconsistency, allowing pension funds under a ‘moderate fund class’ to invest up to five percent of their assets in infrastructure projects under Law 80 through infrastructure debt funds. The measure is expected to increase the availability of long-term institutional finance for Colombia’s infrastructure program. Tentative date: First semester of 2021. 108. Indicative Policy Trigger #8. The Republic of Colombia, through the Ministry of Finance and Public Credit, has issued a decree regulating the operation of a fund that enables alternative sources of funding for infrastructure, Fondo de Fuentes Alternativas de Pago para el Desarrollo de Infraestructura (FIP) (created by article 149 of Law 2010 of 2019). Fiscal restrictions in the short and medium term will require the identification and development of alternative sources of funding beyond user fees and public budget allocation to cover public payment obligations associated with infrastructure PPP projects. The measure will establish a fund that will include as potential revenue alternative funding sources and models including the use of residual value of concessions, land-based financing and value capture, amongst other sources. The FIP will be used to finance availability payments and other public obligations linked to PPPs and concessions for infrastructure. Tentative date: First semester of 2021.


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Table 6: DPF Prior Actions and Analytical Underpinnings Prior Actions Analytical Underpinnings

Operation Pillar 1: Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19 Targeted and temporary support to utilities and PPPs facing financial strain from declining demand and payment deferrals Prior Action 1: The Republic of Colombia has established a concessional liquidity line of credit through Findeter for public service companies, including in the electricity and water and sanitation sectors, through December 31, 2020, to mitigate the financial impact caused by targeted tariff deferrals directly linked to COVID-19, as authorized by Legislative Decree No. 581 dated April 15, 2020 and published in the Official Gazette on April 15, 2020 and in accordance with the terms and conditions set forth in Findeter's website at https://www.findeter.gov.co/creditodirecto/ servicios_publicos.html.

World Bank (2020) Impact Assessment of COVID-19 pandemic on Colombia’s Energy Sector. The assessment includes and analysis of the liquidity needs in the power and water sector in the short and long term. (ongoing).

OECD (2016) Colombia: Review of the Financial System.

Key findings from these studies have informed the monthly additional liquidity needs linked to the COVID-19 impact and government measures.

Prior Action 2: The Republic of Colombia has established measures to support the public transport system during the state of emergency, including: (i) providing the legal basis for municipalities to amend concession contracts under the principle of financial sustainability; and (ii) allowing the National Government to co-fund operation costs for mass transit systems, as evidenced by Legislative Decree No. 575 dated April 15, 2020 and published in the Official Gazette on April 15, 2020.

World Bank (2020) Impact Assessment of COVID-19 pandemic on Colombia’s Transport Sector. The analysis includes an assessment of the liquidity needs in the transport sector in the short and long term (ongoing).

SIMUS (2020)70. Financing Sustainable Urban Mobility. Analysis on the financial impact of COVID on mass transit systems and their concessionaires that indicated the need for non-tariff mixed funding and financing mechanisms.

World Bank (2020) Financial Sustainability of Transit Under COVID for LAC – Support Mechanisms to Address COVID-19 in Urban Transport Sector.

Key findings from these studies have informed on the COVID-19 impact on the financial situation of transport service providers and the evaluation of the impact of PA2.

Prior Action 3: The Republic of Colombia has allowed to extend in time PPPs and concession contracts, beyond the limits under current regulations, to restore the loss of financial balance of projects, resulting from the non-collection of tariffs and tolls linked to the COVID-19 emergency measures, as evidenced by Legislative Decree No. 768 dated May 30, 2020 and published in the Official Gazette on May 31, 2020.

World Bank. Best international practices to address ¨force majeure¨ contractual clauses in PPP projects.

PPIAF: Guidance on PPP Contractual Provisions, 2019 Edition. Support international guidelines on rigorous process due diligence for a project financing.

WB Paper (May 2017): Do Countries Learn from Experience in Infrastructure PPP Practice and Contract Cancellation.

70 SIMUS is a regional think tank for sustainable mobility.


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Key recommendations from these studies include guidelines for the financial analysis of PPPs and best practices on contract renegotiations and cancelations.

Pillar 2: Resilient and Sustainable Infrastructure for Recovery from COVID-19

Clean energy as a driver of the COVID-19 recovery

Prior Action 4: The Republic of Colombia has introduced a mechanism to promote long-term NCRE Power Purchase Agreements (PPA) through a double-sided auction process to reduce power market concentration, spur the development of NCRE in the country and promote the entrance of new energy sector actors, as evidenced by Resolution No. 4-0590 of the MME dated July 9, 2019 and published in the Official Gazette on July 9, 2019. .

World Bank (2020) How to successfully design auctions to procure non-conventional renewable energy and increase competition: the Colombia case (Draft).

University of NY (2006). Everything you wanted to know about double side actions, but you were afraid to ask.

MME 2020 (supported by World Bank and IADB) Report pillar 5 of Mission of Transformation of the Energy Sector: Revision of the legal and institutional framework.

The World Bank has supported the NCRE auction design by carrying out technical analysis on auction design in close collaboration with MME.

These studies demonstrated that the additional share of NCRE could increase market competition in the Colombian electricity market while reducing generation costs. The analytical work also informed the design of the key features of the auction mechanism defined in PA4.

Prior Action 5: The Republic of Colombia has established rules for the installation of energy storage systems with the purpose of mitigating bottlenecks caused by the lack of adequate transmission networks in the national interconnected system, allowing for the absorption of a larger share of NCRE in the energy mix, as evidenced by Resolution No. 098 of August 30, 2019 of the CREG and published in the Official Gazette on September 6, 2019.

MME 2020 (supported by World Bank) Report of working group 3 of Mission of Transformation of the Energy Sector: Regulatory roadmap for more efficient development of distributed resources.

MME 2020 (supported by World Bank and IADB) Report of working group 5 of Mission of Transformation of the Energy Sector: Revision of the legal and institutional framework.

The Roadmap produced by working groups 3 and 5 of the Mission recommended the regulatory and institutional reforms required to enable the participation in the sector of distributed energy resources (DER), including distributed storage systems.

Multimodal transport, sustainable logistics and urban transport as a driver of the COVID-19 recovery


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Prior Action 6: The Republic of Colombia has updated its national logistics policy to reduce logistics costs and improve efficiency of foreign trade operations, including through the issuance of guidelines for coordinated investments in: (i) multimodal infrastructure, particularly promoting rail and fluvial modes and specialized logistics infrastructure; and (ii) exports and import processes, particularly in capacity, access and digitalization of foreign trade terminals, as evidenced by CONPES document No. 3982 of January 13, 2020.

GoC National Logistics Surveys (2008, 2015, 2018) that aimed to analyze the performance and quality of logistics services for companies in Colombia.

The Bank, through the Sustainable and Competitive Programmatic ASA, is supporting the GoC (MoT and DNP) with studies aimed at: (i) assessing the economic impact of port concession contracts in maritime ports (as technical inputs for the Port Sector Development CONPES); and (ii) supporting the legal and technical structuring of the specialized logistics infrastructure (ILE) program.

Results of the survey were critical to inform inputs for Colombia’s National Logistics Policy, including establishing results indicators for logistics costs and export times.

Prior Action 7: The Republic of Colombia has enacted the Electromobility Law, which promotes the use of electric vehicles (both for public transit and private use) through financial and non-financial incentives, in order to contribute to sustainable mobility and the reduction of greenhouse gas emissions, as evidenced by Law 1964 dated July 11, 2019 and published in the Official Gazette on July 11, 2019.

Technical assistance for the design of a GoC design of a clean bus fund at the national level.

The design of the clean bus fund provided useful insights on the incentives required for public electric buses. Moreover, a recently approved TA grant with IFC funding will provide a common framework for business models and deployment roadmaps through next-generation fleet provision and operation contracts. At the subnational level, ongoing activities in Medellin (with KGGTF funding) support the design and deployment of the first e-bus pilot in the city.

Prior Action 8: The Republic of Colombia has approved a national policy for improving regional and urban mobility, to promote sustainable public transport and non-motorized modes of transport through: (i) an updated and expanded co-financing scheme from the National Government; (ii) an updated governance framework; and (iii) the issuance of guidelines and tools to reduce negative externalities associated with transport, as evidenced by CONPES document No. 3991 of April 14, 2020.

The Bank has provided support and comments on key technical aspects to the formulation of PA8.

In coordination with DNP and MT, the Bank has formulated terms of reference to support the design of key pillars for the next-generation urban mobility investment program.

Key recommendations included prioritize the support to micro-mobility platforms and systems; financing and deployment of e-bus programs in large cities and a new framework for financial sustainability of urban transport systems. Moreover, the NDC Deep Dive will support the elaboration of the policy and guidance reports on modelling the new co-financing agreements, regulatory frameworks for regulating tariff setting and integration aspects, and guidelines for subsidies frameworks.


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Operation Pillar 3: Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19

Improving the contingent liability and PPP framework across infrastructure sectors as a measure to increase fiscal resilience to crises Prior Action 9: The Republic of Colombia has updated the methodology for evaluating contingent liabilities in infrastructure projects with an application in the transport sector, as evidenced by Resolution No. 4859 of the MHCP dated December 23, 2020 and published in the Official Gazette on December 27, 2019

The WB’s a long-term technical assistance engagement through the Government Debt and Risk Management Program (GDRM) supported the peer review of the methodology of PPP Fiscal Commitments and Contingent Liabilities.

Input from the WB peer review strengthened the methodology which was then translated into the Resolution 4859 indicated in PA 9.

Leveraging private and long-term financing for infrastructure development Prior Action 10: The Republic of Colombia has approved the National Fund for Infrastructure Development (FONDES) and issued guidelines and secondary regulations specifying the operating framework for the fund which would act as a catalytic fund to leverage financing from the private sector, as evidenced by Law 1955 dated May 25, 2019 and Decree No. 277 dated February 25, 2020 and published in the Official Gazette on May 25, 2019 and February 25, 2020, respectively.

The World Bank has a long term partnership with the FDN and MHCP through the Capital Markets Strengthening Facility (CMSF) program (P167816),which is financed by SECO and it focuses on activities with direct or indirect impact on real sector financing, including infrastructure, through local currency fixed income instruments with emphasis on capital markets vehicles and instruments.

Key findings of this program include the prioritization of the infrastructure areas that could benefit from capital markets financing, that informed PA10.

4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY

109. The proposed DPF series is aligned with the Country Partnership Framework (CPF) 2016-2021 for Colombia71 and the Performance and Learning Review (April 23, 2019). Specifically, the proposed operation supports Pillar 1 (fostering balanced territorial development) and Pillar 3 (supporting fiscal sustainability and productivity) of the CPF by: (i) strengthening public management capacity to support territorial development through the promotion of better road infrastructure to link regions and the electrification of income-generation activities; (ii) deepening financial intermediation for productive purposes through private capital market resource mobilization to address Colombia’s large infrastructure gap and enhancement of the existing PPP framework; (iii) improving fiscal management in support of fiscal consolidation; and (iv) improving infrastructure services to develop competitive cities. 110. To support Colombia in its response to the COVID-19 crisis, the WBG is adjusting its financing and knowledge support flexibly, using the existing Country Partnership Framework (CPF) for FY16–FY2172 as a starting point. Section 4.4 describes the key adjustments in the World Bank’s strategy and

71 http://documentos.bancomundial.org/curated/es/940691468184792587/pdf/101552-CPF-P155964-R2016-0053-IFC-R2016-0054-MIGA-R2016-0014-Box394872B-OUO-9.pdf 72 Report No. 101552-CO, discussed by the Board of Executive Directors on April 7, 2016.


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program in response to Colombia’s rapidly evolving development priorities and financing needs due to the impact of COVID-19, including the acceleration and adaptation of the proposed Resilient and Sustainable Infrastructure DPF series in view of its heightened priority following the COVID-19 crisis. 111. The DPF series will contribute to the achievement of the twin goals of eliminating extreme poverty and boosting shared prosperity in a sustainable manner. It will contribute to the first goal, in the context of COVID-19, by providing concessional liquidity for utilities and providers of electricity, water and transport services to secure critical infrastructure for the poor and vulnerable. The DPF series is also expected to contribute to both the goals of poverty reduction and shared prosperity by enabling investment in critical productive, connectivity and social infrastructure which will have a direct impact on economic growth, job creation and poverty reduction in the framework of recovery from COVID-19. 112. Support for the proposed DPF series will expand and deepen the World Bank’s long-term partnership with the GoC on issues of urban mobility, logistics and connectivity, energy transition, fiscal management and mobilizing private finance for infrastructure. Specifically, the programmatic DPF series is linked to: (i) lending engagements to improve urban mobility through the longstanding National Urban Transport Program and the Bogota Metro Line 1 projects; (ii) an ongoing analytical and advisory program to develop a second generation national urban mobility program and targeted work on the integration of electric bus fleet in urban transport systems; (iii) recent and ongoing advisory work to support GoC in the greening of its cargo fleet, logistics competitiveness and multimodal transportation; (iv) lending and advisory activities linked to the Clean Energy Development Project to promote the development and integration of non-conventional renewable energy in the energy mix; (v) analytical and advisory support linked to the recent Energy Mission to promote sector competitiveness; and (vi) recent and ongoing advisory support to strengthen contingent liability management of infrastructure projects, attract private and institutional finance for infrastructure, and improve the PPP framework.

113. The proposed programmatic DPF series is aligned with the WBG’s Maximizing Finance for Development (MFD) approach and includes multiple upstream policy measures that aim to increase private investment in infrastructure. Specifically, Pillar 2 includes measures that aim to: (i) leverage private financing for the development on NCRE projects (PA4) through the use of an innovative auction design; (ii) enable private investment in NCRE through the integration of battery storage systems (PA5) into the national interconnected electricity transmission system; (iii) enable private investment in the distribution of electricity in non-interconnected areas (PT2); (iv) establish upstream policy conditions for private investment in the logistics, airports and urban mobility sectors (PA6, PA8 and PT4); and (v) establish the legal framework and incentives for private investment in electric vehicles in both private and public transportation fleets (PA7 and PT5). Furthermore, Pillar 3 includes measures to: (i) enhance investor confidence in PPP and concessions through improved risk management practices (PA9); (ii) introduce an innovative financing vehicle (i.e. FONDES) to leverage private and long-term institutional investment in infrastructure (PA10); (iii) mobilize alternative land value capture-based sources of financing for infrastructure (PT6); (iv) introduce flexibility in the regulatory environment governing pension fund investment in infrastructure (PT7); and (v) create a public infrastructure fund to capture alternative sources of revenue (i.e. FIP) as a means to meet payment obligations linked to PPPs and concessions (PT8). It is expected that the cumulative impact of the measures supported under this series will directly contribute to increased private, commercial and institutional investment in resilient and sustainable infrastructure as


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a stimulus measure for recovery from COVID-19. 114. This DFP builds on a long-term collaboration with the IFC and MIGA towards creating an enabling environment and catalyzing the mobilization of the private sector for infrastructure finance. Joint work with the IFC has included the Colombia Deep Dive and continues to include collaboration on the ongoing Colombia Country Private Sector Diagnostic (CSPD) led by IFC. Bank infrastructure teams maintain a close collaboration with the IFC PPP Advisory team on strengthening the upstream concession framework for PPPs in key sectors as well as around specific transactions including the Bogota Metro Line 1 concession. Collaboration with the IFC infrastructure and financial sector investment teams and the Cities Program is ongoing both in terms of upstream policy advisory and around specific potential transactions. Further, the Bank and MIGA continue to explore opportunities for collaboration and blended financing solutions in infrastructure sectors.

4.4. COLOMBIA COVID-19 RESPONSE PLAN: ADJUSTMENT TO WBG SUPPORT Impact of the COVID-19 pandemic on Colombia and government response 115. The COVID-19 pandemic and related mitigation measures have triggered the first recession in Colombia in two decades and the worst in more than a century. Prior to the pandemic, GDP was expected to grow by 3.6 percent. As a result of the national quarantine since March, the decline in external demand, and the fall in oil prices, GDP is now projected to contract 6.7 percent relative to 2019, with consumption declining 6.7 percent, investments 11.9 percent, and exports 16.8 percent. Under the current baseline, GDP would return to pre-COVID levels in the second half of 2021. Under a scenario of slower recovery, GDP could contract by 8.6 percent in 2020. 116. Colombia acted promptly to slow the spread of the COVID-19 pandemic and to mitigate the adverse impact on the poor and vulnerable. The Government put in place immediately a broad program of measures to contain and mitigate the impact of the pandemic focused on saving lives, protecting the poor and vulnerable, and sustaining firms. At an estimated cost of COP31.9 trillion,73 or 3.1 percent of GDP, these emergency response measures cover four main areas: (i) ensuring fiscal space for the response; (ii) supporting the capacity of the health system; (iii) providing income and nutrition support to poor and vulnerable households; and (iv) maintaining liquidity and access to finance for firms, including utilities. 117. While implementing its broad package of initial emergency measures, Colombia has also prioritized efforts to foster a carefully managed, gradual restart of economic activity, and to catalyze a strong recovery over the medium term.74 Starting in May-June 2020, the Government issued a series of biosecurity protocols for the operation of various sectors, along with systems of validation and control, and over 130,000 firms in the manufacturing, service and commercial sectors have been authorized to restart activities. Increased public investments in human and physical capital are planned in 2021, and will

73 This amount could potentially increase to COP48 trillion. 74 Starting in May-June 2020, the Government issued a series of biosecurity protocols for the renewed opening and operation of various sectors, along with systems of validation and control and over 130,000 firms in the manufacturing, service and commercial sectors (representing 84 percent of all firms which applied) have been authorized to restart activities.


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help boost the recovery and medium term growth—such as programs for families and youth (Familias en Acción y Jóvenes en Acción), early childhood development, child protection, support for girls and adolescents, and housing and transport infrastructure. The Government has prioritized the development of resilient and sustainable infrastructure as an important component of economic recovery in the medium term, including a focus on climate mitigation and adaptation, such as through the transformation of the energy sector to increase its efficiency, competitiveness and resilience. In addition, the Government is advancing critical medium-term structural and institutional reforms, including the improved targeting of subsidies and social and tax benefits, the internationalization of the economy, and a policy agenda for employment. Adjustments in WBG support for Colombia due to the Impact of COVID-19 118. To support Colombia in its response to the COVID-19 crisis, the WBG is adjusting its financing and knowledge support flexibly, using the existing Country Partnership Framework (CPF) for FY16–FY2175 as a starting point. The CPF, as updated by the Performance and Learning Review (PLR),76 focuses on three objectives: fostering balanced territorial development (Pillar 1); enhancing social inclusion and mobility through improved service delivery (Pillar 2); and supporting fiscal sustainability and productivity (Pillar 3). The impact of the COVID-19 crisis is highlighting the critical importance of the objectives of social inclusion, fiscal sustainability, and medium-term productivity growth. 119. IBRD financing and knowledge support in FY20-21 has been adjusted in line with Colombia’s strategy and programs to address the COVID-19 crisis and promote a strong and sustainable recovery, consistent with the WBG COVID-19 Crisis Response Approach Paper (WBG AP). The adjustments include additional support in the health sector (both advice and financing), for protecting the poor and vulnerable (targeted transfers, reform of the social registries, resilient and inclusive support, increased support for migrants and host communities), and for building resilient and sustainable infrastructure for medium-term growth, while maintaining robust macroeconomic policies and fiscal sustainability. The Bank is also supporting Colombia’s medium-term structural and institutional reform agenda in internationalization, employment, and improved targeting of subsidies and benefits (see Table 7).

Table 7: Key adjustments to the IBRD lending and knowledge program in FY20-21

Program Alignment with WBG Approach Paper (WBG AP)

Explanation

Lending COVID-19 Crisis Support Response DPF (P174118)

Relief and Restructuring.

WBG AP Pillars 1-3

FY20. New operation for direct response by supporting the capacity of the health system, providing income and nutrition support to poor/vulnerable households, and maintaining liquidity and access to finance for firms.

Resilient and Sustainable

Restructuring and Resilient

FY21. Accelerated and adapted programmatic series to support the Government of Colombia in its efforts to sustain access to

75 Report No. 101552-CO, discussed by the Board of Executive Directors on April 7, 2016. 76 Report No. 135458-CO, April 23, 2019.


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Infrastructure DPF series (P173424)

Recovery. WBG AP Pillars 3-4

critical infrastructure services for firms and households following the COVID-19 crisis, while establishing the policy foundations for recovery through sustainable and resilient infrastructure.

Resilient and Inclusive Housing Project (P172535)

Restructuring. WBG AP Pillars 2,

4

FY21. Accelerated operation to improve the quality of housing and public space for vulnerable households, including migrants from Venezuela. The COVID-19 crisis further highlights the importance of the operation, especially for the poorest and most vulnerable families living very densely in slum like conditions, to reduce the risks from over-crowding, inadequate sanitation, and contagion. The project is also part of the GoC strategy for a resilient economic recovery from COVID-19 which includes a pillar on increased public investment, including housing.

Support to Colombia’s Integrated Social Registry (SISBEN) (P174341)

Restructuring. WBG AP Pillar 2

FY21. Accelerated operation to improve the effectiveness and efficiency of the targeting of social programs, the protection of the poor and vulnerable from the economic impact of the crisis and reduce poverty in the long-term.

Knowledge New and additional rapid-response analytical and technical assistance to support Colombia’s COVID-19 response

Relief. WBG AP Pillars 1-3

(a) development of sectoral biosafety protocols; (b) real-time dashboard for the safe reactivation of the economy at local and national level; (c) rapid poverty simulations; (d) firm surveys and high frequency data analysis of economic activity; (e) analysis of the impact and improvement of distance learning and advice on the return to attendance based education; (f) analysis of financial risks to transport, electricity and water supply and sanitation; (g) support to Venezuelan migrants and refugees.

Acceleration and adaption of ongoing or already planned high priority ASA

Restructuring and Resilient

Recovery. WBG AP Pillars 2-4

(a) Equity Flagship (FY20-21) to analyze and provide potential solutions to Colombia’s pervasive challenge of high inequality; (b) Public Finance Review (FY21) to analyze long-standing structural revenue issues and identify efficiency gains.

New TA to advance medium-term development reforms

Resilient Recovery.

WBG AP Pillars 3-4

Support to high-level policy commissions (misiónes) on (a) the “internationalization” and opening of the economy, (b) employment and jobs, and (c) tax expenditures.

120. Key adjustments to the IFC program: IFC’s response to the COVID-19 crisis is primarily aligned with Pillar 3, Restructuring and Resilient Recovery, of the WBG AP. IFC has met the relief needs of two discount retailers essential to food provision and employment, providing one with a follow-on equity commitment of $15.2 million and the second with a $95 million working capital loan. IFC is in advanced negotiations with three municipalities on mandates for a total of $230 million financing to address the impact on health and transport infrastructure and respond to the public health emergency (Pillar 1 of the WBG AP). In addition to $150 million committed for SME financing since the start of the crisis, IFC’s advisory contributes to protecting the poor and vulnerable (Pillar 2 of the WBG AP) by engaging financial institutions to improve service to SME clients affected by COVID-19. Planned IFC support for the resilience of microfinance institutions will further contribute to protecting the poor and vulnerable (WBG AP Pillar 2). IFC also plans continue financing resilient firms in particularly affected sectors (WBG AP Pillar 3). IFC and IBRD are working together closely in the ongoing Country Private Sector Diagnostic (CPSD), and IFC is providing key inputs to IBRD DPF support for policy and institutional reforms to support private sector led growth over the medium terms (WBG AP Pillar 4).


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121. Key adjustments to the MIGA program: In response to the crisis, MIGA’s focus has shifted towards shorter term investments to provide working capital and liquidity support for sectors most severely impacted. As part of MIGA’s global COVID-19 response package,77 and to support Relief and Recovery (WBG AP Pillar 3). MIGA has issued guarantees for a US dollar debt financing structure of up to $385.5 million in support of Colombia’s development bank Bancoldex. Estimated 2020 Financing Needs and Plans

122. Financing needs are expected to reach 12.8 percent of GDP in 2020, with all financing already mobilized or identified. Savings accumulated in existing funds—including the Saving and Stabilization Fund (FAE), Territorial Pension Fund (Fonpet) and Occupational Hazard Fund (Fondo de Riesgos Laborales)—and deposits are expected to contribute 3.5 percent of GDP of financing in 2020. As of June 2020, domestic issuances amounting to about 2.4 percent of GDP and international issues of about 1.4 percent of GDP had been completed. Selectivity, Complementarity, Partnerships

123. Coordination and collaboration with development partners continues, and indeed has been further strengthened, as all partners jointly support Colombia in managing the COVID-19 crisis and laying the basis for a “re-building better” recovery. Since the start of the crisis in Colombia, the World Bank and IDB, CAF, UN, and some bilateral partners are coordinating international support through weekly meetings covering a broad range of sectoral, thematic, and financing topics. This close coordination facilitates selectivity and complementarity of support among partners. For example, the World Bank and IDB are jointly supporting firm surveys and high frequency data analysis, and this work and its conclusions are then shared with other partners to avoid duplication. In consultations among development partners and with the Government, Colombia’s development bank Bancoldex is accessing mutually complementary support from MIGA, the IDB, and CAF. Meanwhile, the World Bank is continuing its close collaboration with partners in ongoing and new projects, including the co-financing or parallel financing of the (i) Metro Bogotá (World Bank, IDB, EIB); (ii) Plan Pazcifico and Multipurpose Cadaster projects (World Bank, IDB); (ii) DPLs (e.g. AFD for FY20 Territorial Development DPL); (iii) projects in environment/climate change (Germany, UK); (iv) grant financing for support on migration (e.g., Canada, GCFF, GPG).

4.5. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS 124. The declaration of the general state of emergency within Colombia on March 17, 2020 led to consultation and communication processes adapted to the emergency. The State of Emergency provided the Government the constitutional basis to rapidly put in place the necessary legislation to support the broad government program aiming to stop the spread of COVID-19 and to mitigate its impact. While traditionally in Colombia decrees undergo an extensive public consultation before they are signed into law, this has not been possible to the same extent given the need to move rapidly to respond to the crisis.

77 MIGA’s COVID-19 fast-track response focuses on: (i) Procurement of urgent COVID-19 medical supplies; (ii) Countering adverse economic impacts through credit enhancements/capital optimizations; (iii) Complementing IFC trade finance.


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The Government has sought views from a wide range of stakeholders on proposed legislation. Moreover, it has implemented a communication campaign, including an extensive, dedicated website, hotlines, social media contact point and a public communications campaign focusing on informing the public about the COVID-19 pandemic as well as economic and social mitigation programs that the Government has launched. Individual programs have also put in place measures to receive feedback from citizens related to access to the program. 125. Measures focused on mobilizing private sector investments for sustainable and resilient infrastructure have been drafted after a benchmarking analysis with international best practices and reflect consultations with public and private stakeholders. The update of the methodology for the evaluation of contingent liabilities for infrastructure projects (PA10) was drafted after a benchmarking analysis with international best practices. This work was supported by World Bank technical assistance and went through several consultation rounds with public and private stakeholders linked to infrastructure during the second half of 2019. FONDES was created by Law and regulated through a Decree. Both, the Law and the Decree, were widely consulted with public and private stakeholders involved in infrastructure projects during the second half of 2019. They are also aligned with the strategy followed by the GoC through FDN to develop catalytic financial instruments to address market failures to finance infrastructure. 126. Actions in the energy and transport sectors that will support the recovery from COVID-19 have gone through extensive consultations and benefited from collaboration with diverse stakeholders. The introduction of double-sided auction mechanism to promote NCRE (PA4) was the result of extensive consultations with sector stakeholders, international organizations and the private sector. Both the updated National Logistics Policy CONPES (PA6) and the Urban Mobility Policy CONPES (PA8) followed the two-month consultation process established by DNP, receiving comments and recommendations from other multilateral development banks, and local and civil society organizations. The Bank has provided close support and comments to the formulation of Urban Mobility Policy CONPES. The results of the 2016-2018 Logistics and Foreign Trade Mission, collaborative process involving the public and private sectors with broad regional participation, deeply informed the National Logistics Policy CONPES. Additionally, the GoC launched the National Logistics Surveys (2008, 2015, 2018), that aimed to analyze the performance and quality of logistics services for companies in Colombia. Results of this survey were critical inputs for updating Colombia’s National Logistics Policy. Further, the Electromobility Law (PA8) underwent a two-year legislative and consultative process, with several debates that took place in both houses of Congress. Bank activities have also informed the Law, through supporting the National Government to design a clean bus fund and, at the local level, by supporting the design and deployment of the first e-bus pilot in Medellin. 127. Since the COVID-19 crisis, the Bank has further intensified its traditionally close dialogue and collaboration with development partners in Colombia. IDB support to the Colombian Government to address the COVID-19 crisis is focused on four areas: (i) the immediate public health response; (ii) safety nets for vulnerable populations; (iii) economic productivity and employment; and (iv) fiscal policies for the amelioration of the economic impact. The IDB is expecting to substantially increase its financing to Colombia in 2020. IDB Invest, the private sector institution of the IDB Group, will focus on companies affected by the crisis. Additionally, IDB Invest is working on a new Crisis Mitigation Facility targeting


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investments that provide a direct response to the pandemic and is also evaluating the support to the energy and transport sector by providing lines of credit through financial intermediaries. CAF expects to be able to mobilize additional financing for Colombia in the following areas: (i) rapid disbursing funds to address the economic crisis on the national level; (ii) rapid disbursing funds specifically for Bogota; (iii) a contingency facility for crisis response; (iv) a credit line to Bancoldex; and (v) a possible credit line to Findeter. Additionally, the World Bank is in close dialogue with the French Agence Française de Développement (AFD) and the German Kreditanstalt für Wiederaufbau (KfW) – both still in the process of defining their level of support to Colombia to address the crisis. Beyond financing, the Bank also works very closely with all development partners, including the United Nations system, on providing analytical support to Government. 128. The Bank is also closely coordinating within the World Bank Group with the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). IFC support to the COVID-19 crisis may include credit lines to existing global IFC clients under streamlined approval processes for financial institutions (USD2 billion Working Capital Solutions Program) and infrastructure, manufacturing, agriculture and services companies (USD2 billion Real Sector Crisis Response Facility). IFC clients in the financial sector will also be able to access short-term financing in the form of trade guarantees (USD2 billion Global Trade Finance Program) and risk sharing facilities (USD2 billion Global Trade Liquidity Program and the Critical Commodities Finance Program). MIGA has also designed a COVID-19 fast-track response package of USD6 billion that focuses on three main areas: (i) procurement of urgent COVID-19 medical supplies/services (up to USD1.0-1.5 billion); (ii) countering the adverse economic impact during the COVID-19 crisis through a credit enhancement and a capital optimization program (up to USD4 billion); and (iii) complementing IFC Trade Finance, post COVID-19 (up to USD0.5-1 billion). MIGA’s support for Colombia’s development bank Bancoldex is currently under discussion, and the Bank infrastructure team is evaluating a coordinated effort with MIGA in order to leverage capital markets to support the liquidity needs of the infrastructure sector. The Bank has also collaborated with the IMF on the review of macroeconomic developments and the impact of the COVID-19 crisis on the economy.

OTHER DESIGN AND APPRAISAL ISSUES 5.1. POVERTY AND SOCIAL IMPACT

129. The prior actions supported by this operation are estimated to have neutral to positive poverty reduction direct effects in both the short and medium term. Measures aimed to sustaining the access to critical infrastructure will contribute to secure the recovery of the economy after COVID-19 while reducing poverty. The measures will guarantee the continuity of supply for key infrastructure services in the immediate aftermath of COVID-19. Financially more resilient utilities (supported by Prior Action 1) are likely to be poverty reducing. Each 1 percent increase in the price of electricity prevented will avoid poverty increases of 0.01 percent points or 5,000 people from failing into poverty. The enhanced liquidity for utilities provided through this measure will also help finance the deferral of utility bills; a measure that is estimated to reduce poverty by about 0.2 percent points or 100,000 individuals for each month of deferred payments. Other measures in Pillar 1 will also contribute to prevent energy, transport and water services systems from collapsing, ensuring the continuity of service provision to secure the economy from COVID-19.


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130. Additionally, this proposed DPF which focuses on promoting an economic recovery that is both resilient and sustainable, will lead to new job opportunities, improved quality of services and improved mobility. The prior actions and indicative policy triggers in Pillar 2 of the proposed DPF series will contribute to the welfare of the poor and vulnerable through increased job opportunities, improved quality and affordability of electricity services and improved mobility. This is expected to increase the access of the poor and vulnerable, including women, to markets and job opportunities that were previously closed to them due to distance or transportation costs. The poverty reduction impact of prior actions involving institutional reforms, improving regulatory frameworks, and reducing financial risks for future PPP investments will ultimately depend on the actual implementation of reforms and investments to be carried out—for example, the actual increase in investments generated by PPP or whether tariffs in sectors where such PPPs operate would actually decrease, which for now remains unknown. Finally, while households in the poorest strata 1 and 2 will specifically benefit from the prior actions supported by this DPF series, the broader population will also benefit from other measures of a public good nature (i.e. reduction of GHG emissions or improved road safety) supported by this series of operations.

5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS

131. Consistent with WB OP 8.60, a general environmental and social analysis has been carried out to assess whether the proposed Resilient and Sustainable Infrastructure for Recovery DPF Series is likely to cause significant adverse or positive effects on people, the environment and natural resources. The assessment was based on a secondary data review of the program, including the description of each prior action, evidence from the literature, legal evidence, the loan agreement, and on a comparative analysis between existing and proposed technologies and actions. The DPF series will support policies aimed at strengthening the institutional, governance, and regulatory reforms around three pillars: (i) Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19, (ii) Resilient and Sustainable Infrastructure for Recovery from COVID-19; and (iii) Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19. 132. The environmental analysis found that the Prior Actions supported by this DPF series are not likely to have significant negative effects on the environment, forests, and other natural resources. Although transport and energy sectors are associated with certain environmental effects, the proposed program measures in this DPF, specifically the Prior Actions under Pillar 2, will lead to a net reduction of GHG emissions and local pollution due to a shift to new and cleaner technologies and a more efficient operation of infrastructure. The programmatic series supports measures that imply a significant positive impact on biosecurity, air quality, reduction of greenhouse gases emissions, and climate change adaptation as described below: Measures under Pillar 1 are expected to have positive effects on the environment, forests, and natural

resources, as they are designed to guarantee financial resources to public entities to maintain the continuity of critical infrastructure services, and continue with essential routine maintenance activities indirectly promoting the sustainable management of natural resources in utility operations.

Measures under Pillar 2 promote the generation of NCRE as a source of power for the transport and energy sectors at the national level. Potential positive effects of these measures include: (i) the


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gradual reduction of fossil fuels usage as source of power versus the Business As Usual scenario; (ii) the gradual reduction of greenhouse gases emissions; (iii) improved air quality; (iv) the gradual reduction of the natural resource pollution by decreasing their exploitation for fossil fuel production; and (v) the proactive adaptation to climate change by increasing the resilience to hydrological changes.

Measures under Pillar 3 will provide the opportunity to invest in infrastructure for sustainable development, protection of ecosystems, and human health.

133. The government has put in place mitigation measures for the potential negative impact identified for the operation. Key mitigation measures include: Under Pillar 1, there is a risk that environmental management obligations under existing concessions

and operations contracts could be weakened or removed through contractual modifications. This risk would be mitigated by avoiding adjustments in environmental management practices under the scope of such potential contractual modifications.

Pillar 2 aims to promote infrastructure development (i.e. including air, maritime, fluvial, rail and land transportation) and consequently may have an impact typically associated with civil works execution, which may include: (i) landscaping, pollution and visual impact; (ii) loss of vegetation cover, deforestation, and mountain cuts; (iii) noise and vibration (land and aquatic); (iv) erosion and water -quality impact; (v) biodiversity and natural habitats displacement and disturbances of fauna passageways (in the air, land and sea); and (vi) hydraulics dynamics effects. This potential negative impact would be addressed through compliance with existing environmental regulation. Currently, national environmental regulation requires analyses of the impact in every sector of the economy, including, but not limited to the mining, energy, transport, commerce, tourism, and agricultural sectors. The Government subsequently generates policies, programs, guidelines and manuals in order to address the identified impact. Moreover, national environmental regulation requires different environmental assessments, permits and compliance monitoring systems through different agencies, according to the type of project, sector location and context. The Environmental National Licensing Agency (ANLA per its acronym in Spanish) has issued the terms of reference to elaborate the Environmental Diagnosis of Alternatives and to elaborate the Environmental Impact Assessment for different sectors and types of projects. Additionally, it was found that waste resulting from scrapping, and residual batteries coming from power storage system and electrical vehicles could increase as a result of PA5 an PA7. This impact would be addressed by strict enforcement of environmental regulation regarding waste management, including recycling alternatives, and programs to return products after consumption, based on an analysis of the capacity of operators in Colombia to manage this type of waste.78

No potential negative impact was identified under Pillar 3, Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19.

134. The assessment included a review of Colombia’s legal and institutional framework for environmental management. The Ministry of Environment and Sustainable Development (MADS) was identified as the national regulatory entity in charge of formulating, implementing, and orienting

78 Decree 1076, 2015 of Ministry of Environment and Sustainable Development.


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environmental policy to ensure the sustainable development of the country. MADS is complemented by regional and local agencies and institutes to monitor and control environmental aspects of all economic sectors. The Ministry of Transport and the Ministry of Mines and Energy were identified as stakeholders in this DPF series. Both have the necessary environmental management systems in place. Both entities are proactively advancing in developing institutional capacity to monitor and control actions established in this DPF series. Further, the National Low Carbon Development Strategy (ECDBC) includes: (i) a Sector Action Plan for Mitigation (Electric Power); (ii) a Sector Action Plan for Mitigation (Transport); and (iii) a Group for Environmental Affairs and Sustainable Development of the Ministry of Transport (GAADS). The areas that involve environmental and social risks, and the recommendations in each of those cases, were identified as part of the analysis. A summary for each prior action is included in Annex 5.

5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS

135. The overall integrated fiduciary risk for this operation arising from Colombia’s public financial management (PFM) including public procurement system and FOREX control environment is low. Colombia’s PFM systems are generally strong. A Public Expenditure and Financial Accountability Assessment for Colombia finalized in 201679 concluded that Colombia's PFM system exhibits reasonable alignment with international best practices at the national government level. The more recent Fiscal Transparency Evaluation completed in 2018 reaches a similar conclusion.80 The budget is comprehensive, well documented, and implemented as planned, with actual expenditures deviating only slightly from planned levels. The National Planning Department applies a multiyear perspective, with a Medium-Term Fiscal and Expenditure Framework in place since 2003, though these instruments have yet to be integrated with the budget process. Nonetheless, the budget reflects a mostly well-functioning policy-based system.81 Execution of budgeted expenditures suggests an overall credible budget that is published and accessible on the MHCP website. The Borrower has published its annual budget in a timely fashion.82 Fiscal transparency is generally aligned with best practices with the exception of inconsistent budget classification systems, the incomplete transition to international accounting standards and lack of disclosure of internally available information on macroeconomic scenarios, long-term projections, and public corporations. Revenue and expenditure controls are comprehensive. Records and controls on cash flows, balances, and public debt support sound fiscal management and provide public institutions with the tools for predicting funding to execute their budgets in an orderly manner. Consolidated public accounts are prepared within six months after the end of the fiscal year. They include full information on revenues, expenditures, financial assets and liabilities. Year-end accrual-based financial statements are issued by the Accountant General and presented by May 15 of the following year to the Controller General for audit purposes. Controller General auditing policies and procedures provide for the application of financial, compliance, and performance procedures consistent with national government auditing standards. Audit reports are submitted before July 1 of the following fiscal year to the Congress and the President.

79 Public Expenditure and Financial Accountability Assessment (PEFA) 2015 of Colombia’s Public Financial Management Systems, October 14, 2016 80 https://www.imf.org/en/publications/cr/issues/2018/08/02/colombia-fiscal-transparency-evaluation-46148 81 See PEFA 2015, IMF 2012 and the World Bank reviews 2013 for more information. 82 Decree 2411 of December 30, 2019.


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136. Disbursement Arrangements. Once the DPF becomes effective and the Borrower complies with withdrawal release conditions, following the Borrower’s request, the World Bank will deposit the funds into an account denominated in U.S. dollars in a commercial bank, controlled by the National Treasury and part of the Government’s foreign exchange reserves, acceptable to the WB or alternatively into an account denominated in U.S. dollars at the Central Bank (Banco de la República) for subsequent credit of the equivalent amount in Colombian Peso into the Treasury Single Account of the MHCP, thus becoming available to finance budgeted expenditures. MHCP will provide the Bank with a written confirmation of the transaction within the 30 days after the funds are disbursed by the Bank. If the Bank determines at any time that an amount of the loan was used to make a payment for an excluded expenditure, the Borrower shall promptly, upon notice from the Bank, refund an amount equal to the amount of such payment to the Bank and amounts refunded to the Bank upon such notice shall be cancelled from the loan. 137. Foreign Exchange Control Environment. The banking control environment is assessed as adequate on the basis of the clean external audit opinion on the Consolidated Financial Statements of Citigroup Inc. and Subsidiaries for 2018-19, and the effectiveness of the Company’s internal control over financial reporting; as well as on the clean external audit opinion of the 2019 financial statements of Banco de la República. The experience regarding funds flow from Bank-financed projects, additionally supports the conclusion that the banking control environment into which the DPL proceeds would flow is adequate. 138. Audit and Fiduciary Arrangements. Because the Borrower’s PFM systems and the fiduciary arrangements for this financing are assessed as adequate, the Bank will not require an audit of the designated account and no additional fiduciary arrangements are considered necessary at this time. 139. Public Procurement. Colombia has made significant progress over the past years in strengthening the performance of the procurement systems. Procurement is based in the legal framework, Law 1150/2007, and ruling decrees, the most recent being 1510/2013. The Public Procurement Agency, Colombia Efficient Procurement (Colombia Compra Eficiente, CCE), oversees and leads procurement regulatory reforms. CCE has consolidated its role and its principal programmatic priorities include the adoption of a more strategic approach to procurement as an essential component of public sector expenditure management; the universalization of the use of the transactional electronic procurement system SECOPII (in 2018, 23 percent of the transactions were processed through this system); and professionalizing the procurement staff. In 2019 the principal focus of CCE has been the use of Standard Procurement Documents (SPD). In April 2019, the first kit of SPD, in this case for roads, was launched, its use is mandatory and so far, results have been very positive. CCE has planned to continue with the deployment of more SPD, starting with civil works supervision. PPP are regulated by the PPP Law 1508 of 2012.

5.4. MONITORING, EVALUATION AND ACCOUNTABILITY

140. MHCP and DNP are responsible for collecting and monitoring information related to program implementation and progress towards the achievement of results for this DPF series. MHCP and DNP are further responsible for coordinating necessary actions among the agencies involved in the reform


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program supported by this DPF series.83 The World Bank has worked closely with MHCP, DNP and sector agencies to define results indicators that are clear and measurable, and that have realistic targets in the context of the COVID-19 crisis. Monitoring and evaluation of the operation will also be carried out through the ongoing policy dialogue and the technical assistance programs linked to this series and focused on both the immediate impact and the mitigation measures associated with the COVID-19 crisis and the medium-term agenda focused on recovery from COVID-19 through resilient and sustainable infrastructure development. 141. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a World Bank Development Policy Operation may submit complaints to the responsible country authorities, appropriate local and national grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

6. SUMMARY OF RISKS AND MITIGATION 142. This operation entails an overall residual risk level after mitigation of Substantial. The most relevant risks that could affect achievement of the development objective (DO) for this operation include: (i) macroeconomic; and (ii) sector strategies and policies for implementation and sustainability. Risks to priority sectors from climate and geophysical hazards are assessed to be of moderate potential impact and low risk. 143. Given the severe economic impact of the COVID-19 outbreak across the globe, as well as uncertainty as to how quickly domestic economic activity can fully resume, the macroeconomic risk is rated as High. There are two closely related macroeconomic risks for the country. First, there is still uncertainty as to the length and depth of the global economic fallout from the COVID-19 lockdown measures, which will directly affect Colombia’s short and medium-term growth prospects. Second, the trajectory of the pandemic within Colombia will further affect how quickly the country is able to reactivate economic activity. These two factors will determine the shape of Colombia’s economic recovery curve. If downside risks materialize in both areas, Colombia’s fiscal capacity to support firms and households affected by the crisis may be stretched severely. As a result, the urgency of these short-term needs could cause a change in priorities of the Government that could impact the implementation of this DPF series. To mitigate the macroeconomic risks, the Government is working closely with international financial

83 Key agencies include the: (i) National Infrastructure Agency (ANI); (ii) Ministry of Mining and Energy (MME); (iii) Ministry of Transport (MoT); (iv) Ministry of Housing, Cities and Territories; (v) regulatory Commission for Electricity and Gas (CREG); (vi) Mining and Energy Planning Unit (UPME); and (vii) Financiera de Desarollo Nacional (FDN).


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institutions to secure fiscal buffers and formulate a balanced reactivation plan for the economy that also mitigates risks to public health. 144. Risks related to sector strategies and policies after mitigation are assessed as Substantial. The DPF series covers a wide range of policies and reforms across a range of sectors and agencies. Each sector sets its own regulatory and policy agenda and a risk exists that a clear and integrated programmatic agenda is not sustained over the life of the series. Within this context, the role of DNP is critical in guiding an integrated program, coordinating a wide range of associated actors and mitigating any risks associated with the delivery of the program. The Bank will implement in parallel to the series a broad program of policy advisory and technical assistance with MHCP, DNP and key sector agencies to support the implementation of reform programs across the series. The Bank advisory program exceeds USD7.0 million and covers a wide scope including the short-term impact of COVID-19 on the energy, water and transport sectors; energy efficiency; electromobility; sustainable urban mobility; logistics and connectivity; sound fiscal management of infrastructure PPPs; and leveraging private and institutional finance. Bank-financed project supervision of complementary investment projects including the NUTP and Bogota Metro Line 1 will further support client engagement. This combination of technical assistance and project supervision is expected to support a strong policy dialogue across the program and mitigate the risk of lost momentum or the lack of coordination within and across the policy sectoral areas of focus under the programmatic series. 145. The proposed DPF has been screened for climate and disaster risks using the WB National Policy In-Depth Screening Tool. The overall sector risk has been rated as Low and the institutional readiness score for both energy and transport (as the prioritized sectors for the screening of this operation) is considered Moderate. For the transport sector, the current and future impact of identified climate and geophysical hazards have been rated as Low, whereas the same rating is Moderate for the energy sector due to its vulnerability to El Niño events. During El Niño, low rainfall can result in hydrological drought that, in a hydropower-dominated electricity sector (i.e. the energy mix in Colombia is 77 percent hydropower and 18 percent thermal power), can lead to high energy price volatility. El Niño exposes inefficiencies in the Colombian energy system that can threaten the energy security, leading to the possibility of energy rationing. The proposed operation, through a series of policy actions, would help the country overcome these inefficiencies by promoting the integration of NCRE into the energy mix and increase sector competitiveness.


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Table 8: Summary Risk Ratings

Risk Categories Rating

1. Political and Governance Moderate

2. Macroeconomic High

3. Sector Strategies and Policies Substantial

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Moderate

6. Fiduciary Low

7. Environment and Social Moderate

8. Stakeholders Moderate

9. Other

Overall Substantial


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ANNEX 1: POLICY AND RESULTS MATRIX

Medium-Term

Objective Prior Actions and Indicative Triggers Results

Prior Actions under DPF 1 Indicative Triggers for DPF 2 Indicator Name Baseline

Target (December

2022)

Pillar 1: Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19

Targeted and temporary support to utilities and PPPs facing financial strain due to COVID-19

Prior Action 1: The Republic of Colombia has established a concessional liquidity line of credit through Findeter for public service companies, including in the electricity and water and sanitation sectors, through December 31, 2020, to mitigate the financial impact caused by targeted tariff deferrals directly linked to COVID-19, as authorized by Legislative Decree No. 581 dated April 15, 2020 and published in the Official Gazette on April 15, 2020 and in accordance with the terms and conditions set forth in Findeter's website at https://www.findeter.gov.co/creditodirecto/servicios_publicos.html.

Indicator 1: Colombian pesos disbursed to electricity and water utilities through the Findeter credit line

0

(February 2020)

COP 600 billion

Prior Action 2: The Republic of Colombia has established measures to

Indicator 2: Number of mass transit systems

0 3


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Medium-Term Objective

Prior Actions and Indicative Triggers Results

support the public transport system during the state of emergency, including: (i) providing the legal basis for municipalities to amend concession contracts under the principle of financial sustainability; and (ii) allowing the National Government to co-fund operation costs for mass transit systems, as evidenced by Legislative Decree No. 575 dated April 15, 2020 and published in the Official Gazette on April 15, 2020.

using funding and financing instruments to cover operational deficits generated by the impacts of COVID-19

Prior Action 3: The Republic of Colombia has allowed to extend in time PPPs and concession contracts, beyond the limits under current regulations, to restore the loss of financial balance of projects, resulting from the non-collection of tariffs and tolls linked to the COVID-19 emergency measures, as evidenced by Legislative Decree No. 768 dated May 30, 2020 and published in the Official Gazette on May 31, 2020.

Indicator 3: Percentage of concession and PPP road contracts active prior to the COVID-19 Emergency (in operation or under construction) affected by the measures taken by the Declaration of the National Emergency that have maintained or recovered their financial balance

0 80



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Clean energy as a driver of the COVID-19 recovery

Prior Action 4: The Republic of Colombia has introduced a mechanism to promote long-term NCRE Power Purchase Agreements (PPA) through a double-sided auction process to reduce power market concentration, spur the development of NCRE in the country and promote the entrance of new energy sector actors, as evidenced by Resolution No. 4-0590 of the MME dated July 9, 2019 and published in the Official Gazette on July 9, 2019.


Indicative Policy Trigger 1: The Republic of Colombia has submitted to Congress the Law for Clean Growth and Sustainable Development to facilitate the transition towards a low-carbon economy which, among other objectives, would: (i) extend the scope of the current carbon pricing instrument to incorporate non-liquid fossil fuels (i.e., coal); and (ii) create a single energy fund for the promotion of NCRE and energy efficiency projects. Tentative date: First semester 2021.

Indicative Policy Trigger 2: The Republic of Colombia, through a Ministerial Decree, has defined the rules for providing energy services in non-interconnected areas, including through the use of NCRE, which currently suffer from a lack of energy access and poor quality of service. Tentative date: Second semester 2020.

Indicative Policy Trigger 3: The Republic of Colombia, through the

Indicator 4: MW of NCRE awarded under the October 2019 long-term energy auction

Indicator 5: MW of new NCRE installed

Indicator 6: MW of new energy storage installed

0 MW

0 MW

0 MW

1,374 MW

200 MW

45 MW


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Regulatory Commission for Electricity and Gas (CREG), has approved a Resolution for the deployment of Advance Metering Infrastructure (AMI) systems to provide necessary information to enhance energy sector efficiency. Tentative date: First semester 2021.

Multimodal transport, sustainable logistics and urban transport as a driver of COVID-19 recovery

Prior Action 6: The Republic of Colombia has updated its national logistics policy to reduce logistics costs and improve efficiency of foreign trade operations, including through the issuance of guidelines for coordinated investments in: (i) multimodal infrastructure, particularly promoting rail and fluvial modes and specialized logistics infrastructure; and (ii) exports and import processes, particularly in capacity, access and digitalization of foreign trade terminals, as evidenced by CONPES document No. 3982 of January 13, 2020.

Indicative Policy Trigger 4: The Republic of Colombia, through CONPES, has approved policy guidelines related to the contractual risk framework for airport projects that contemplate private participation and concessions, including a definition of the risk allocation structure between the public and private sector. Tentative date: First semester 2021.

Indicator 7: Increase of freight transported by fluvial modes Indicator 8: Decrease in logistics costs as percentage of sales Indicator 9: Average export processing times at maritime terminals (hours)

5,000,039 Ton/YR (2018)

13.5 (2018)

156 (2018)

6,500,050 Ton/YR

12.9

125

Prior Action 7: The Republic of Colombia has enacted the Electromobility Law, which promotes the use of electric vehicles (both for public transit and private use) through

Indicative Policy Trigger 5: The Republic of Colombia, through one Ministerial Resolution and one Ministerial Decree has established: (i) the definition of low and zero

Indicator 10: Increase in registrations of vehicles that are fully electric

2,100

(2019)

3,360


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financial and non-financial incentives, in order to contribute to sustainable mobility and the reduction of greenhouse gas emissions, as evidenced by Law 1964 dated July 11, 2019 and published in the Official Gazette on July 11, 2019.

emission vehicle typologies; and (ii) national guidelines for electric vehicle charging infrastructure, including safety, standardization and interoperability. Tentative date: First semester 2021.


Indicator 11: Number of new mass transit co-financing agreements signed under the new governance and co-financing scheme

0 2

Pillar 3: Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19

Improving the contingent liability and PPP framework across infrastructure

Prior Action 9: The Republic of Colombia has updated the methodology for evaluating contingent liabilities in infrastructure projects with an application in the

Indicator 12: Number of existing and new structured concessions and PPP projects under new FCCL framework

0 19


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sectors as a measure to increase fiscal resilience to crises

transport sector, as evidenced by Resolution No. 4859 of the MHCP dated December 23, 2020 and published in the Official Gazette on December 27, 2019.

Leveraging private and long-term financing for infrastructure development

Prior Action 10: The Republic of Colombia has approved the National Fund for Infrastructure Development (FONDES) and issued guidelines and secondary regulations specifying the operating framework for the fund which would act as a catalytic fund to leverage financing from the private sector, as evidenced by Law 1955 dated May 25, 2019 and Decree No. 277 dated February 25, 2020 and published in the Official Gazette on May 25, 2019 and February 25, 2020, respectively.

Indicative Policy Trigger 6: The Republic of Colombia has enabled the use of two complementary land-based finance instruments to support the financing of strategic national infrastructure investments. Specifically: (i) through CONPES, a national betterment levy associated with infrastructure projects; and (ii) through the National Department of Planning, a decree to regulate the use of public land-based equity associated with PPP infrastructure projects. Tentative date: First semester 2021.

Indicative Policy Trigger 7: The Republic of Colombia, through the Ministry of Finance and Public Credit, has issued a decree harmonizing the regulatory treatment for pension funds to invest five percent of their assets under management (AUM) through

Indicator 13: Estimated CAPEX value of new infrastructure projects tendered under the 5G Program

0 USD 1.0 billion (August 21, 2020

USD : COP Exchange Rate)


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private capital funds for infrastructure concessions under Law 80 of 1993. Tentative date: First semester of 2021.

Indicative Policy Trigger 8: The Republic of Colombia, through the Ministry of Finance and Public Credit, has issued a decree regulating the operation of a fund that enables alternative sources of funding for infrastructure, Fondo de Fuentes Alternativas de Pago para el Desarrollo de Infraestructura (FIP) (created by article 149 of Law 2010 of 2019). Tentative date: First semester of 2021.

The World Bank Sustainable and Competitive Infrastructure DPF Series (P173424)

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ANNEX 2: FUND RELATIONS ANNEX


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ANNEX 3: LETTER OF DEVELOPMENT POLICY


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Unofficial translation of the LDP Bogotá D.C., August 21, 2020 Sir: DAVID MALPASS President World Bank Group Washington, D.C.

Subject: Letter of Development Policy, Resilient and Sustainable Infrastructure for Recovery DPF Dear President Malpass: We hereby wish to express the commitment of the Government of Colombia to firmly advance in the design and implementation of measures and public policies that allow us to continue developing the country's infrastructure with high standards of sustainability and resilience, as well as the vision of turning these efforts into an engine of economic growth and improvement of the competitiveness of our economy in the short, medium and long-term. As you are aware, Colombia has acted in line with the recommendations and approaches made by the World Health Organization (WHO) since the outbreak of coronavirus disease COVID-19 was declared a pandemic on March 11, 2020. In the context of the same, the government took preventive measures against the COVID-19 outbreak, including a national quarantine, which, however, just as in the rest of the world, have had considerable negative effects on economic growth. In the infrastructure sector, the direct impact on the financial resilience and sustainability of public services companies has been significant as the government has had to adopt measures such as: (i) the temporary postponement of electricity and water tariffs; (ii) the temporary suspension of water and electricity rate increases to protect the poor and vulnerable; (iii) the temporary suspension of tolls to facilitate the flow of critical goods, as well as commercial passenger flights; (iv) the reconnection of more than 200,000 homes to electricity and water services to guarantee access to essential public services; (v) the emergency supply of water to vulnerable populations; and (vi) the adoption of social distancing and biosafety protocols in the operation of water, electricity and urban transportation services. Despite the above, we are committed to adopting measures and public policies that will allow us to achieve the objectives of our National Development Plan 2018-2022, the Sustainable Development Goals and the commitments of the Paris Agreement. We are therefore advancing actions focused on: (i) safeguard the liquidity and solvency of the entities that provide essential basic public services such as energy, drinking water and basic sanitation and mass transportation systems; (ii) provide legal tools that facilitate the execution, financing, and risk management of projects under the modality of Public-Private


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Partnerships; (iii) advance the country's energy transition toward a matrix with clean energy sources and sustainable transportation alternatives (electromobility); and (iv) implement policies, guideline and standards in logistics that contribute to improve the competitiveness of air, sea and land ports and in general of foreign trade operations. It is because of the above that we decided to undertake this series of policy development loans with the IBRD, by virtue of which we intend, with the technical support of the Bank, to give impetus, strength and sustainability to our agenda of infrastructure policies and reforms, in such a way that these are consolidated as an economic reactivation strategy for Colombia. Macroeconomic context Before the pandemic, the Colombian economy had registered an economic growth trend that in 2019 was above its regional peers (3,3percent). Economic growth was mainly sustained by activities in the financial sector, commerce, transportation, hotels, and the execution of public administration activities, as well as private consumption and investment, the latter driven by imports of capital goods. Likewise, the activities of construction of civil works of highways, public service projects and other civil works grew 10,7 percent on average compared to 2018. The flow of foreign direct investment (FDI) had registered an increase of 25,6 percent compared to 2018, showing an important trend towards economic diversification of sectors not related to mining and oil. In 2020, the country has been facing two strong economic shocks simultaneously: the effects of the COVID-19 pandemic and the decline in oil prices. Although various measures have been implemented to safeguard the provision of public services, public health, business activity, the protection of employment and the welfare of the population, without losing sight of the importance of safeguarding the sustainability of public finances, the effects of an economic slowdown and an increase in the fiscal deficit will be significant in this fiscal period. Our estimates foresee a GDP growth of -5.5 percent for 2020 and an increase in the fiscal deficit of the order of 8.2 percent of GDP. In spite of the fact that the Colombian government's strategy to address fiscal challenges has been to optimize the use of public assets, by virtue of which we were able to initially avoid that these measures taken (of about 2.7 percent of the GDP) would generate pressures on the local debt market or immediate external financing needs, the size of the crisis and associated financing needs forced public entities and the Nation to implement substantial changes in their income and expenditure structures, as well as in their debt levels. For the national government, the financing strategy has consisted of progressively diversifying and maximizing, to the extent warranted, internal and external sources of financing in the best possible way, within which loans with multilateral and bilateral financial organizations have played a very relevant role to ensure sufficient liquidity required for economic activity to be maintained and/or reactivated while aiming for the stability of the local financial market. Notwithstanding the foregoing, as of May the economy has shown important signs of reactivation, with special protocols for each industry, and by 2021, we plan that it will return to 2019growth levels. Additionally, we are already adopting measures to increase the current income of the national government and to reduce public debt and public spending (mainly spending associated with the


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emergency). This will allow us to resume the parametric calculation of our fiscal rule in 2022, that today is suspended. Our country has worked constantly and responsibly, throughout its history, to maintain a solid macroeconomic and fiscal framework, through policies such as the adoption of an inflation targeting regime, a flexible exchange rate, and compliance with a fiscal rule, which we hope will continue to result in stability and confidence in our economy in the short-, medium- and long- term. National Development Plan 2018 - 2022 "Pact for Colombia, Pact for Equity" Pact for Transport and Logistics for competitiveness and regional integration: The Pact for Transport and Logistics for competitiveness and regional integration within the National Development Plan 2018-2022, has as one of its pillars the construction of a Sustainable Urban-Regional Mobility for Equity, Competitiveness and Quality of Life, considering the benefit for all players with a perspective of defense of the general interest. Additional objectives include the reduction of travel times and costs through the efficiency and integration of transport modes (air, maritime, river, rail and road) and the identification of new financing alternatives, such as Public Private Partnerships (PPPs), which contribute to the development of infrastructure and transportation at the regional and local level. The main objectives to meet this goal, are: 1) to promote passenger and cargo transportation alternatives that minimize congestion, accidents and pollution, strengthening active mobility, infrastructure and efficient use of private cars; 2) strengthen mobility planning and regulation instruments, through the implementation of mobility plans and; 3) construction of new infrastructure that reduces travel times between the different modes of transport and improves the provision of transport services. Likewise, this roadmap emphasizes the need to strengthen passenger transport systems as an essential public service that meets the needs of users and contributes to the effective enjoyment of citizens' rights, through financing mechanisms. However, the State of Economic, Social and Ecological Emergency throughout the national territory decreed by the President of the Republic of Colombia, through Decree 417 of 2020, resulted in a decrease in tariff income from transport systems of up to 80% in some cities. For this reason, and to alleviate this external shock, in addition to continuing to strengthen mass systems, the National Government issued Decree 575 of 2020 which authorized to include the operating expenses of mass transportation systems within the elements co-financed by the National Government, within the framework of the co-financing agreements that have been in place for more than 20 years. This administrative act extended the sources of financing of the transport sector with credit operations that managing entities of the massive systems may carry out with guarantees issued by the National Guarantee Fund for the maximum score allowed. Additionally, in order to facilitate the transportation of food and necessities, the collection of tolls on concessional and non-concessional roads was suspended. Taking into account the above, through Decree 768 of 2020, the possibility of re-enabling the collection of tolls as of June 1, 2020 was raised; as well as, to compensate the effects of the non-collection of tolls through a time extension. Thus, these measures are intended to reduce the negative shock that the COVID-19 pandemic has brought to the country's public transport systems.


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Pacts for productivity and equity in the regions The Pact proposes the development of "Intermodal Strategic Corridors”: national and international transport network, logistics nodes and modal efficiency" with the objectives of: 1) development and promotion of the Transport Master Plan, towards efficient inter-modality; 2) reactivation of rail transport as an engine of development of the regions; 3) implementation of the Fluvial Master Plan, in order to develop and promote the advantages of the mode in an intermodal transport scheme; 4) implementation of the port policy: safe maritime accesses and port nodes adapted to the challenges of foreign trade and strengthening of the Colombian port system and its maritime accesses; and 5) development of policies, plans, programs and integrated projects in aeronautical and airport infrastructure, transport and logistics for the air sector. The previously proposed objectives are complemented by the pillar of "Financial Innovation and Mobilization of New Payment Sources" which aims to promote the development of alternative payment sources to fund transport projects and help make the different initiatives viable that require additional resources for implementation. Within this pillar fall the reinvestment of recovery collection resources, residual values, among others, which aim to leverage new infrastructure for the provision of public transport service. COVID-19 has had impacts on the levels of use of transport infrastructure, particularly the decrease in traffic in road concessions. In March 2020 there was a usage fall due to the impact of the pandemic of the order of 13 million vehicles compared to about 18 million in 2019. In the month of April 2020, a sharp drop of the order of 6 million vehicles was evidenced, approximately 65.54%, compared to April 2019. For its part, air traffic in Colombia began the year exceeding the number of passengers transported in the same period of the previous year. Likewise, cargo exceeded the load transported in the month of February vis-à-vis the previous year. Aerocivil reported growth data for the month of February of 13.75% and 11.39% in passengers and kg of cargo transported respectively compared to the same month of 2019. After this, and given the provisions of different governments on the occasion of the pandemic (in which the transport of passengers was restricted in different countries, and more restrictive operating conditions were imposed on cargo transport). Despite continuing to operate, cargo is also affected by the economic impacts of COVID-19, showing reduction of 21.1% during the month of March compared to February and 25% compared to the same month of the previous year. For the month of April, an even more drastic change can be observed as a consequence of the decrease in human operations and cargo operations, causing reductions of over 99% in passengers and 27% in cargo transported by April. Finally, according to information presented by the national transportation agency, with information reported in the National Transportation Supervision System - VIGIA, SIGT module, in accordance with the provisions of Resolution 4819 of 2017 of the agency (cut-off date April 6, 2020), it is reported that the total movement of cargo during the month of March 2020, totaled 15.4 million tons of port traffic cargo, observing a decrease of 11% compared to 2019. Regarding the imported and exported cargo, a total of 10.5 million tons of moved cargo is registered for export, which is equivalent to a decrease of 6% compared to the previous year. Likewise, 3.2 million tons


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were mobilized for imports, which is equivalent to a reduction of 5% compared to the previous year. Pacts for sustainability in social and productive development This refers to the policy actions of four agreements that include the following objectives: 1) application in all productive sectors of the idea of explicit respect for the environment; 2) energy as a fundamental pillar to promote competitiveness and well-being for all; and 3) the mining-energy sector aimed at building a socially and environmentally responsible future. This set of measures is conceived as a package of integrated actions to guarantee the energy transition in the country, without discriminating or neglecting the participation of entities, associations, unions and legal and / or natural collaborators.

The policy actions that aim to strengthen the implementation of reconversion actions and development of sustainable production processes in the agricultural, transport, energy, industry and housing sectors, incorporate a close commitment to environmental management and the mitigation of climate change and to the operation within the framework of a modern environmental institutional framework in which there are sustainable and efficient productive alternatives, guaranteeing the reduction of greenhouse gas emissions. Specifically, the clean mobility initiatives to advance are: 1) increased entry of clean vehicles, for which a strategy will be formulated and implemented to promote sustainable transport in road, rail and fluvial transport ways, considering the infrastructure for its operation and including financial instruments for its development; 2) incorporate clean vehicles in public transportation systems co-financed by the Nation; and 3) optimize the tariff reduction procedure for the clean vehicles imports. This, added to the promotion of competitive and quality passenger transport systems, through measures such as: 1) review of the co-financed elements by the Nation to increase the quality of provision service, through the technological advancement of media with zero and low emission standards; and 2) promotion of alternative sources of payment to the tariff for the operation, which allow to implement the technological advancement of media with zero and low emissions standards. The 2018-2022 National Development Plan established the indicator "Electric vehicles registered in the RUNT", starting with 1,695 in 2018, with a goal of reaching 6,600 vehicles registered as of 2022 (as of December 2019 there was already a record of 3,430 in the Unique National Traffic Registry (RUNT). The earlier will be achieved thanks to the enactment of the Law 1964 of 2019, which promotes the use of vehicles electricity companies in Colombia, as well as the launch of the "National Electric Mobility Strategy (ENME)". Despite COVID-19, in 2020 the market of the zero and low emission vehicles has been growing compared to the previous year, thus, it is considered that electric mobility (assembly, auto parts, among others) can generate a series of productive chains that can support the economic reactivation of the country. On the other hand, the promotion of the efficiency of public services stands out, through an efficient and modern infrastructure. The main actions undertaken have been aimed at: 1) strengthening the targeting of the subsidies assigned to energy users; 2) develop energy efficiency projects that mainly benefit low-income users; 3) increase the use of new technologies so that users and companies have information in


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real time to make better decisions, where the Infrastructure Advanced Measurement (AMI) will play a fundamental role, allowing users of this service to identify the behavior of daily consumption, facilitating access to hourly rates. Finally, the national government has committed to expand the energy generation park to Non-Conventional Renewable Energy Sources (FNCER). This would be complemented with the installation of new 45 MW batteries storage capacity in, in order to facilitate the integration of the system with non-interconnected areas. In this sense, the Ministry of Mines and Energy will establish the guidelines to incorporate energy storage systems in the electrical system, it will define a mechanism for the active management of demand; and, in addition, it will harmonize the integration of these technologies in the wholesale energy market, which will make it possible to increase generation with non-conventional renewable energies. The programmatic DPF series Taking into account the development objectives outlined above, the policy actions around which the loan series was structured compile measures that the Republic of Colombia has been working on in three areas: (i) Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19; (ii) Resilient and Sustainable Infrastructure for Recovery from COVID-19; and (iii) Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19. The first pillar of the framework supports specific and temporary measures to support utility companies and concession contracts and PPPs facing financial stress as a result of COVID-19, thus allowing, among others, to alleviate pressures on infrastructure projects in roads and airports in which the demand has decreased substantially, give continuity to access to critical infrastructure for companies and households, including the poor and vulnerable population, also supporting the continuity of the service of urban public transport systems in the seven main cities of Colombia. Regarding public policies that support an accelerated recovery from the crisis generated by COVID-19, through a resilient and sustainable infrastructure, the prioritized actions are those that have been aimed at: (i) increasing sustainability, resilience and the efficiency of the energy sector to increase the share of non-conventional renewable energy (NCRE) in the generation mix, promote digitization, decentralization, demand management and access to electricity; and (ii) introduce measures to green and increase the efficiency and competitiveness of the logistics and urban mobility sectors Finally, regarding the measures adopted for fiscal management and infrastructure financing, the third pillar focuses on: (i) improving the risk management framework from the structuring and during the execution of infrastructure projects. This strategy is key for the development of infrastructure through concessions and PPPs, since its main objective is to mitigate the fiscal impact to which the Government of Colombia is exposed to the development of these large projects and in turn stimulates the interest of the investors and funders; (ii) mobilize private and long-term financing for the development of infrastructure through innovative financing models, eliminating regulatory obstacles, which will allow the participation of institutional investors that will be able to finance the mega infrastructure projects that are a fundamental basis for the recovery of the levels of economic growth; and iii) the mobilization of new


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sources of financing such as the creation of the Fund for Alternative Sources of Infrastructure Payment (FIP), which groups resources from the residual value of concessions and recovery charges. The purpose of the aforementioned fund is to leverage new infrastructure, without generating fiscal pressure and with clear incentives for the development of new financing structures, which will allow the intervention of new national and international participants in civil works investments that will contribute to the growth of the economy. With the implementation of the policy actions that are presented in this programmatic DPF series, we hope to have addressed the different aspects in our economic situation, current challenges, as well as some of the intersectoral measures that we have implemented to respond to the effects derived from the COVID-19 pandemic and the process of economic reactivation of the country in terms of infrastructure. Given that it is a permanent effort, which requires constant and real-time adjustments, and that there is still a long way to go in this matter, we hope to continue holding an open dialogue with the World Bank Group within the framework of this programmatic DPF series, by virtue of which we can continue to benefit from the transfer of knowledge, technical assistance and exchange of experiences that the World Bank has made available, with a view to consolidating the opportunity, relevance and effectiveness of the responses created for all Colombians and residents in our country. It is for this reason that for the near future we plan to continue advancing in an ambitious reform agenda that complements the efforts to recover our path of sustainable economic growth, the competitiveness of the economy and the improvement of the population's quality of life, which includes the filing of a bill in the Congress of the Republic on clean growth and sustainable development, advance in the electrical interconnection of the entire national territory, improve efficiency in energy consumption and continue to strengthen the institutional and financing framework of the PPPs, among others. We would like to thank again the World Bank Group for its support to our country with additional and agile financing in this challenging situation for Colombia and the world. Sincerely yours, ALBERTO CARRASQUILLA LUIS ALBERTO RODRIGUEZ Minister Director Ministry of Finance and Public Credit National Planning Department


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ANNEX 4: POVERTY AND SOCIAL IMPACT ANALYSIS

1. This Poverty and Social Impact Analysis (PSIA) provides an analysis of the potential effects on poverty and inequality of the interventions supported by the proposed DPF series. Because of the ex-ante nature of this assessment, the PSIA analyses the expected impact of the DPF series prior actions or indicative policy triggers, which include, for instance, the extent to which welfare gaps between regions or socioeconomic groups are closed; the distribution of beneficiaries––poor vs. non poor––benefiting from local public investment; or the numbers and poverty condition of those disproportionately impacted by a particular action. The PSIA also distinguishes direct from indirect effects and, when relevant, short from long run effects. The analysis is based on assumptions regarding the theory of change for each prior action or indicative policy trigger discussed in the Program Document and the extent to which these actions and indicative policy triggers are effectively implemented. In addition, the PSIA specifically discusses the gender impact of these actions where possible. 2. The COVID-19 pandemic has created an unprecedented crisis in Colombia and elsewhere around the globe that merits careful treatment in this analysis. In addition to potentially catastrophic health consequences, the welfare impact of the pandemic is likely to be widespread and long-lasting. GDP is expected to contract by 4.9 percent in 2020. The increasing inability to generate earnings and use effective coping mechanisms among the unemployed and informal workers is an immediate and serious concern. The final impact of the crisis on poverty and equity will depend on the duration and severity of the outbreak, and actions undertaken to curb its spread in Colombia. It is very likely that the impact of the crisis on jobs is of such magnitude that they may reverse the gains in poverty reduction in Colombia achieved over the past decade.

3. Microsimulations estimate that 67.2 percent of the country's employed, or 15,088,290 people, will not be able to work as a result of the COVID-19.84 Of these affected workers, an estimated 9.5 million (two-thirds) are not insured (i.e. pensions and/or health) or affiliated to compensation funds. The estimated poverty impact of COVID-19—without any compensation measures—ranges between increases of 3.0 to 9.1 percentage points (pp) in headcount poverty rates.85 This impact translates into an estimated 1.5 to 4.4 million additional people becoming poor, including between 51,000 to 174,000 workers from the energy and transport sectors.86, 87

84 Cuesta, Jose and Julieth Pico (2020). Simulaciones efectos del COVID-19 y políticas de mitigación en Colombia, PowerPoint presentation to Mesa de Equidad de Colombia (May 2020). 85 The baseline scenario, which consists of a three-month period of crisis, a 50 percent drop in labor incomes among impacted workers, immediate recovery after COVID-19, and no mitigation policies, suggests increases in extreme poverty of 0.9 pp and 3.0 pp in total poverty. Allowing for a larger income loss of 100 percent of pre-COVID-19 labor incomes over the period increases the estimated poverty headcount by 2.1 pp. and 6.4 pp. for extreme and total poverty, respectively. Allowing for a gradual recovery of three months will increase the poverty headcount by 1.3 and 4.1 pp for extreme and total poverty, respectively (assuming a 50 percent income loss; and 3.5 and 9.1 pp increases in extreme and total poverty respectively if the income loss reaches 100 percent of pre-COVID-19 earnings. This is explained in Cuesta and Pico (2020). 86 See Cuesta and Pico (2020). 87 The baseline scenario, which consists of a three-month period of crisis, a 50 percent drop in labor incomes among impacted workers, immediate recovery after COVID-19, and no mitigation policies, suggests increases in extreme poverty of 0.9 pp and 3.0 pp in total poverty (see table A41 below). Allowing for a larger income loss of 100 percent of pre-COVID-19 labor incomes over the period increases the estimated poverty headcount by 2.1 pp. and 6.4 pp. for extreme and total poverty, respectively. Allowing


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4. Mitigation policies are expected to reverse the initial poverty impact of COVID-19 significantly. COVID-19 related mitigation policies implemented in Colombia include: (i) increased payments for social programs (Mas Familias en Acción, Colombia Mayor; and Jóvenes en Acción); (ii) VAT refund to approximately 1,000,000 Colombian families; (iii) Solidarity Income; (iv) Early Childhood Feeding Program; (v) food baskets to the most vulnerable population; (vi) payroll subsidies; (vii) credit lines; (viii) bonus subsidy; and (ix) suspension of social security contributions. The overall impact of all measures considered together is 2.16 pp (total poverty) with respect to the baseline of a 3-month lockdown, immediate recovery and 50 percent income loss per worker in a sector impacted by the lockdown. The impact of each compensation policy considerably varies. Más Familias en Acción and solidarity income reduce poverty by between 0.3 and 0.8 pp each. By contrast, the other two cash transfers, and the equivalent monetized transfer from food baskets and early childhood development programs have a less marked impact, mostly as a result of the limit on the duration of the program, the size of the compensation or both. Cuesta and Pico (2020) discusses the mitigation interventions and methodology to simulate their poverty reduction impact. 5. In this context, this PSIA analyzes the poverty and distributional effects of the prior actions or indicative policy triggers supported by this operation and the extent to which these effects help reverse the social impact of the pandemic. Under Pillar 1, Prior Action 1 provides the necessary liquidity support to utilities to mitigate the financial losses from the 36 months payment deferrals for electricity and water bills established by Decrees 517 and 528. As such, the PSIA estimates the annual indirect impact of this measure as a reduction in the projected annual utility payment of approximately 14 percent for households in socioeconomic strata 1 and 2, the poorest of the country. This results from subtracting 2 months from the annual bill and adding the deferred payment of 1/36 of those two months from July to December 2020. This leads to a household paying the equivalent of 10.33 months in 2020. In other words, the measure has an impact of reducing the payment of 1.66 months in the year or a reduction of 13.83 percent of the pre-COVID annual bill. 6. The two-month payment suspension of utility bills (electricity, gas, water and sanitation) is estimated to reduce total poverty by approximately 0.4 pp or 200,000 individuals. The resulting lower annual expenses in utility bills would lead to lower expenses for poorer households. This is equivalent to additional disposable incomes for households in strata 1 and 2 of COP 446,799 (or USD 119). Table A4.1 confirms that those effects do not considerably change across scenarios of income losses (50 vs 100 percent income loss) and recovery from the pandemic (immediate recovery after three months or a three months recovery after the initial three months of the pandemic). The measures were later extended for one month in the case of electricity bills and 2 months for water bills. Each additional month of payment suspension is expected to reduce poverty an additional 0.2 pp or 100,000 individuals more lifted from poverty.

for a gradual recovery of three months will increase the poverty headcount by 1.3 and 4.1 pp for extreme and total poverty, respectively (assuming a 50 percent income loss; and 3.5 and 9.1 pp increases in extreme and total poverty respectively if the income loss reaches 100 percent of pre-COVID-19 earnings. This is explained in Cuesta and Pico (2020).


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Table A4.1: The Impact of deferral on utilities bills on Extreme and Total Poverty (At scenarios involving no policies)

Baseline

scenario with COVID-

19

Larger income loss impact Gradual recovery

50% income loss;

immediate recovery

100% income loss;

immediate recovery

50% income

loss

100% income loss

Total Poverty 30.0 33.4 31.1 36.1 Impact on total poverty headcount

- 0.42 - 0.43 - 0.44 - 0.47

Number of people leaving of poverty

- 201,541 - 211,080 - 212,714 - 224,308

Source: Authors’ simulations using Gran Encuesta Integrada de Hogares (GEIH) 2018 7. The prospective socioeconomic benefits of prior actions and indicative policy triggers in Pillars 2 and 3 are multiple in nature and benefit multiple population groups. These prior actions are qualitatively screened for their effects on poverty and inequality due to the difficulty of estimating the impact of interventions that need to be defined in the future (e.g. the impact of unknown specific investments in PPPs that increased resources or of legislation that will be implemented in the future). A mapping of the effects of prior action on poverty and inequality is presented in Table A4.2. The assessment considers a wide range of channels from which the proposed prior actions and indicative policy triggers are expected to impact the poverty conditions of individuals and households. The transmission channels of the actions and indicative policy triggers include:

A. Declining energy expenditures without quality deterioration88 B. Reduction in local financial risks (of investment projects or energy and transport systems) C. Increased national capacity to finance PPP investments D. Increased efficiency (for example, from lower transportation costs or lower energy

generation or transmission costs) E. Increased mobility options F. Reduced pollution89 G. Increasing jobs opportunities

8. A number of Prior Actions supported under this DPF series have a positive impact on the poor

88 Part of the lower prices can be explained, for instance, from a lower component of generation in the electricity tariffs due mostly to lower generation cost in periods of low hydrology. This could lead to a lower tariff once NCRE enter in operation. 89 Reduced pollution may accrue from increased generation from NCRE and a renewed freight, including electric vehicles, that are expected to reduce pollution.


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and vulnerable through improved economic efficiency, sustainability and financial resilience of service delivery, without a reduction in reliability or quality of service provision. Specifically, these benefits accrue from Prior Actions 2, 3, 4, 5, 6 and 8. These effects are positive for the poor and vulnerable to the extent that they increase the access of the poor to the services. For example, Indicative Policy Trigger 2 would enable access to electricity services in non-interconnected areas for populations currently without electricity supply. Currently, approximately 500,000 households do not have access to electricity in Colombia. Another positive effect of these Prior Actions and Indicative Policy Triggers is that they prevent both the water the energy sectors from serious deterioration in the quantity and quality of service. This is of most relevance in the context of COVID-19 where a guaranteed basic quality of service in electricity and water services is essential to prevent contagion. Prior Actions will also benefit the poor through reduced expenses and time spent in transport. Further, it is estimated that each one pp increase in the price of energy that is prevented can reduce poverty by 0.01 percent points (or 5,000 individuals), with benefits accruing directly to strata 1 and 2 households.90 These benefits are expected to be long-lasting. Indicative Policy Triggers 1 and 3 will also contribute to prevent prices from increasing by facilitating more efficient investments in energy and a better cost management by providers. Similarly, the improved financial sustainability of the transport system through changes in conditions of concessions supported on Prior Action 3 are expected to benefit employment by way of increased investments in road construction and maintenance associated with those concessions. 9. Other positive benefits from the proposed Prior Actions and Indicative Policy Triggers include improved mobility (when allowed after the lockdown) and increased job opportunities. These benefits would be accrued from Prior Actions 2, 7 and 8. Improved mobility is eventually expected both within cities but also across departments. Diverse population groups in both urban and rural areas and across departments are likely to benefit. Increased and affordable mobility from improved public transportation allows the poor and vulnerable to expand their economic opportunities by connecting them to new market opportunities. This is particularly the case for improvements in rural-to-urban mobility.91 An estimated 1 percent point increase in national employment will cover all workers in the transport and energy sector that have become poor as a result of COVID-19. According to a recent study by the International Labor Organization, lack of access to safe transport is one of the main barriers for women to access economic opportunities, reducing their participation by 15.5 percent.92 Public transportation have potentially significant additional and disproportionate benefits for lower-income groups. In Colombia, public transport commuters are disproportionately lower income. For example, the 2019 Bogota Mobility Survey found that in income strata 1 and 2, trips are mostly done by walking (22 to 32 percent) and TransMilenio (18 to 24 percent) and the feeder bus system (15 to 18 percent). Higher strata residents predominately commute by automobile, taxi and informal transportation.93 Furthermore, women generally use public transport more and use cars less. As such, improvements in public transport benefit them significantly and disproportionately, creating access to more economic opportunities and exposing them to lower levels of pollution.94

90 PHC and World Bank (2020). Impact Assessment of COVID-19 Pandemic on Colombia’s Energy Sector. PHC-095-20. Inception Report. 91 World Bank 2016. Poverty and Shared Prosperity 2016: Taking on Inequality. 92 World Employment and Social Outlook: Trends for Women 2017: International Labor Office – Geneva: ILO (2017). 93 World Bank (2019) Encuesta de Movilidad 2011: Indicadores Preliminares. Bogota: World Bank. Accessed at: https://www.movilidadbogota.gov.co/web/sites/default/files/Paginas/22-04-2020/20191216_presentacion_encuesta_v2.pdf. 94 World Bank (2020). Why Does She Move? A Study of Women’s Mobility in Latin America. Washington DC: World Bank. Accessed


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10. Few Prior Actions are expected to only have an indirect impact on poverty and inequality. This is the case for Prior Actions focused on institutional reforms and improving the regulatory framework to reduce financial risks and increase investment capacity. These include Prior Actions 1, 2, 3, 4, 5, 7, 9 and 10. The poverty and distributional impact of these measures will ultimately depend on two aspects: (i) the public goods they generate; and (ii) fiscal savings gains generated to enable spending in social programs and/or additional investments. First, public goods like improved safety roads and reduced GHG emissions will benefit all citizens (i.e. the poor, vulnerable and others at higher socioeconomic groups). To the extent that the poor also benefits, these interventions will be most likely equalizing in the longer-term. Secondly, broader fiscal space benefits poverty and inequality to the extent that those additional resources can be destined to welfare objectives. However, these remain unknown at this stage and cannot be determined a priori. What can be safely assumed is that any additional fiscal space made available by these Prior Actions well partially contribute in the short term to the enormous fiscal effort of GoC to combat the socioeconomic consequences of COVID-19. This fiscal effort is currently estimated at COP 11,219 billion or USD 2.99 billion95 through multiple compensatory mechanisms to address the pandemic as discussed above. 11. From a distributional point of view, multiple population segments will benefit from the Prior Actions of this DPF operation. This is to be expected from the multiple channels through which these measures affect poverty and inequality. It is also a reflection that some measures will benefit specific groups while others (i.e. public goods) will likely affect entire communities and groups. Overall, populations groups expected to benefit from the prior actions of this DPF operation include low-skilled workers; the urban poor; the rural poor; residents in poorly connected and lagging areas. Women are also expected to be benefited from this operation, especially from those measures that reduce transport time and connect them to the labor market. Table A4.2 below maps each Prior Action with each population group directly benefiting from that action.

Table A4.2. Expected Poverty and Distributional Effects of DPL 1 Prior Actions

Poverty/distributive

impact of the prior action Expected Poverty and Distributional Impact

Impacted population groups

Pillar 1: Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19 Prior Action 1: The Republic of Colombia has established a concessional liquidity line of credit through Findeter for public service companies, including in the electricity and water and sanitation sectors, through December 31, 2020, to mitigate the financial impact caused by targeted tariff deferrals directly linked to COVID-19, as

[B] Reduction in local financial risks, ultimately avoiding the system from serious increases in cost of services and/or ultimately from collapsing.

Consumers benefit from continued access to and quality of basic electricity and water services as a result of the financial viability of utilities and service

All consumers, including those in poorer and vulnerable strata, both urban and rural.

at CITIEShttp://documents.worldbank.org/curated/en/276931583534671806/Why-Does-She-Move-A-Study-of-Womens-Mobility-in-Latin-American-Cities. 95 DNP (2020) Estrategia de Mitigación de los Efectos de la Pandemia del COVID-19 sobre la Salud Publica, los Hogares y el Aparato Productivo. DNP: Bogota-Colombia; and Cuesta and Pico (2020).


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authorized by Legislative Decree No. 581 dated April 15, 2020 and published in the Official Gazette on April 15, 2020 and in accordance with the terms and conditions set forth in Findeter's website at https://www.findeter.gov.co/creditodirecto/ servicios_publicos.html.

providers as a result of the measure. Each increase of 1 percent in the price of energy prevented from taking place is estimated to prevent poverty increases by 0.01 pp of poverty or 5,000 individuals.

Prior Action 2: The Republic of Colombia has established measures to support the public transport system during the state of emergency, including: (i) providing the legal basis for municipalities to amend concession contracts under the principle of financial sustainability; and (ii) allowing the National Government to co-fund operation costs for mass transit systems, as evidenced by Legislative Decree No. 575 dated April 15, 2020 and published in the Official Gazette on April 15, 2020.

[B] Reduction in local financial risks associated with concessionaries [E] Increasing mass-transport mobility opportunities [G] Increasing jobs opportunities

(1) Reduction in commuting time for public transport users – which are predominantly among the poor and the bottom 40 population – will have positive effects on poverty and inequality reduction (as the poor typically have longer commute distances on average compared to higher income quintiles, and are less likely to have access to a private vehicle); and (2) Expected new hires associated with investments maintenance associated with continued sustainable operation of increased concessions.

(1) All public transport users, particularly those in marginalized or lagging areas in the periphery; and (2) Low skilled workers associated with construction and maintenance of transport related services.

Prior Action 3: The Republic of Colombia has allowed to extend in time PPPs and concession contracts, beyond the limits under current regulations, to restore the loss of financial balance of projects, resulting from the non-collection of tariffs and tolls linked to the COVID-19 emergency measures, as evidenced by Legislative Decree No. 768 dated May 30, 2020 and

[B] Reduction in local financial risks associated with concessionaries [C] Increased national capacity to finance investments from concessions

Effects on poverty and distribution will accrue from (i) avoiding job losses on projects that become viable after these measures; (ii) job creation resulting from projects

Beneficiaries include the poor from increased job opportunities; and continuation of services without increases in prices. Improved road safety will benefit all users,


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published in the Official Gazette on May 31, 2020.

successfully financed via sustainable concessions; and (iii) increased road safety.

the rich and the poor, as it is a public good.


Prior Action 4: The Republic of Colombia has introduced a mechanism to promote long-term NCRE Power Purchase Agreements (PPA) through a double-sided auction process to reduce power market concentration, spur the development of NCRE in the country and promote the entrance of new energy sector actors, as evidenced by Resolution No. 4-0590 of the MME dated July 9, 2019 and published in the Official Gazette on July 9, 2019.

[D] Increased efficiency and resilience of the energy sector (from lower energy costs, more competition and new entrants). [G] Reduced pollution [H] Increased job opportunities

A more efficient, cleaner and a more resilient energy sector to weather shocks (including el Nino) will have a positive impact on the reliability and affordability of energy supply; contribute to reduce GHG emissions, helping Colombia meet its NDC targets. Also, as the NCRE industry in Colombia matures from its still nascent stage, this measure will help deploy the NCRE market and create new opportunities for green jobs.

All electricity consumers, including those in the poorest and vulnerable strata.


[D] Increased efficiency and reliability of electricity supply (reduction in the average hour of power outrages) [G] Reduced pollution

More reliable clean energy, will contribute to less energy blackouts especially in those area with poor transmission and distribution systems.

Urban and rural consumer (especially in areas with poor transmission and distribution infrastructure)

Prior Action 6: The Republic of Colombia has updated its national logistics policy to reduce logistics costs and improve efficiency of foreign trade operations, including through the issuance of guidelines for coordinated investments in: (i) multimodal infrastructure, particularly promoting rail

[D] Increased efficiency (lower transportation costs).

Lower transportation costs may have positive effects in terms of increased product supply and variety, which could result in lower prices

All domestic consumers, including the poor.


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and fluvial modes and specialized logistics infrastructure; and (ii) exports and import processes, particularly in capacity, access and digitalization of foreign trade terminals, as evidenced by CONPES document No. 3982 of January 13, 2020.

of imported goods (foods and consumer products) consumed by the residents, including the poor. Also, it may increase the competitiveness of exports, especially those of low skill composition where transport costs are more relevant on total costs (e.g. agriculture and manufactures)96

Prior Action 7: The Republic of Colombia has enacted the Electromobility Law, which promotes the use of electric vehicles (both for public transit and private use) through financial and non-financial incentives, in order to contribute to sustainable mobility and the reduction of greenhouse gas emissions, as evidenced by Law 1964 dated July 11, 2019 and published in the Official Gazette on July 11, 2019.

[F] Reduced pollution [E] Increasing mass-transport mobility opportunities [G] Increased jobs opportunities

Increasing affordable (and clean) mobility options for the poor and vulnerable in urban contexts increases income earning opportunities for the poor as well as improving social inclusion prospects of marginalized areas

Urban poor/vulnerable Women (by improving labor supply options)


[D] Increased efficiency (lower transportation costs) [E] Increased mobility options [G] Increasing jobs opportunities

No direct effects on poverty or distribution from updated schemes, frameworks and guidelines. Indirectly, a more efficient system that allows increased mobility options for the population is a global public good that reduces transportation time. The reduction in transportation time for public transport users, which are predominantly among the poor and the

All public transport users, particularly those in marginalized and lagging areas in the periphery of urban areas.

96 As indicated in this document, logistics costs are estimated at 13.5 percent of total sales (i.e. 17.3 percent for small firms and 38 percent of sales for firms dedicated to export and import activities), compared to 9 percent for OECD countries.”


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bottom 40 population, will have positive effects on poverty and inequality reduction as the poor typically have longer commute distances on average compared to higher income user, and are less likely to have access to a private vehicle.

Pillar 3: Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19 Prior Action 9: The Republic of Colombia has updated the methodology for evaluating contingent liabilities in infrastructure projects with an application in the transport sector, as evidenced by Resolution No. 4859 of the MHCP dated December 23, 2020 and published in the Official Gazette on December 27, 2019.

[C] Increased national capacity to finance PPP investments

Indirect effects on poverty or distribution that will come from a more efficient use of fiscal resources and better planning. This would have a potential effect on greater certainty of fiscal resources for other critical government social programs.

The poor to the extent that improved fiscal space can be channeled to them.


[C] Increased national capacity to finance PPP investments

Indirect effects on poverty or distribution; more efficient in use of fiscal resources for infrastructure thus freeing resources for other critical government social programs. Additionally, larger number of infrastructure projects to be implemented with a consequent positive impact on GDP growth, job creation and services to the population.

The poor to the extent that improved fiscal space can be channeled to them.

Source: Authors


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12. In conclusion, the Prior Actions and Indicative Policy Triggers supported by this DPF series are likely to have an overall neutral to moderate positive effect on poverty and neutral effects in distributional terms in the foreseeable future. Even though it is not possible to quantitatively determine with precision the actual direct impact on poverty, the Prior Actions supported under this program are expected to have a positive to neutral indirect impact on poverty reduction due to the tariff deferrals enabled by the support to utilities (PA1), that in turn prevent expenditures in energy from rising; increase efficiency in energy and water service provision; increased individual mobility; more financially sustainable public services; and increased fiscal space. These will ultimately increase job opportunities and prevent the energy and transport systems from collapsing at a most needed time of COVID-19 related recovery. Some benefits from the program are public goods (i.e. improvements in road safety and reduction of GHG emissions), thus benefitting everyone. This complements the poverty reduction effects that COVID-19-specific mitigation policies are playing in substantively limiting the initial negative poverty and equity impact of COVID-19. In other words, this PSIA concludes that Prior Actions and Indicative Policy Triggers supported by the proposed DPF series would first contribute to mitigate the effects of COVID-19 through, for example, improving mobility and creating jobs opportunities. Second, by improving fiscal space it will also reinforce the positive benefits of implemented mitigation policies.


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ANNEX 5: ENVIRONMENT AND SOCIAL ANALYSIS TABLE

Medium-term

Objective Prior actions

Potential significant positive or negative environment impact and risks (yes/no/to be determined)

Potential significant positive or negative social impact and risks

(yes/no/to be determined)

Pillar 1: Sustaining Access to Critical Infrastructure to Secure the Economy from COVID-19

Targeted and temporary support to utilities and PPPs facing financial strain from declining demand and payment deferrals

Prior Action 1: The Republic of Colombia has established a concessional liquidity line of credit through Findeter for public service companies, including in the electricity and water and sanitation sectors, through December 31, 2020, to mitigate the financial impact caused by targeted tariff deferrals directly linked to COVID-19, as authorized by Legislative Decree No. 581 dated April 15, 2020 and published in the Official Gazette on April 15, 2020 and in accordance with the terms and conditions set forth in Findeter's website at https://www.findeter.gov.co/creditodirecto/servicios_publicos.html.

Bottom-line assessment: Positive All identified environmental effects are positive. Positive Environmental Impact: Yes The measure will provide access to necessary liquidity for water and electricity service providers to face the tariff deferral measures approved in decrees 517 and 528 of April 2020. The measure will enable water and electricity utilities to maintain a continuity of service to users and continue with essential routine maintenance activities in their facilities which would include protocols for sustainable management of natural resources in utility operations. Utilities facing cash flow issues and not investing in maintenance of critical infrastructure, may lead to operational inefficiency and increased technical losses detrimental to the environment. This measure would help to assure the quality and the quantity of services required. Potential Negative Environmental Effects: No

Bottom-line assessment: Positive All identified social effects are positive. Positive Social Impact: Yes The measure will support the continuity of supply and community access to essential water and sanitation services, particularly access to services for the most vulnerable populations during the period of the emergency and confinement under quarantine measures. These services – particularly water supply and sanitation – are further critical in the context of COVID-19. Utilities facing cash flow issues will invest less in critical infrastructure maintenance, which may lead to higher technical loses, and in the case of electricity sector also to higher number of electricity blackouts (these are expected to affect mostly vulnerable communities since they are usually equipped with poorer distribution networks). This measure would indirectly help reduce the use of wood for cooking as a cheaper energy source, thus helping reduce potential negative health effects of firewood burning such as respiratory and heart diseases, lung cancer, and eye irritations. This avoided negative impact will have a disproportionate positive impact for women who traditionally are in charge of cooking. Negative Social Impact: No

Prior Action 2: The Republic of Colombia has established measures to support the public transport system during the state of emergency, including: (i) providing the legal basis for municipalities to amend concession contracts under the principle of financial

Bottom-line assessment: Positive The environmental effects identified for this PA are positive as positive potential effects i outweigh probable negative effects. Positive Environmental Impact: Yes The measure provides economic support towards the continued operation of public transport services. The measure is primarily focused on providing funding and financing instruments that allow sustaining public transport operations in the COVID-19

Bottom-line assessment: Positive The overall balance of social effects is considered positive. Positive Social Impact: Yes The measure includes provisions to provide operating subsidies and other measures to ensure the continued operation of public transport services during the emergency and in the recovery phase. The measure will also enable public transit systems to maintain operations while complying with biosecurity


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Medium-term




(yes/no/to be determined) sustainability; and (ii) allowing the National Government to co-fund operation costs for mass transit systems, as evidenced by Legislative Decree No. 575 dated April 15, 2020 and published in the Official Gazette on April 15, 2020.

context. The continued operation of these systems both during the strict confinement period and its aftermath, will have the positive impact of mitigating the incentive of commuters to choose personally owned forms of transportation that would have a negative impact on GHG emissions, pollution, congestion and other related negative environmental impacts. By ensuring service continuity of formal public transport services, the measure prevents these operators from reducing or pausing operations, which would be covered by informal services, which, on average, are more polluting as they: (i) use a larger number of inefficient, smaller vehicle units; (ii) have less efficient vehicles with lower emission standards; and (iii) are subject to less controls, leading to potentially higher rates of crashes and mechanical malfunctions. By ensuring continuity of public service provision, the measure is expected to generate positive impacts in terms of resource efficiency and pollution prevention and management, as well as: - Reduction of energy source consumption,

as old fleets use outmoded engine technologies, which often require greater fuel quantities and reduced combustion efficiency;

- Improved air quality, through fuel quality requirements for new fleets, which commonly results in better combustion efficiency, reduction in heavy metals and emission of air pollutants such as Particulate Matter (PM), CO, CO2, SO2 and NOX.

- Reduction of noise pollution and greenhouse gas emissions and as such aligned with GoC’s climate change commitments; and

- Reduced human exposure to polluted air, reducing respiratory problems and related health issues.

Potential Negative Environmental Effects: Yes Potential environmental effects have been identified for this Prior Action. Article 3 of Decree 575 of April 2020 promotes the sustainability of the transport system based

and social distancing protocols. The measure is expected to have a direct positive benefit for users. First, users will benefit from the continued provision of affordable public transportation services. In the absence of such services, users (who are disproportionately poor, vulnerable and lower income) would have to incur the cost of other more expensive modes of individualized transport. This measure will benefit women in particular, since women use more public transport than men (in Bogota, 20.7 percent of women use conventional public transportation against 15.5% of men; and 17.1 percent for women use TransMilenio against 16.3 percent of men). Second, users will receive a direct public health benefit from the ability of public transport operators to maintain service with biosecurity protocols. Negative Social Impact: No While no negative social effects are expected, it is recommended that measures be taken to ensure that operators comply with necessary biosecurity and social distancing protocols. Public information campaigns could help educate consumers on the need for financial support to public transport systems given the need to maintain operations at higher capacity and cost to enable the implementation of biosecurity and social distancing requirements.


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Medium-term




(yes/no/to be determined) on quality of services and control of illegality. For this purpose, contractual modifications could be made to concession and operations contracts. The potential adverse impact can be addressed by avoiding that environmental management protocols in these contracts would be compromised in the course of contractual adjustments. Any potential relaxation of environmental management obligations in transport project concessions would generate a gradual deterioration of the environment.

Prior Action 3: The Republic of Colombia has allowed to extend in time PPPs and concession contracts, beyond the limits under current regulations, to restore the loss of financial balance of projects, resulting from the non-collection of tariffs and tolls linked to the COVID-19 emergency measures, as evidenced by Legislative Decree No. 768 dated May 30, 2020 and published in the Official Gazette on May 31, 2020

Bottom-line assessment: Neutral The environmental effects identified for this PA are neutral. Positive Environmental Impact: No Potential Negative Environmental Effects: No

Bottom-line assessment: Neutral The social effects identified for this PA are neutral. Positive Social Impact: Yes Restoring the economic balance of PPP and concession contracts would avoid potential termination of projects with a double impact on jobs: (i) avoiding job losses from terminated projects; (ii) job creation from positive impact on GDP growth of successfully completed projects. Negative Social Impact: No


Clean energy as a driver of COVID-19 recovery

Prior Action 4: The Republic of Colombia has introduced a mechanism to promote long-term NCRE Power Purchase Agreements (PPA) through a double-sided auction process to reduce power market concentration, spur the development of NCRE in the country and promote the entrance of new energy sector actors, as evidenced by Resolution

Bottom-line assessment: Positive Significant positive environmental effects were identified; negative environmental effects were identified as mitigable, considering the existence of environmental management instruments. Positive Environmental Impact: Yes The measure will have a positive impact on the reduction and mitigation of greenhouse gas (GHG) emissions and the improvement of air quality over the medium and long-term. The 1,347 MW of NCRE awarded under the energy auction will reduce GHG emission by displacing thermal generation. The

Bottom-line assessment: Positive The social impact identified for this PA is positive. Positive Social Impact: Yes The measure will have indirect positive benefits for communities where NCRE will be developed. Areas of high NCRE potential including, wind and solar, correlate with regions that are below median social-economic levels (i.e. the Caribbean Coast and the La Guajira peninsula). The development of projects in these areas will have a direct impact in terms of employment creation and poverty reduction. In addition,


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Medium-term




(yes/no/to be determined) No. 4-0590 of the MME dated July 9, 2019 and published in the Official Gazette on July 9, 2019.

measure further promotes the diversification of energy supply in the national energy mix, supporting GoC climate change adaptation goals, by promoting investment in new renewable resources infrastructure as alternatives for thermal and hydro (highly dependent on climate variability and weather) generation, encouraging more efficient use of energy resources in the short, medium, and long term. This is especially true during periods of severe drought (such as El Nino phenomenon), when thermal generation rises thus increasing also the overall GHG emissions of the system. NCRE can dispatch during periods of drought, displacing thermal generation and therefore contributing to a cleaner (less GHG emissions) and more resilient (less vulnerable to weather events) power sector. Further, the measure will promote decentralization of the energy market, generating power from renewable resources which can be produced in the places where they will be used. Particularly, in the case of photovoltaic power plants, where the resource is usually located near consumption centers, the need for construction and operation of high voltage lines for long distance power distribution would be minimized and reduce its associated environmental impact, as well as limiting surface uses within the safety area. Specific benefits include the avoidance of electrocution and collision of birds, improve landscape quality, reduce deforestation and removal of vegetative cover, and mitigate noise level increases. The measure will further promote resilience to climate change, resulting in an opportunity to adapt and absorb the environmental impact produced from climate change as well as local temperature changes due to alteration of the hydrological cycle and soil erosion. It will reduce the vulnerability of ecosystems and natural resources (water, air and soil) affected by exploitation of fossil fuels.

energy prices would not be subject to drastic changes due to prolonged droughts and are expected to go down due to the low prices achieved in the auction. Negative Social Impact: Yes Given that potential geographic location of possible NCRE projects in areas with significant presence of Indigenous Peoples, it will be important for projects to avoid a negative impact on communities. Specifically, an open, prior and informed consultation process, consistent with WB policies and Convention 169 of the International Labor Organization – ILO, is would be considered best practice. Based on previous experiences on NCRE projects in Colombia, most developers and investors are aware of the need to inform and engage local communities, and follow social international standards, such as the IFC Performance Standards.


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Medium-term




(yes/no/to be determined) Risk of a Negative Environmental Impact: Yes Potential environmental effects are expected from this prior action, including effects related to the construction of new infrastructure for energy production such as: (i) effects on bird migration routes and (ii) collisions of birds with machinery for wind power; (iii) need for large amounts of materials (either through import or extraction) for photovoltaics panels; and (iv) the need for large land area that could require deforestation or displacement of fauna, for Solar Photovoltaics. Colombia’s National Environmental Strategy and Legislation require specific terms and licensing processes depending on the type of project in the energy sector. Specifically, legislation focused on the Terms of Reference for the Environmental Diagnosis of Alternatives and for the Environmental Impact Assessment for different technologies, including solar photovoltaics, and wind (continental) generation projects would apply97. The bidding documents of the NCRE auction requires all projects to meet national and local environmental standards and guidelines.

Prior Action 5: The Republic of Colombia has established rules for the installation of energy storage systems with the purpose of mitigating bottlenecks caused by the lack of adequate transmission networks in the national interconnected system, allowing for the absorption of a larger share of NCRE in the energy mix, as evidenced by Resolution No. 098 of August 30, 2019 of the CREG and published in the Official Gazette on

Bottom-line assessment: Positive Significant positive environmental effects were identified. The PA includes legal instruments for environmental management. Positive Environmental Impact: Yes The measure will enable the integration of NCRE in the interconnected transmission network. It will promote the decentralization of the energy market, generating power from renewable resources which can be produced in the places where they will be used. This will relieve the need for the construction and operation of transmission lines in the national interconnected system. Expanding the long-distance transmission system is further complicated given the complex Colombian

Bottom-line assessment: Neutral The social impact identified for this PA is neutral. Positive Social Impact: Yes The measure will enable the downstream installation of energy storage systems, mitigating congestion in the transmission and distribution networks in the national interconnected system. This will improve service quality. The entry of new participants will result in the competitiveness of the sector. Additionally, the postponement of investments in new transmission and distribution lines would help end users benefit from lower electricity tariffs. Negative Social Impact: No

97 Specifically, the Terms of Reference to develop an Environmental Impact Assessment for Solar Photovoltaics and Continental Wind power projects (NCRE awarded under the energy auction) must include hazardous waste as part of the analysis, ANLA.


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(yes/no/to be determined) September 6, 2019. geography including the three mountain

ranges, the lack of roads to remote sites, and the existence of several national natural parks. The measure will further encourage the efficient use of energy at scale by promoting control mechanisms to reduce energy leaks, resulting in the reduction of power needs. The PA will particularly benefit NCRE battery storage systems. The target established for the measure refers to batteries that will be installed under a centralized procurement framework. These energy storage systems will reduce GHG emissions (as it displaces energy generated by fossil fuels for conventional energy production) and allow for the improvement of air quality in the long-term. A major advantage of regulating the energy storage system is its reserve capacity during low or null production periods. In Colombia, these periods are associated with natural phenomena that affect energy supply, such as El Niño that produces precipitation deficiencies and reduces the levels of reservoirs98. Risk of a Negative Environmental Impact: No Article 6 of Chapter 2 of CREG Resolution number 098 of 2019, requires compliance with the environmental regulation regarding final disposal of batteries and other electrical equipment, and the emission of pertinent environmental licenses or permits. It is considered best practice to consider the need for environmental regulations regarding: (i) alternatives to recycle batteries components; and (ii) alternatives to return products after consumption.

Multimodal transport, sustainable logistics, and urban transport as drivers of COVID-19

Prior Action 6: The Republic of Colombia has updated its national logistics policy to reduce logistics costs and improve efficiency of foreign trade operations, including through the

Bottom-line assessment: Positive Significant positive environmental effects were identified; potential environmental negative effectsi were identified as mitigable by means of existing legal instruments and best practice guidelines. Positive Environmental Impact: Yes

Bottom-line assessment: Neutral The social impact identified for this PA is neutral. Positive Social Impact: Yes The measure includes strategies focused on business formalization, human capital formation, and modernization of the

98 Hydro generation in Colombia accounts for approximately 80 percent of electricity generation, and there is a need for more thermal energy to meet electricity demand.


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(yes/no/to be determined) recovery issuance of guidelines for

coordinated investments in: (i) multimodal infrastructure, particularly promoting rail and fluvial modes and specialized logistics infrastructure; and (ii) exports and import processes, particularly in capacity, access and digitalization of foreign trade terminals, as evidenced by CONPES document No. 3982 of January 13, 2020.

The national logistics policy will promote the implementation of different modes of transport, efficient connections, optimization of the infrastructure and commercial procedures, and the development of integrated modal strategies. These items will have a direct impact on decreasing the energy consumption required for transport operations. Additionally, the measure will promote the formulation of guidelines for the development of all transport modes, logistics and regulations, opening the opportunity to include cleaner and more efficient transport technologies based on cleaner and renewable resources as the source of energy. The national logistics policy also provides the opportunity to introduce sustainable assets while modernizing transport infrastructure, including: (i) sustainable construction for minimizing energy consumption during operation and clean energy use; (ii) efficient use of water resources; (iii) development of waste management plans for new infrastructure, which should consider waste generated by the trade sector, and the environmental risks related to new regulation proposed in PA4 on battery storage; and (iv) biodiversity conservation plans (in land, sea, river, watershed, air and influenced natural national territories). In addition, freight transportation is a contributor to air pollution through mobile source emission of GHG and harmful pollutants including NOx, CO, CO2, SO2, and Particulate Matter (PM).99 However, as fluvial100 and rail101 transportation are the lowest emitters per ton-km amongst freight

transport fleet. Likewise, this policy will include measures to promote road safety and modal complementarity and inspection, and surveillance and control schemes. In addition to the above, in order to promote the qualification of human capital, the Ministry of Education carried out two projects related to the design of qualifications for logistics and transportation processes. These projects were framed in the provisions of article 194 of the National Development Plan (PND) 2018-2022 Pact for Colombia, pact for equity, which created the National Qualifications Framework (MNC). These qualifications have been designed to be coherent, relevant and consistent with social needs and the country's labor and social market and are a benchmark for the structuring of educational programs, as well as for the evaluation and recognition of acquired skills. One of the objectives of the national logistics policy is to design mechanisms for institutional coordination, access to information, promotion of the use of ICT, and strengthening of human capital in logistics processes in order to optimize performance through informal learning. Negative Social Impact: No

99 The transport sector contributes 12% of GHG national emissions and the cargo subsector is responsible for 51% of that amount (11% urban and 40% interurban). PAS Transporte - Final (p.2). https://www.minambiente.gov.co/index.php/estrategia-colombiana-de-desarrollo-bajo-en-carbono/planes-sectoriales 100 Sea fairer: Maritime transport and CO2 emissions. OECD Observer, 2008. https://oecdobserver.org/news/fullstory.php/aid/2600/Sea_fairer:_Maritime_transport_and_CO2_emissions.html 101 The Future of Rail, Technology Report, January 2019, International Energy Agency. https://www.iea.org/reports/the-future-of-rail


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(yes/no/to be determined) transport modes, it is expected that pollution produced by freight transport will be less intense than it is under existing conditions. Risk of Potential Negative Environmental Impact: Yes A potential environmental impact is expected from this prior action, including from the expansion and construction of new infrastructure for aerial, maritime, fluvial, rail and road transport; and the construction and expansion of modal connection nodes (water/land nodes). It is considered best practice that land use development should incorporate environmental management procedures in order to eliminate, mitigate or compensate potential effects and risks102. Currently, national environmental strategy and legislation require specific terms and licensing depending on the type of project in the infrastructure and transport sector. Specifically, legislation is in place governing the Terms of Reference for the Environmental Diagnosis of Alternatives and for the Environmental Impact Assessment for ports, roads, rail lines and international airports. Nevertheless, it would be considered best practice to review and complement (as necessary) the environmental guidelines in order to ensure that all aspects of this multimodal promotion policy are considered. Impact assessments related to road, railway, aerial, fluvial, and marine transport could be considered103. With respect to environmental professionals who directly deal with environmental

102 Risks may include: (i) landscaping, pollution and visual impact; (ii) loss of vegetation cover, deforestation, and mountain cuts; (iii) noise and vibration (land and aquatic); (iv) natural resources impact, specifically soil and water affected during large volumes of soil movement generating erosion and affecting quality of water by increasing solids and particulates concentration; (v) biodiversity and natural habitats displacement and disturbances of fauna passageways (in the air, land and sea); and (vi) hydraulics dynamics effects. 103 Risks may include: (i) fuel distribution, consumption, and storage; (ii) interception and occupation of natural habitats; (iii) deforestation; (iv) noise and vibration; (v) pollution prevention of natural resources (air, soil, and water including seas, rivers, and groundwater); (vi) safety procedures for accident prevention; and (vii) waste generation.


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(yes/no/to be determined) aspects related to multimodal transport, private sector participation, and modernization and greening of the cargo fleet, it is considered best practice to define roles and assure that environmental staff are skilled in the transport sector. It is considered best practice also that the environmental strategy should incorporate definitions of minimum staff profiles, specifically environmental professionals, who will be involved in the preparation of plans. It is considered best practice that in the promotion of multimodal transport, private sector participation, and modernization and greening of the cargo fleet the government consider integrating environmental instruments considering monitoring and stewardship, in order to improve the control of environmental requirements in transport projects. It is further considered best practice that environmental instruments be introduced at an early stage of the projects.

Prior Action 7: The Republic of Colombia has enacted the Electromobility Law, which promotes the use of electric vehicles (both for public transit and private use) through financial and non-financial incentives, in order to contribute to sustainable mobility and the reduction of greenhouse gas emissions, as evidenced by Law 1964 dated July 11, 2019 and published in the Official Gazette on July 11, 2019

Bottom-line assessment: Positive Both positive and negative potential environmental effects were identified; with a potential disproportionate positive benefit accrued through the greening of public and private vehicle fleet. Positive Environmental Impact: Yes The measure will contribute to multiple positive environmental effects directly related to the promotion of use of electric vehicles in the public and private fleet including the: (i) reduction of fossil fuel consumption; (ii) reduction of GHG emissions; (iii) noise reduction decreases wildlife displacement; (iv) improvement of air quality by reduction of local pollutants, namely, NOx, CO, CO2, SO2, and Particulate Matter (PM) emissions to the atmosphere; (v) climate change mitigation; (vi) the indirect positive impact of reducing human exposure to polluted air, which disproportionally affects lower income groups who have longer average commutes,

Bottom-line assessment: Positive The social impacts identified for this PA are positive. Positive Social Impact: Yes Key social benefits of electric vehicles are the potentially lower operation costs for the users and a reduction of ambient noise levels. To enhance their potential benefits, it may be important to ensure that the financial and non-financial incentives in the measure are socially inclusive, accounting for potential barriers for eligibility, while also exploring the possibility of extending the adoption of electric vehicles in the trucking industry. Risk of Negative Social Impact: No No significantly adverse direct social impact has been identified as a result of this prior action. While greater levels of electricity consumption have the potential to create the need for more energy generation, which could involve additional risks (i.e. such as


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(yes/no/to be determined) by reducing the respiratory issues derived from air quality; and (vii) contribute to the reduction in the need for natural resource exploitation (including oil and coal), minimizing the impact related to oil and coal extraction. Risk of Negative Environmental Impact: Yes The measure may have a potential negative impact related to the source of power supply. Adequate measures will be critical to maximize the use of clean electricity for electromobility. Ensuring that proper vehicle charging routines during peak electricity consumption periods is minimized will reduce the risk of increasing consumption at peak times that could lead to increased dispatch of thermal generation. The promotion of electrical vehicles as substitute to internal combustion vehicles may also increase the number of vehicles to be scrapped, thus increasing the risk of pollution due to special and hazardous waste generation. The scrapping process is regulated by the MADS and by the MoT. It is considered best practice that current regulations incorporate the monitoring and control of scrapping to minimize the risk of non-compliance with environmental regulation. The risk of older, polluting units being sold to smaller municipalities with lower motorization rates generates the risk of increasing the overall total size of vehicle fleet in the country. This risk can be mitigated by incentives for scrapping older units. The modernization of vehicles towards electrical fleets may imply the increased use of new metals (i.e. cobalt, nickel, lithium) and minerals. Therefore, it is considered good practice to regulate the import of materials coming from illegal mining in foreign countries and local and adhere to or create regulations similar to international standards (e.g. EU 2017/821 or OCDE 2018 methodology) in order to avoid, mitigate, or compensate external environmental effects.

land acquisition and involuntary displacement), given the relatively small scale of this activity, this effect is not expected to be significant in the short or medium term, and its long-term effects remain uncertain. Likewise, the increased use of electric vehicles could involve opportunity costs associated with the use of electric energy but given the small-scale and gradual nature of the expected electricity volume increase, this effect is not considered to be significant. While none of the risks identified so far are significant, it would be important to monitor them with attention to the use of electric energy during the rollout.


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(yes/no/to be determined) The quantity of batteries and other RAEE104 generation will increase. It is considered good practice to analyze the capacity of small municipalities to manage this waste, and to strictly adhere to existing national environmental regulation regarding waste management (including recycling), and alternatives to return the products after consumption.


Bottom-line assessment: Positive All identified environmental effects are positive, no potential negative environmental effects are anticipated for the measure. Positive Environmental Impact: Yes The measure formulates strategies and guidelines to promote the development of mobility measures aimed at contributing to the social, environmental and economic well-being of cities. It presents actions to implement a mobility vision that contemplates the participation of all the actors in the system (including environmental actors), in such a way that vulnerabilities are recognized, and negative externalities are minimized. The CONPES policy proposes the strengthening of the institutional capacity of national and territorial entities (for the control and follow-up of all transport issues including environmental), and of the financial mechanisms that guarantee the quality of services. Within the policy, environmental aspects are well recognized as one of the main dimensions to promote integrated mobility: “…environmental protection implies ensuring sustainability in mobility activities, and in accordance with the National Air Quality Strategy, priority should be given to actions that, in terms of mobility, focus on reducing polluting emissions generated by motorized vehicles, in order to protect the health of those who live in urban areas, reduce noise, and better manage the consumption of resources such as space, landscape and energy”105.

Bottom-line assessment: Positive The social impact identified for this PA is positive. Positive Social Impact: Yes The CONPES 3991 promotes sustainable public transport and non-motorized transport modes, through co-financing measures, a governance framework, and tools to reduce negative externalities, which could potentially generate a redistributive impact as higher income, private vehicle users are taxed under the “who benefits pays” principle and such resources are reinvested in sustainable transport options, which cater primarily to lower income residents. In addition, public transport is used more by women, so this measure will have a disproportionate positive impact on women. As a lasting effect of the COVID-19 pandemic, isolation measures are expected to continue for periods not yet determined. This new circumstance is a challenge for the sustainability of the systems and highlights the need to support and increase the use of non-motorized modalities, which have guarantees of isolation and may be accessible to most of the population. Measures supported elsewhere in this program aim to mitigate this risk. Negative Social Impact: No

104 RAEE: Residuos de Aparatos Eléctricos y Electrónicos 105 Extract of the CONPES 3991 of April 14, 2020. Chapter 3.1. paragraph 4.


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(yes/no/to be determined) The CONPES further develops schemes for the promotion of electrical vehicles, zero emissions, non-motorized vehicles, and clean energy with a direct potential impact on the increased use of renewable resources as sources of power, development of new technologies, resource efficiency, and pollution prevention and management, generating: (i) reduction in the consumption of fossil fuels for energy; (ii) improvement of fuel quality requirements for new clean technologies; (iii) reduction of noise and greenhouse gas emissions, aligned with current climate change national directives (Law 1931 / June 2018); and (iv) reduction of human exposure to polluted air. The CONPES is aligned with relatively new environmental legislation, such as Law 1972 and 2019, promoting reduction of Particulate Matter (PM and PM10), with the objective of protecting health, life and environment, and with Law 1964 and 2019 promoting clean transport schemes. Risk of a Negative Environmental Impact: No

Pillar 3: Sound Fiscal Management and Long-Term Infrastructure Finance for Recovery from COVID-19. Improving the contingent liability and PPP framework across infrastruc-ture sectors as a measure to increase fiscal resilience to crises

Prior Action 9: The Republic of Colombia has updated the methodology for evaluating contingent liabilities in infrastructure projects with an application in the transport sector, as evidenced by Resolution No. 4859 of the MHCP dated December 23, 2020 and published in the Official Gazette on December 27, 2019.

Bottom-line assessment: Positive All identified environmental effects are positive, no potential negative environmental effects are anticipated for the measure. Positive Environmental Impact: Yes Indirectly, updating the methodology for evaluating contingent liabilities in infrastructure projects could potentially allow for the opportunity to introduce or improve the risk assessment related to unexpected environmental events or related aspects. It could encourage the development of more detailed and complete environmental impact assessments and due diligence processes. It could promote the improvement of budgeting for environmental aspects.

Bottom-line assessment: Neutral The social impact identified for this PA is neutral. Positive Social Impact: Yes Adequate assessment and monitoring of contingent liabilities would allow for more efficient use of fiscal resources and better planning. This would have a potential effect on greater certainty of fiscal resources for other critical government social programs. Negative Social Impact: No


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(yes/no/to be determined) Risk of Negative Environmental Impact: No

Leveraging private and long-term financing for infrastru-cture develop-ment


Bottom-line assessment: Positive All identified environmental effects are positive, no potential negative environmental effects are anticipated for the measure. Positive Environmental Impact: Yes Indirectly, a new fund for the FONDES could provide the opportunity to invest in infrastructure for sustainable development and protection of ecosystems that are currently affected by human activity. It can promote infrastructure projects related to environmental conservation. Risk of Negative Environmental Impact: No potential negative environmental effects are anticipated for the measure. Colombia has adequate instruments to mitigate potential negative environmental effects associated with infrastructure projects. Currently, national environmental strategy and legislation require specific terms, licensing and permits depending on the type of project in the infrastructure sector. The main instrument is related to environmental licensing. Additional specific permits to control and monitor potential effects on natural resources and biodiversity are issued as needed by national (Ministry of Environment and Sustainable Development) and regional agencies. Nevertheless, given the important role of the National Fund for Infrastructure Development (FONDES) as a catalytic fund to leverage financing from the private sector, it is considered best practice to ensure that the operating framework of FONDES specifically includes procedures for environmental and social assessment of the supported investments, including through PPPs.

Bottom-line assessment: Neutral The social impact identified for this PA is neutral. Positive Social Impact: Yes The use of FONDES would allow more efficiency in the use of fiscal resources for infrastructure through greater financing mobilized from the private sector. This could have a positive fiscal impact liberating resources for other critical government social programs. Additionally, the FONDES would allow for a larger number of infrastructure projects to be implemented with a consequent positive impact on GDP growth, job creation and services to the population. Negative Social Impact: No No significant potential negative social impact is anticipated for the measure. Colombia has adequate instruments to mitigate potential negative environmental effects associated with infrastructure projects.


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ANNEX 6: COVID-19 IMPACT ON THE INFRASTRUCTURE SECTOR Summary of COVID-19 Impact on the Infrastructure Sector 1. The COVID-19 crisis has placed a significant strain on the provision of essential infrastructure services, as providers have had to maintain capacity and significant supply even while usage rates and payments for services have declined. In the short-term there has been a sharp decrease in demand for transport and energy infrastructure as travel restrictions take effect and as businesses close or slow down activity. Energy demand decreased by 15 percent the period between March 20 and May 2, 2020106 and has remained around 12 percent below pre-COVID-19 government forecasts since March 24.107 Further, electricity tariffs are facing an upward pressure due to a combination of factors.108 In major cities, public transport ridership has declined dramatically, by 85 percent on average, due to the national quarantine and an imposed cap on mass transit passenger occupancy of 35 percent of operating capacity. Water utilities are under stress due to a combination of: (i) the expansion water service coverage through emergency supply measures to fight the spread of COVID-19; (ii) higher operating costs due to an increase in hours of supply; and (iii) lower revenues as households struggle to pay bills. This Annex presents further details on the extent of the impact of COVID-19 on key infrastructure sectors. 2. The Colombian authorities have acted promptly to slow the spread of the pandemic and mitigate the adverse impact on the most vulnerable through a series of wide-ranging measures, with an estimated total cost of COP22.6 trillion as of April 2020.109 Key among the government’s crisis response measures are actions to help ensure the continuity of and access to basic infrastructure services and financial support for the providers of those services. Specifically, programs to ensure the continuity of services and temporary tariff payment deferrals targeted to the lowest income groups were introduced for electricity and water services. These tariff deferrals are expected to provide essential short-term relief to over 14 million low and lower-income Colombians — with all households in the two lower-income strata within Colombia’s six income strata system being eligible for a 36-month no-interest deferral of tariffs for the two billing cycles immediately following the declaration of emergency. This measure was later extended to other sectors of the population with the establishment of a 24-month deferral with interests for middle income strata (strata 3 and 4) and introducing the option to negotiate deferral terms with distributors for all consumers. More recently, the possibility of taking advantage of these deferrals was extended through end July 2020. While these measures have proven critical as a buffer for both: (i) the poor and vulnerable; and (ii) firms – the measures will aggravate the financial situation of service

106 The reduction in the “regulated” and “unregulated" demand in this period has been 9 percent and 28 percent, respectively. “Regulated demand” includes industrial, commercial and residential users with demand lower than 55 MWh and is directly contracted by distribution companies with a rate structure established by the regulatory agency CREG. “Unregulated demand”, includes users with consumption higher than 55 MWh/month that freely agree marketing and generation prices with retailers. 107 Demand has fallen more, from relatively higher levels, in the most developed regions as Antioquia (20 percent) and the Central Zone (20 percent). Smallest decreases were observed in less developed regions such as the Caribbean region (5 percent) and Chocó (7 percent). 108 Factors include: (i) most thermal generation companies have long term gas supply contracts and are not benefitting from the global price reduction; (ii) water reservoirs are low and energy prices in the spot market have gone up; (iii) the devaluation of the Colombian peso has led to an increase in the tariff components indexed to the US dollar. 109 The measures include: (i) public health measures to stop the spread of the disease; (ii) a package of fiscal measures to strengthen the capacity of the health system, mitigate the impact on most vulnerable groups, and provide liquidity support to firms.


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providers, which is additionally strained by the reduced demand and payment collection.

Box A6.1. Summary of the impact of COVID-19 on the financial situation of service providers

Power Sector

Total liquidity needs for the electricity distribution sector directly attributed to COVID-19 are concentrated in the most critical months (May- July) have been estimated between USD369 and USD 529 million. Of this amount, USD100 to USD172 million are attributed to the tariff deferrals for strata 1 and 2110. Additional USD35 to 60 million are estimated to accrue in the period between August and December of 2020 as a result of a continued projected reduction of demand and payment delinquency, and assuming that consumers start paying non-deferred amounts111. This estimation does not include a so-called “subsidy deficit” that is transferred from the government to utilities. The liquidity needs are the result of a combination of deferrals measures, decreased demand (while distribution costs remain constant) and rising delinquency of payments across all consumer segments.

Water Sector

Water utilities liquidity needs resulting from tariff deferrals for the poorest households are estimated at USD360 million112 for the initial 120-day deferral period, assuming 80 percent of low-income users take advantage of the deferral113. Additionally, if the emergency remains in until December 2020, utilities and municipalities will require approximately USD262 million to finance emergency water supply services, the reconnection of users, installation of biosecurity measures for utility operations, and the suspension of water tariff increases for the initial 120-day deferral period. Not calculated under these estimates are potential losses related to increasing user non-payment, tariff referrals to higher income users, operational costs associated with increased demand for services and further sanitary protocols.

Transport Sector

Urban Transport. In the seven largest metro areas, operating losses from mass transit systems are estimated at USD118 million between March 16 and May 5, 2020 (with Bogotá, Cali and Medellin accounting for more than two-thirds of this amount).These losses have brought down the average farebox ratio of these systems (user revenues divided by operating costs) from 63 percent to nearly 4 percent, which indicates that less than 5 percent of service provision costs were covered by user fares during this period. Going forward, between June and December 2020, the total forecasted revenue gap is estimated at USD477 million, with an average farebox ratio of 22 percent, requiring on average, more than double the amount of subsidies provided to mass transit systems in the business as usual scenario. For 2021, assuming that mass transit ridership stabilizes around 60 percent of pre-COVID-19 levels, preliminary forecasts suggest a subsidy requirement of approximately 1.7 times the current subsidy levels, which would represent around USD380 million in additional subsidies for 2021. Ensuring the availability of this additional funding would be necessary for mass transit systems to cover higher operating costs linked to operating capacity restrictions and the implementation of biosecurity measures, without compromising service quality.

110 It must be noted that the liquidity line provided by FINDETER covers the unsubsidized part of the tariff deferral, which is ranges between USD40 and USD64 million, depending on the scenario considered. 111 Consumers should pay the subsidize part of the tariff (that was no deferred) after the emergency period is closed. 112 Based on government estimates that 80 percent of strata 1 and 2 users will avail the temporary water tariff deferral made available in the COVID-19 context. 113 Up to date, 46 water utilities with a potential financing request of COP 104,000 million have requested support.


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Toll Roads. A temporary waiver on toll fares for all concessioned and publicly managed toll roads between April and May 2020 to guarantee transportation of goods and food products has led to a loss in revenue of approximately USD40 million for the 51 percent of the road network managed by the National Roads Institute (INVIAS) and around USD101 million equivalent for the remaining part of the network, managed by ANI through 52 private toll road concessionaires.

Table A6.1. Key Infrastructure-related Decrees/Regulations approved by the Government of Colombia

in response to COVID-19

Sector Date Actions Source/Decree

Energy 19-Mar

Establishes the requirements, terms and conditions for the recognition as public debt of the balances due to lower tariffs (recognition of debt for subsidies) of the electricity and fuel gas sector referred to in article 297 of the Law. 1955 of 2019 that were caused as of December 31, 2019 and its payment as public debt charged to the debt service of the General Budget of the Nation. This recognition will operate only once.

Decree 437/20

Energy 4-April and 4-June

Establishment of a 36-month deferral for payment of electricity tariffs targeted to socio-economic strata 1 and 2 limited to three tariff cycles.

Decrees 517/20 and 798/20

Energy 14-April Establishment of a 24-month deferral for payment of electricity tariffs targeted to socio-economic strata 3 and 4 limited to tariff cycles as indicated by Decree 517/20.

GREG Resolution 058/20

Energy and Water

15-April

Enables a liquidity line through the Territorial Development Bank (Financiera de Desarrollo Territorial S.A. - FINDETER) for public service companies, including in the electricity and water and sanitation sectors, through December 31, 2020, to mitigate the financial impact caused by targeted tariff deferrals directly linked to COVID-19.

Decree 581/20

Water 17-Mar

- Establishes a temporary suspension of the increase of the water and sewage tariff

- Water utilities will not be enabled to suspend or cut the service to users

- Mandates re-connection of the water supply service to the suspended users

CRA Resolution 911/20

Water 20-Mar Guarantee of access to drinking water services until April 13th. Free reconnection of suspended utility services

Decree 441/20

Water 8-April

Establishment of a 36-month deferral for payment of water and sanitation service tariffs targeted to socio-economic strata 1 and 2 limited to 60 days, On June 4, this was extended till end July 2020.

Decree 528/20 and Decree 814/20

Transport TBD

- Creation of a collective transport liquidity fund, supporting inter-city road and fluvial transport providers

- Temporarily modifying the laws governing mass transit investment funding from the GoC, adding operations as an

Decree 575/20


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eligible category - Provision of the legal framework to allow subnational

entities to amend mass transit service provision contracts under the financial sustainability principle

- Provision of the authorizing environment to allow subnational entities and mass transit systems to subscribe loans and credits with financial institutions in order to support operational expenditures

-

Transport 30-May

- Establishes the measures and guidelines for the provision of public transport service.

- Activates the collection of tolls for vehicles transiting the national territory from 00:00 on June 1, 2020, previously suspended by the Decree 482 and 569.

- For the concession and the PPP contracts, the parties can agree to an extension in time that together exceeds the limits provided in the current regulation, will be based exclusively on the measures of non-collection of tariffs and tolls adopted by the national government.

Decree 768/20

A. Impact Assessment of COVID-19 Pandemic on Colombia’s Electricity Sector A.1. Short term impact on electricity demand 3. The lockdown imposed by the GoC to contain the spread of COVID-19 resulted in a reduction in productive activity and a slowdown in aggregated electricity demand. Throughout the entire period of preventive isolation, there has been a significant decrease in the country's commercial and industrial activity.114 Overall, from March 20 to May 2, 2020 the electricity demand in the country decreased an average of 15 percent when compared to consumption on the same days of the week from March 9 to 15, 2020. Manufacturing sector electricity demand decreased 38 percent. The manufacturing sector represents 37 percent of all industrial demand. According to XM, between May 6, 2019 through March 14, 2020, the demand of the National Interconnected System (SIN) was 5.7 percent higher compared to the same period of the previous year. However, due to COVID-19 and the associated quarantine measures, the demand in April 2020 was 10.7 percent below levels in April 2019. In May, the demand slowly recovered due to the reactivation of the economy in some industrial and commercial sectors (see Figure A6.1 and A6.2). However, when comparing the actual demand with the National Planning Agency (UPME) scenarios, the demand from March 24 is approximately 12 percent below the lowest forecast scenario. See Figure A6.3.

114 XM –Report May 06, 2020


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Figure A6.1: Weekly demand reduction (%)

Figure A6.2: Evolution of SIN demand and growth indicator115

115 XM –Report May 06, 2020


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Figure A6.3: Daily UPME demand scenarios compared to the current SIN demand

A.2 Electricity demand projections

4. In order to estimate electricity demand projections, an econometric model was developed for a set of s GDP growth scenarios. According to this demand projection model, the expected energy demand reduction in 2020 would be between 3.27 and 6.25 percent. The demand is expected to increase 3.87 percent and 3.19 percent in 2021 and 2022, respectively. Figure A6.4 shows the demand projections for the next five years comparing the scenario without COVID-19 with the UPME low demand scenario.

Figure A6.4: Annual projection of demand (GWh)

Source: PHC


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A.3. Short term measures by the GoC

The Republic of Colombia established a 36-month deferral for payment of electricity and water and sanitation service tariffs targeted to socio-economic strata 1 and 2,116 limited to two tariff cycles for energy and 60 days for water and sanitation, as evidenced by Decrees 517 and 528, published in the Official Gazette on April 4, 2020 and April 8, 2020, respectively. Subsequent CREG Resolutions No. 058 of 2020 of April 14, 2020, and the CREG Resolution No. 064 of 2020 of April 21, 2020; clarified transitional measures for the payment of electric energy service bills for April and May 2020 and extend the potential use of deferrals to other strata as defined below. More recently, the timeframe of the resolution for deferrals was extended through end-June, under the same rules:

All commercialization companies must offer their residential users from stratum 1 to 4 options for deferred payment of the invoice value for the domiciliary public service of electric energy. It will be understood that a residential user from stratum 1 to 4 avails of the deferred payment measure when he does not make the payment of the invoice within the period established by the company.

The amount to be deferred corresponds to the amount non-subsidized for each strata: (i) in the case of residential users of strata 1 and 2, the value that exceeds the subsistence consumption will be subject to deferred payment. The subsistence consumption is subsidized; (ii) for residential users of strata 3, the value of consumption nonsubsidized that will apply to the user; (iii) for residential users of strata 4, the value of total consumption will be subject to deferred payment; (iv) for all the other regulated users (strata 5 and 6), before performing the suspension of the service for non-payment, the commercialization company must offer deferred payment options of the invoice value for the domiciliary public service of electric energy, applying the rates established in the resolution.

Rates: The commercialization company must apply to residential users from strata 1 to 4 the lowest value between: (i) the rate of the credits that the marketer acquires for this financing; (ii) the preferential rate plus 200 basis points; and (iii) the rate resulting from the compensation mechanisms established by the Nation directly or indirectly or through bilateral or multilateral entities.117

Grace period. The commercialization company must offer residential users from strata 1 to 4 a grace period of two (2) months after May 30.

Payment period. The commercialization company must offer users the following payment periods: (i) for residential users of strata 1 and 2, a payment period of thirty-six (36) months; (ii) for residential users of strata 3 and 4, a payment period of twenty-four (24) months; and (iii) for other regulated users, the term will be that agreed between the parties.

116 Colombia uses strata to categorize neighborhoods and areas with similar social and economic characteristics. Throughout the country, houses, homes, apartments and other buildings are given a number on a scale of 1-6, with 6 being the highest on the socio-economic scale and 1 being the lowest. This categorization was established to allow cross-class subsidies that would help those in the lower strata pay for utilities. 117 For the other regulated users, the lower value must be applied between the rate of the credits that the marketer acquires for this financing and, and the average between the preferential rate and the current bank interest rate. The preferential rate corresponds to the preferential or corporate interest rate of commercial loans, for the last week available before invoicing, on the page of the Financial Superintendence for Total Credit Establishments.


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Prepayment. Users who avail themselves of the deferred payment measure provided for in this resolution may at any time cancel the total balance to be paid of each bill, without the application of sanctions by the commercialization company.

A.4 Impact on Electricity Distribution Companies

5. An analysis to assess the liquidity needs of the distribution sector was conducted based on demand projections and the impact of the tariff deferral measures. The main variables considered for the cashflow calculations are the following: the collection percentage; the variation in demand; the percentage of users who take advantage of the deferred payment benefit; the percentage of portfolio recovery; the interest rate applied to the deferred value of consumption; the months of debt repayment; greater imbalance in subsidies; the increase in debt in default and users in default.118 The short-term is defined as the period between May and December 2020 and the medium-term includes the years 2021 and 2022.

6. The liquidity needs under three scenarios where calculated and are presented here for reference:

a. Scenario 1 (optimistic), considering 40 percent of users from strata 1 to 2 and 20 percent of strata 3-4 take advantage of the benefit of deferred payment of electricity bills, and 5 percent of strata 5 and negotiate payment deferrals. On time collection percentage is assumed for 80 percent for those consumers that are not deferring payments. The analysis shows that main impact on cash flow occurs in the months of May, June and July 2020 due to the grace period. The total liquidity needs, due to deferrals, payment delinquency in the sector (including non-regulated users) are and others are around USD369 million for the months of May, June and July 2020. Total liquidity needs for the deferrals of strata 1 and 2 are USD102 and USD42 million for strata 3 and 4. The rest of needs arise from less relevant deferral for high income strata and lower revenue collection due to lower demand and higher delinquency rate.

b. Scenario 2 (moderately conservative), considering 50 percent of users from strata 1 to 2 and 30 percent of strata 3-4 take advantage of the benefit of deferred payment of electricity bills, and 5 percent of strata 5 and negotiate payment deferrals. On time collection percentage is assumed for 80 percent for those consumers that are not deferring payments. The analysis shows that the main impact on cash flow occurs in the months of May, June and July of 2020 due to the grace period. The cashflow problems could extend to the mid-term depending on the depth of the crisis. The total liquidity needs, due to deferrals, payment delinquency in the sector (including non-regulated users) are around USD413 million for the months of May, June and July 2020. Total liquidity needs for the deferrals of strata 1 and 2 are USD126 and USD62 million for strata 3 and 4. The remainder of needs arise from a less relevant deferral for high income strata and lower revenue collection due to lower demand and higher delinquency rate.

c. Scenario 3 (pessimistic), considering 70 percent of users from strata 1 to 2 and 50 percent of strata 3-4 take advantage of the benefit of deferred payment of electricity, and 10 percent of

118 Liquidity problems may affect the quality of the service due to having fewer resources for replacements and investments, and may produce an increase in losses, especially in non-technical losses, possibly increasing fraud and the percentage of non-recoverable portfolio.


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strata 5 and 6 negotiate payment deferrals. On time collection percentage is assumed for 80 percent for those consumers that are not deferring payments. The analysis showed that main impact on cash flow occurs in the months of May, June and July of 2020 due to the grace period. The total liquidity needs, due to deferrals, payment delinquency in the sector (including non-regulated users) are and others are around USD529 million for the months of May, June and July 2020. Total liquidity needs for the deferrals of strata 1 and 2 are USD126 and USD103 million for strata 3 and 4. The rest of needs arise from less relevant deferral for high income strata and lower revenue collection due to lower demand and higher delinquency rate.

d. Additional needs for the remainder of the year 2020 vary from USD35 to USD million depending on the assumption of debt recovery used. On one side, the demand will remain depressed, leading to lower income. On the other side, the payments of the ‘subsidized’ portion of the tariff will need to be paid by users after August 2020, leading to higher temporary revenues for the utilities. It should be noted that only the unsubsidized part of the bill (i.e. the portion above the subsistence level) was allowed to be deferred. Consumers must pay the portion corresponding to the subsistence level once the emergency period is over.

7. In addition to the liquidity needs mentioned above, there is a subsidy deficit to be considered. This ‘subsidy deficit’ is the difference of the subsidized value to strata 1 to 3 versus the contribution (cross-subsidy) from strata 5, 6 and the industrial and commercial sector. The government typically transfers this difference once a year to distribution companies. Under current circumstances it may be difficult for the distribution companies to cover this subsidy deficit. The subsidy deficit for the period May to December 2020 has been estimated in USD699 million.

Medium-term analysis (2021-22). An analysis for a 2-year time horizon (2021 - 2022) was carried out to assess the possible recovery of the electricity sector for a moderately conservative scenario assuming the demand growth stated in Figure 6-4 and a 90 percent of revenue collection for 2021 and 95 percent for 2022. With those assumptions, USD730 million are required to finance the residential deficit and USD1,365 million if the need for other regulated sectors increases. If the needs for the subsidy deficit and the unregulated sector for the years 2021 - 2022 are included, the need for liquidity amounts to a total of USD2,698 million. The uncertainty linked to the recuperation of the demand could impact significantly the liquidity needs.


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Figure A6-5. Liquidity needs 2021 - 2022 Residential sector (Millions of USD.)

FigureA6-6. Liquidity needs 2020 - 2022 Residential sector + Regulated Sector (Millions of USD.) Sc A vs Sc B

B. Impact Assessment of COVID-19 Pandemic on Colombia’s Water and Sanitation Sector

8. Despite continuous improvements in the provision of drinking water and sewerage services, there are still areas in Colombia with important service gaps which hinder the prevention of the risk posed by the COVID-19. Handwashing frequently and thoroughly is essential to cope the COVID-19. However, the situation of drinking water and sewerage services in Colombia exacerbates the exposure of the population to the COVID- 19. As of 2018, according to the Single Information System (Sistema Unico de Información SUI), water supply coverage in urban areas in Colombia was 90 percent and in rural areas 46 percent. The coverage of sewerage services in urban areas was 85 percent and in rural areas 20 percent (See figure 1). Furthermore, in 2018 around 8.3 million people received water with water quality risks (See

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figure 2). Finally, significant service continuity problems remain pockets of the country including Riohacha, Santa Marta, Buenaventura, Quibdó, Mocoa, San Andrés and Leticia, where the continuity of water supply ranges between 10.1 and 18 hours / day (See figure 3).

Figure A6.7 Water Supply and Sanitation Coverage in Urban Areas

9. The current pandemic has accelerated the need to address these gaps since access to water is essential for handwashing as the first measure of prevention against COVID-19. The World Bank, with the Ministry of Housing Cities and Territory (Ministerio de Vivienda Cuidad y Territorio- MVCT), developed a multi-criteria analysis to identify the cities and municipalities with high risk of COVID-19 contagion. The analysis considered water supply and sanitation coverage, level of risk due to water quality, water supply

Figure 2 level of risk posed by water


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continuity, number of cases of COVID-19 as of May 25,2020119 (See figure 4) and the existence of management issues in municipal water utilities. A weighted average was developed. The result from the multi-criteria analysis concludes that the cities that have a priority in terms of coping with the emergency are Bogotá, Cali, Villavicencio, Quibdo, Santa Marta, Leticia, Ibague, Medellín. Santa Maerta, Pereira, and Neiva. Municipalities that also have priority attention are Soledad (Atlántico), Tumaco (Nariño), Buenaventura (Valle del Cauca), Malambo (Atlántico), and Soacha (Cundinamarca) (see figure 5).

Figure A6-8. Number of COVID-19 Cases

Source: Instituto Nacional de Salud

10. To address this emergency, since the sanitary emergency started on March 12, 2020, the National Government established emergency measures to assure access to water supply and sanitation through: (i) providing emergency water supply to the population without access to reliable water services; (ii) establishing a 36-month deferral for the payment of water and sanitation service tariffs targeted to socio-economic strata 1 and 2 and limited to usage for the duration of the declaration of emergency; (iii) the reconnection of users that were disconnected for non-payment; (iv) the suspension of tariff increases for the duration of the emergency; and (v) the redirection of investment funds to cover emergency water supply and utility O&M costs, among others. Impact on Water service providers 11. The implementation of these measures has direct implications for national finances and those of service providers. It is estimated that USD360 million are required to meet deferred payment for 80 percent of strata 1 and 2 consumers for a period of 120 days. Additionally, water utilities and municipalities will incur from May to December 2020 approximately USD262 million in additional costs. This cost result from water supply service reconnection, ensuring water access through alternative means

119 According to the Health National Institute (Instituto Nacional de Salud), as of May 25, 2020 Colombia had 21,971 COVID-19 cases and the cities and municipalities more affected were: Bogotá (7,386 cases), Cartagena (2,149 cases), Cali (1,955 cases ), and Barranquilla (1,483 cases ).


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(water trucks or bottled water), protecting users by avoiding service cuts due to the lack of payment, suspending the increase of water tariffs and protection measures to staff working on water supply and sanitation. 12. Additionally, the World Bank team is working with the MCVT to assess the impact in a sample of water service providers. The additional pressure on water service providers stems from lower revenues (as households struggle to pay bills and public mandates for water supply increase), increased costs (overtime, bringing in agency labor and importing inputs like chemicals), limited service delivery and coverage (in areas without service access or poor continuity), debt service pressures (to repay IFI financing, local banks and PPPs) challenges with the need to ramp up hours of supply. Taking into account these other effects, the required funds will be larger. C. Comparison of Liquidity Needs for the Electricity and Water Supply and Sanitation Sector versus

Credit Lines Enabled by the Government 13. The Republic of Colombia enabled a liquidity line through the Territorial Development Bank (Financiera de Desarrollo Territorial S.A. - Findeter) for public service companies, including in the electricity and water and sanitation sectors, through December 31, 2020, to mitigate the financial impact caused by targeted tariff deferrals directly linked to COVID-19, as evidenced by Decree 581 published in the Official Gazette. The total funding of the FINDETER credit line is COP1.2 billion (USD 320 million). The total needs to face the tariff deferrals in the electricity sector are estimated to be USD126 million for the moderately conservative scenario. However, only the unsubsidized portion of the electricity tariff will be covered by the FINDETER line, equivalent to USD50 million. In the water supply and sanitation sector, under a conservative scenario, liquidity needs are estimated at USD360 million. The sufficiency of the FINDETER liquidity line to cover the needs of the sectors will depend on the uptake of the measure. D. Impact Assessment of the COVID-19 Pandemic on Colombia’s Transport Sector

14. Colombia’s National Urban Transport Program has implemented mass transit systems in the country’s seven largest metro areas. These systems have improved the quality of public transport services and reduced travel times, traffic-related accidents and GHG emissions and local pollutant emissions. Nonetheless, the systems have faced technical and financial difficulties. Operating arrangements for 90 percent of the formal transport services in the seven largest metro areas incorporate fleet provision and operation concessions with the private sector. Before COVID-19, many of these mass transit systems were facing technical and financial difficulties as the ridership, efficiency, cost forecasts and assumptions under which the concessions were structured were not met. As a result of increased operating costs (i.e. greater maintenance costs), limited efficiency (i.e. cycle times were greater due to increased congestion) and stagnating ridership numbers, the majority of the public transport concessions were experiencing financial difficulties. The impact of COVID-19 has drastically aggravated these challenges. Against this backdrop, cities have reacted to this reality by adjusting remuneration mechanisms, amending concession contracts and activated subsidy funds (i.e. ‘fare stabilization funds’) which have allowed allow subnational entities to cover, under a BAU scenario, around 37 percent of operating costs for mass transit systems. 15. As a consequence of COVID-19, passenger ridership levels in Colombia’s seven largest metro


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areas fell on average 85 percent during the first 6 weeks of lockdowns. This drastic depression of demand brought fare revenues to less than 5 percent of the operating costs for the systems, representing additional subsidy needs amounting to USD117.7 million for the seven systems. As mass transit systems struggled to remain open to support essential service workers under strict social distancing protocols, operating costs, which increased to allow for strict disinfection and cleaning routines, remained relatively stable if compared to the business as usual scenario. 16. In essence, the impact of COVID-19 on mass transit ridership and costs have resulted in profound and unsustainable deficits, that will need to be funded by municipalities given the current context. For the recovery phase, the GoC has enacted limitations to passenger occupancy in mass transit systems to comply with sanitary measures, setting forth a policy that enforces safe distancing between passengers on stations and rolling stock, effectively capping it at 35 percent of installed capacity. As of April 27, 2020, demand has slowly grown from 15 percent to 23 percent on average, except for Cartagena. Source: World Bank, MoT data.

Figure A6-8. Mass Transit ridership compared to 2019, 7 cities. SITM demand in Colombia Comparison with equivalent period in 2019

Week of year 2020


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Figure A6-9. Mass Transit supply, monthly comparison with 2019, 7 cities. SITM offer n in Colombia Comparison with equivalent period in 2019

Week of year 2020

Source: World Bank, MoT data. 17. The resulting divergence between revenues and costs between March 16 and May 5, 2020 is estimated to have generated combined losses of around US$ 117.7 million for the seven mass transit systems. Approximately 70 percent of these losses were accrued by Bogotá, Cali and Medellin. These losses will need to be covered by additional funding from municipalities. Average farebox ratio (i.e. defined as fare revenues/total operating costs) plummeted from 63 percent pre-COVID-19 to around 4 percent during this period, multiplying by nearly 2.6 times the requirements for subsidies in the seven systems. Estimations from transit systems and the MoT indicate that in order for mass transit systems to comply with the 35 percent occupancy caps with demand levels close to 60 percent of pre-COVID levels, the service cost per passenger will increase three to four-fold, generating revenue gaps that put a serious threat to every city’s capacity of ensuring continuity in the provision of essential public transport services. As a result, forecasts indicate that during the crisis and the recovery phase, between June and December 2020, the total forecasted revenue gap for the seven metro areas is close to USD477 million, leaving the farebox ratio at nearly 22 percent, compared with the 63 percent BAU scenario. This would require nearly doubling the amount of total subsidies needed for operating costs to be covered and systems to remain operational.120

120 1.8 billion pesos colombianos.


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Figure A6-10. Mass transit revenues, month comparison with 2019 SITM collection in Colombia Comparison with equivalent period in 2019

Week of year 2020

Source: World Bank, MoT data.

Figure A6-11. Mass Transit Systems Revenue Loss


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Figure A6-12. Estimated subsidy needs - 2021

18. Without stable sources of funding to cover for the loss in farebox revenues, mass transit systems are at risk of drastically reducing the service, and, in some cases, ceasing operations. The effects of ceasing or drastically reducing operations would be dramatic reprocess for urban mobility and harshly impact the country’s economy. The financial economic impact related to the cease of operations of mass transit systems would include:

Losses of around 80,000 direct and indirect Jobs. VAT payments within the productive chain (i.e. maintenance, parts) of around USD25 million per

month. Defaults on loans, insurance and financial obligations for around USD1.0 billion. Economic losses of productivity, accessibility and travel time. Risk of lawsuits and legal action from public transport operators and Banks against

municipalities and national government. Loss of confidence in the transport sector in Colombia.

19. Without formal transit systems operating, the provision of public transport services would entirely rely on informal and illegal means, including trucks, light vehicles and minivans dramatically hampering the efficiency, safety and competitiveness of transport systems and cities in Colombia. Hundreds of thousands of trips would remain unattended, with residents in the periphery being affected the most, as they would resort to walking and using precarious modes, which are at high risk of being involved in crashes. Private vehicle users would likely invade BRT lanes, and former public transport users would be forced to informal modes that will circulate in traffic, dramatically increasing the travel times for public transport commuters. In addition, the impossibility of implementing and enforcing distancing and biosecurity measures for the control of the virus on informal and illegal vehicles would put at


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contagion risk thousands of commuters. 20. Preliminary estimations by the GoC indicate that mass transit systems will take until early 2021 to return to 60 percent ridership numbers, compared to 2019 levels. This implies that farebox ratios, which before COVID-19 averaged 63 percent, will be reduced to around 22 percent for the second semester of 2020, and will tend to stabilize at around 38 percent during 2021. This new reality will demand close to 1.8 times the subsidy needs pre-COVID-19, bringing up the total monthly subsidy for all seven systems from around USD40.6 million to around USD73.0 million, with Bogotá, Medellin and Cali accounting for 90 percent of these resources. 21. In addition to support from subnational entities in the form of additional operational subsidies, concessionaires would benefit from access to liquidity lines with guarantees from the GoC as a mechanism to improve debt profiles and considering that commercial banks already consider to be overexposed to the Colombian urban transport concessions pre-COVID-19. Unless met with solid and operating liquidity facilities, the decrees enacted by the GoC could fall short in addressing the extreme circumstances that the pandemic and its aftermath will force upon mass transit systems. 22. Toll Roads. Colombia has two main groups of toll roads: (i) concessioned toll roads, managed by the National Infrastructure Agency (ANI); and (ii) publicly operated toll roads, managed by the Ministry of Transport National Road Institute (INVIAS). Combined, the network of ANI and INVIAS adds up to 19,434 kilometers of roads, of which INVIAS runs approximately 51.3 percent (9,979 km, 43 toll booths). ANI has a total of 52 toll road concessions and 138 toll booths. 23. In general, traffic levels and toll revenues in 2019 were lower than those registered in 2018, partly attributable to a slowing economy, a gradual shift towards a services economy and the impact of the 2018 tax reform. As the COVID-19 lockdowns kicked off in March 2020, total traffic volumes between March and May 2020 have dropped to around 65 percent compared to pre-COVID levels, with the highest drop in traffic volumes attributed to light vehicles and intercity buses. Truck traffic, in general, remained at around 93 percent of the pre-COVID-19 levels. 24. As part of the emergency measures enacted by the GoC to guarantee the provision of essential goods around the country, a temporary waiver on toll fares for all concessioned and publicly managed toll roads was put in place on March 27, 2020 (Decrees 482/20 and 569/20). The suspension was lifted on May 31, 2020. Estimations indicate that as a result of the measure, ANI concessions missed toll road revenues for nearly USD102 million between April and May. Correspondingly, INVIAS missed toll road revenues over the same period are estimated at around USD35 million. Going forward, preliminary estimates indicate that traffic levels will recover to around 85 percent of pre-COVID-19 levels for the second half of 2020, with volumes closer to 90 percent of 2019 traffic levels. Following these preliminary estimates, the projections for the average loss of revenues due to recalibrated traffic levels is estimated to be at around USD12 million per month during 2021. It should be noted, however, that ANI concessions do not have guaranteed traffic volumes and hence these estimations should not be used to calculate financial impact on toll road concessionaires.


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Figure A6-13. Estimated changes in toll road revenues

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