In early 2001, with Emcali still under its control, the Superintendencia developed a series
of proposals for the utility’s financial rescue and organisational restructuring. They included:
- privatisation via capitalisation of Emcali’s electric distribution business, serving some
460,000 customers; - privatisation via capitalisation of Emcatel, the utility’s telecom unit;
•offering its water and sanitation business to a new private-sector concessionaire; - restructuring the utility’s existing debt with new bonds issued in the overseas market;
- revising its collective bargaining agreements; and
- renegotiating the PPA with TermoEmcali.
Meanwhile, the region’s need for TermoEmcali’s standby capacity was starting to become
apparent. The power plant was reported to have functioned at 30 per cent of capacity in
January, 54 per cent in February and 22 per cent in March, generating an average of 134 MW
per hour during the first quarter of 2001.
One of Emcali’s problems was that, even though TermoEmcali was available to supply
emergency power to southwestern Colombia when there were shortfalls in the national trans-
mission network, the new plant’s marginal cost of generation, approximately 95 pesos/KWh, was
considerably higher than wholesale energy market prices, about 50 pesos/KWh, and long-term
contract prices, which ranged between 50 and 65 pesos/KWh. Further, Emcali had to make a
capacity payment of US$2.3 million each month, yet part of the rationale for TermoEmcali, as
explained above, was to reduce the region’s dependence on hydroelectric power. In the long term
Emcali’s management hoped that forecasted El Niño-related droughts and possible changes in
industry regulations would drive up energy prices and make the plant more profitable.
In May Standard & Poor’s reaffirmed its ‘CCC’ rating with a negative outlook. The
agency had expected the Superintendencia to address Emcali’s financial crisis in a timely
manner after taking control. After one year, however, no plan to address the situation had
been made public. The agency’s negative outlook reflected the increased risk that bondhold-
ers would face as the process of resolving Emcali’s financial problems dragged on.
Up to this time Emcali had honoured its payment obligations under the PPA, albeit by
making late payments. Under the PPA Emcali had 60 days from the receipt of an invoice to
pay. Then TermoEmcali’s notice of default triggered another 30 days to remedy the overdue
payment. Emcali had been paying invoices just before the full 90-day term ever since the
beginning of the plant’s commercial operations. Standard & Poor’s noted that TermoEmcali
had sufficient liquidity in the short term based on an undrawn, six-month debt-service
reserve, a pledged US$11.3 million letter of credit required by the fiduciaand certain bank
accounts pledged by Emcali, representing slightly less than two months of capacity and ener-
gy payments. Under the fiduciaEmcali was required to maintain a standby letter of credit
equal to three months of capacity and energy payments. TermoEmcali could draw on this
account three months after an invoice had become 90 days past due. The required amount of
the letter of credit had recently increased from US$11.3 million to US$12.4 million because
of an increase in the amount of the capacity payments. Emcali had not yet increased the let-
ter of credit but TermoEmcali had granted a waiver that could be extended or, if Emcali was
out of compliance with other obligations, revoked. Standard & Poor’s concluded that the
granting of this waiver would not have a material effect on the economics of the project or on
TermoEmcali’s ‘CCC’ credit rating.
POWER PLANT