Dispatch risk
The structure of the capacity and energy payments under the PPA was designed largely to
insulate the project from variations in dispatch.
Bolsa risk to Emcali credit
The Bolsa, the wholesale electricity spot market in which generators and suppliers partici-
pate, is a bid-based system. A power shortage could therefore cause a substantial increase in
Emcali’s power costs and a consequent reduction in cash flow. The TermoEmcali project was
intended to lock in the price for a portion of Emcali’s power needs. Emcali’s business diver-
sity was considered to further mitigate the effects of a power price increase.
Country risk^2
No political risk coverage was provided for this project financing. At the time Colombia had
the following long-term investment-grade credit ratings: Duff & Phelps (now Fitch), ‘BBB’;
Moody’s, ‘Baa3’; and Standard & Poor’s, ‘BBB’.
Colombia is Latin America’s fifth largest country by area and third largest by population.
It claims to be the region’s oldest democracy. Between 1945 and 1995 its economy grew at
an average annual rate of almost 5 per cent.
For the past two decades Colombia has been the world’s main supplier of cocaine. The
country’s central role in the illegal drug business has caused a wider breakdown in public
order. The drug gangs have turned a generation of unemployed youth into hired killers.
Revenues from the drug business have strengthened the Revolutionary Armed Forces of
Colombia (FARC) and the smaller National Liberation Army (ELN), both on the left, and
bands of paramilitary vigilantes on the right, most of whom are organised in the United
Defence Forces of Colombia. Conflict between leftwing guerrillas and national security
forces began four decades ago but has recently become more intense. The security forces
enjoy the unofficial and increasingly unwelcome support of the paramilitaries.
Although most of the drug profits go to dealers in consumer countries, what filters back
amounts to significant wealth for a developing country. Estimates of the amount repatriated
by the drug trade range from US$2.5 billion to US$5 billion per year, or 2 to 4 per cent of
GDP. For comparison, Colombia’s defence budget is US$2.8 billion, including army and
police pensions.
As of the mid-1990s Colombia had an enviable reputation compared to its Latin
American neighbours. The country had never defaulted on its sovereign debt; its fiscal
accounts were in good order; it was considered a good place to do business; it had a long
track record of legal stability, under which contracts were honoured and parties could be
sued; and it had an investment-grade sovereign credit rating. Although leftwing guerrilla
violence presented a safety problem, there had been no significant instance of expropria-
tion, currency inconvertibility or contract abrogation by the central government. Trade lib-
eralisation, and the privatisation or deregulation of key sectors such as electricity, other
utilities and banking had helped to attract foreign direct investment, which had averaged
3 per cent of GDP in the period 1997–2001. During this period numerous projects had
been financed successfully by international banks and through the capital markets. Among
them were CentraGas, El Dorado, OCENSA, Termopaipa IV, TransGas and
POWER PLANT