At this point the continuing delay in resolution of Emcali’s financial difficulty was
caused primarily by the opposing views of the federal government of Colombia and the
city government of Cali. The federal government, through the Superintendencia,
favoured privatising a portion of the company. The city government wanted the federal
government to provide additional capital to Emcali but leave the company under the
city’s control. The two sides had been trying to reach an amicable solution over the pre-
vious 13 months, with little success. The problem was compounded by the fact that 14
other, smaller electric distribution companies were under the Superintendencia’s control
because of problems similar to Emcali’s: therefore a decision made in Emcali’s case
could set a precedent for the others. Standard & Poor’s noted that TermoEmcali bond-
holders benefited from their ability to preclude transfer of any of Emcali’s substantial
assets and the requirement that they agree, before the sale of any of Emcali’s assets, that
the purchasing entity was not materially less creditworthy than Emcali — a moot point,
of course, now that Emcali was rated ‘CCC’. Nonetheless, the agency warned that the
longer the status quo continued, the greater the likelihood that Emcali would default on
its payments under the PPA.
In mid-2001 EPM began to explore how it could expand its distribution network to
the southern Valle del Cauca province through some type of long-term relationship with
Cali. Possibilities included a strategic alliance, concession contracts for EPM to operate
Emcali’s services, joint administrative agreements or other types of joint ventures. If EPM
were to control Emcali’s power distribution network, its market share of Colombia’s elec-
tricity distribution would increase from 18 per cent to 24 per cent, just below the 25 per
cent regulatory limit for one company. EPM was continuing to talk to the federal govern-
ment about buying some of the other 13 troubled utilities, but some kind of working rela-
tionship with Emcali was its first priority. However, officials of Emcali and the city of Cali
opposed the sale of Emcali to EPM or the transfer of Emcali to the Medellín utility
through a share issue because the city of Cali wanted to maintain ownership of its munic-
ipal services.
In April 2002, the Colombian govemment extended the Superintendencia’s control over
Emcali, originally imposed when the utility was declared bankrupt in April 2000, for an addi-
tional year. In the following months, the Superintendencia attempted, unsuccessfully, to work
with Emcali and its commercial creditors, bank creditors, customers, employees and pen-
sioners to develop a financial restructuring plan.
In August, the new government of President Alvaro Uribe Velez assumed the Emcali
problem from the outgoing Pastrana administration. In October, the government indicated
that it was willing to provide funds to help Emcali with its pension liabilities if other parties,
such as the municipality, the unions and the utility’s customers, also participated in the
restructuring effort. In January 2003, President Uribe said that Emcali must reduce its labour
costs to be viable and that it also needed to create a system of ‘social capitalisation’ for cus-
tomers and other stakeholders to invest in the company’s stock and bonds. President Uribe
said that if Emcali did not comply with these requirements, the government would replace it
with another state company backed by a social capitalisation fund.^3 Later in January, the
Superintendencia said that it would recommend that Emcali be liquidated if it did not accept
President Uribe’s social capitalisation approach.
According to Fitch Ratings, to forestall liquidation the Superintendencia said Emcali
would have to:
TERMOEMCALI, COLOMBIA