- restructure the terms of its PPA with TermoEmcali;
- renegotiate union agreements;
- restructure its debt with local financial institutions, and local and international suppliers;
- negotiate a new agreement with the City of Cali for approximately US$121 million owed
to Emcali; and - negotiate with debt holders, including the federal government, local banks and suppliers,
to convert a portion of their outstanding debt to capital.
Local politicians and unions continued to oppose this approach because the municipality
would lose control of the utility.
Fitch Ratings noted that TermoEmcali was still receiving monthly PPA payments from
Emcali within the 30-day cure period that is allowed once the project issues a notice of
default. The agency also noted that TermoEmcali continued to benefit from two reserve funds
that were backed by letters of credit, one providing for three monthly payments under the PPA
and the other providing for six months of debt service. According to Fitch, TermoEmcali’s
management believed in February that it could make a US$5 million principal and interest
payment due in March without resorting to the debt service reserve. Based on the govern-
ment’s possible decision to liquidate Emcali and the possible renegotiation of the PPA, Fitch
placed a Rating Watch Negative on its ‘CCC’ rating for TermoEmcali.
Lessons learned as of 2003
In a developing country, the political and economic situation as well as the creditworthiness
of an offtaker can change considerably in just a few years, not to mention over the term of a
PPA or bond.
(^1) This case study is based on the prospectus for the project bonds, the offering memorandum for the syndicated bank
loan, credit rating agency press releases, articles in the financial press, and interviews with Thomas E. Lake, then
Vice President, Project Finance, Energy/Natural Resources/Infrastructure, Dresdner Kleinwort Benson, New York;
and D West Griffin, Vice President, Finance – Latin America, InterGen Energy.
(^2) Much of the information in this section was derived from articles in the Survey of Colombia published in The
Economist, 21 April 2001.
(^3) ‘Uribe Committed to Save Emcali’, Business News America, 10 January 2003.
POWER PLANT