that TermoEmcali was in technical default under the terms of the PPA because the beginning
of commercial operations had been delayed and the plant had not been completed according
to the standards defined in the agreement. The project sponsors asserted that there was no
contractual basis for Emcali’s claim because the events causing the delay did not constitute a
default under the PPA. Standard & Poor’s anticipated that the issues arising from Emcali’s
refusal to accept the plant could easily extend until September, at which time capitalised inter-
est accounts would be depleted and the project company would have to draw funds from the
debt-service reserve to meet interest payments.
In May the issues in the default letter were resolved except that Emcali refused to accept
Stone & Webster as the independent engineer. To address that issue the project hired Sargent
& Lundy as an independent consultant to provide a second opinion on the combustion cham-
ber incident reports and to evaluate the technical performance of the power plant. In response
to the resulting report, which supported the project’s declaration of commercial operation,
Emcali retracted its claim of default.
With the default issue resolved, Duff & Phelps stated that it was comfortable with
Emcali’s commitment to the TermoEmcali project, but was still concerned about the util-
ity’s financial ability to honour its 20-year obligation under the PPA. Emcali had been
honouring its obligations to pay for the project’s fuel costs during its testing phase, but
Duff & Phelps was concerned about the company’s ability to make its first capacity pay-
ment under the PPA, which was due later in May. The agency also cited high turnover
among Emcali’s top management as a possible problem for the company’s long-term busi-
ness and financial prospects.
By early 2000 Emcali was nearly insolvent. In February, as a proposed measure to help
Emcali meet its financial obligations, the Mayor of Cali presented a recapitalisation plan to
the city council. Under the plan 40 to 50 per cent of the utility would have been sold off to a
strategic investor or another state utility company. The proposal was voted down because of
concern among some unions, workers and politicians that it was a step toward eventual pri-
vatisation of the company. As a result of that vote, the mayor requested the intervention of
the Colombian Public Service Superintendencia. Standard & Poor’s noted that neither the
Superintendencia nor the government was required to make a capital infusion to help Emcali
to pay its creditors, but that the Superintendencia was likely to end the financial crisis by sell-
ing Emcali’s energy company to outside investors.
In March Standard & Poor’s downgraded the foreign currency rating of the
TermoEmcali bonds to ‘CCC’. In April the Superintendencia took management control of
Emcali, stating that, if its financial problems were not resolved within three months, all of
the utility’s assets might be liquidated. Empresas Publicas de Medellín (EPM), a utility owed
by the city of Medellín, and two private firms expressed interest in purchasing Emcali’s
assets. Standard & Poor’s described EPM, the most likely buyer of the assets, as an efficient
organisation with an adequate capital base and the expertise to run Emcali. The agency also
surmised that a purchase by this city-owned company might be viewed favourably by the
antiprivatisation groups.
In December 2000 and January 2001, 27 transmission towers in Antioquia and Uraba,
provinces in southwestern Colombia, were destroyed by guerrilla attacks, causing blackouts
in 15 municipalities and leaving more than 400,000 people without electricity. TermoEmcali’s
management said that it was prepared to relieve possible energy supply problems in the Cauca
Valley region with 233 MW that could supply one third of the region’s needs.
TERMOEMCALI, COLOMBIA