Duff & Phelps reduced its rating to ‘BBB-’ in September 1999, citing recent pressure on the
peso, a deeper-than-expected recession, guerrilla-related violence and asset problems in the
banking sector. The agency noted that efforts to reduce the deficit through tax reform and
other fiscal measures had been frustrated by the economic slowdown. It recommended replac-
ing the country’s adjustable-band exchange rate system with either a crawling peg or floating
currency. In the same month Standard & Poor’s lowered its long-term foreign currency sov-
ereign rating from ‘BBB-’ to ‘BB+’, citing the conflict with insurgent groups and its effect
on the government’s ability to implement economic policies.
In March 2000 Moody’s lowered its sovereign rating for Colombia from ‘BBB-’ to
‘BB+’, citing a strain on public finances caused by the revenue-sharing system, lower-than-
anticipated oil exports, the guerrilla conflict and continued weakness in the financial sector.
In May 2000 Standard & Poor’s lowered its foreign-currency sovereign rating from ‘BB+’ to
‘BB’ because of concerns that the government would not be able to meet the deficit-reduc-
tion targets it set when the IMF extended a recent US$2.7 billion credit facility, that contin-
ued guerrilla violence would impede economic growth and that the government’s peace talks
with FARC were faltering. Some economists predicted that the rating downgrade, legal delays
and guerrilla attacks would impede the government’s policy programme, which included the
sale of more than a dozen electricity companies, a state coal company and several state banks
for an estimated US$2 billion.
In March 2002 Moody’s revised its outlook from stable to negative for its ‘Ba2’ foreign-
currency ceiling for bonds and its ‘Ba3’ foreign currency ceiling for bank deposits, citing
increasing public debt, despite a narrowing of the fiscal deficit; the continuing need for fiscal
adjustments and reform of the pension system; the effect of low commodity prices on export
earnings; and economic problems in Venezuela, Colombia’s main trading partner. The agency
estimated that the cost of the ongoing civil war was 2 to 5 per cent of GDP.
Independent engineer’s report
In the independent engineer’s report Stone & Webster concluded that the facility would be
able to achieve and maintain operating standards specified in the PPA; that projected operat-
ing results were a reasonable forecast of the project’s economics; and that projected debt ser-
vice coverage ratios were insensitive to reasonable changes in technical assumptions. The
independent engineer considered liquidated damages to be adequate, but also recommended
giving the contractor an incentive to achieve the guaranteed completion date. Stone &
Webster noted that the power plant site was easily accessible and located next to a substation
of the gas pipeline. Its riverside location simplified construction. Stone & Webster was com-
missioned to provide an ongoing review throughout the life of the project.
Gas consultant’s report
In the gas consultant’s report CC Pace concluded that the gas supply and transportation
contracts provided sufficient volume to meet the project’s requirements, and that Ecopetrol’s
gas reserves were more than adequate to meet the project’s requirements. The firm noted that
the diesel fuel storage capacity and local oil terminal facilities provided sufficient access to
backup fuel supplies, and that the PPA insulated the project from fuel-related supply, trans-
portation and price risk.
POWER PLANT