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Published in general news Written by November 27 2018 0

The Medellin City Council on November 26 voted 19-2 to approve a COP$5.3 trillion (US$1.6 billion) 2019 budget mainly favoring the city’s most vulnerable citizens.

More than 78% of the budget goes to public education, health, infrastructure and “social inclusion,” according to the city’s Treasury Secretary Orlando Uribe Villa.

The budget includes a COP$77 billion (US$23.7 million) addition over the Mayor’s originally submitted budget in order to complete infrastructure projects including a new public hospital in the low-income Buenos Aires neighborhood, the new Alejandro Echavarria public school and the “Buen Comienzo” kindergarten head-start program for poorer children in the Loreto neighborhood.

Medellin leads all major cities in Colombia by funding public education from pre-kindergarten through eleventh grade and then subsidizing college studies for many lower-income children.

Electric-Bus Fleet to Expand

On a related front, Medellin Mayor Federico Gutierrez announced November 20 that the city has asked vendors to submit bids for a contract worth COP$75 billion (US$23 million) for 55 pure-electric transit buses for the “Metroplus” bus rapid transit (BRT) system, which currently employs 77 natural-gas-fueled buses and just one electric bus.

If any bids eventually qualify, then the city could start acquiring these new electric buses by end-2019, according to the Mayor.

The zero-emissions buses would have capacity for 80 passengers, have a 280-kilometers range between recharges, be capable of climbing steep inclines in some of Medellin’s neighborhoods, and be capable of battery recharge in four hours, according to the bid proposal.

Medellín aims to slash air pollution by converting more of its vehicle fleet to zero-emissions electric power. The city currently suffers poor air quality mainly because of grossly excessive emissions from cheap, poor-technology motorcycles along with ancient, obsolete diesel-powered trucks and buses, as well as obsolete, high-emitting cars.

If any of the bus-bids are successful, then Medellin soon will have the largest electric-powered transit fleet in Colombia -- and one of the largest in Latin America, Mayor Gutierrez boasted.

The city’s current “Metroplus” BRT system runs through 14.7-kilometers-long circuits on “Line 1” and "Line 2,” from the University of Medellin (Belén neighborhood) through the city center and then onward to Aranjuez neighborhood.

Medellin also has Colombia’s only all-electric “Metro” elevated-train system, tied into its growing, all-electric “Metrocable” aerial tram networks plus the electric “Tranvia” roadway tram system.

Published in general news Written by November 23 2018 0

Antioquia Mining Secretary Dora Elena Balvin revealed at the 2018 edition of the annual Colombia Gold Symposium (CGS) here that Antioquia continues to dominate national gold production – and is likely to expand output dramatically in coming years.

One reason for optimism is the well-underway development of Continental Gold’s massive mining project at Buritica, Antioquia, as Continental chief financial officer Paul Begin told the 350 CGS delegates here in a November 13 presentation.

The high-tech, environmentally and socially responsible project – which has won high praise from the community as well as from local, departmental and national regulatory agencies -- will become Colombia’s biggest gold mine when it hits full production in 2021, Begin explained.

Production at Buritica is now forecast at 300,000 ounces of gold per year, tapping reserves estimated at 3.86 million ounces, or 8.75 grams-equivalent of gold per ton of rock mined at the site.

Continental also foresees that its mining reserve here has a “global resource estimate of more than 9 million ounces” at 10.26 grams-equivalent per ton of rock mined.

Favorable geology, experienced leadership and high technology are seen delivering production costs at less-than US$600 per ounce of gold produced, with pre-production capital costs of US$475 million to US$515 million, he explained.

Construction at the project is now 38% complete. Global mining giant Newmont Mining recently took a 19.9% stake in Continental, investing C$109 million, while RK Mine Finance has put-up C$275 million in debt finance plus C$25 million in equity, he showed.

At year-end 2017, Antioquia’s gold production hit 634,655 ounces, or 46.4% of national production, Antioquia Mining Secretary Balvin explained here. Ten municipalities in Antioquia account for 92% of all production, she added.

What’s more, Antioquia now has an estimated gold reserve totaling more than 33 million ounces, with average production of 25 grams-equivalent per ton of rock mined, she explained.

Unique in all Colombia, the Antioquia departmental government administers mining regulations, including mining titles, oversight, programs to convert irregular and illegal miners to legalized mining, overseeing the abolition of toxic mercury used in gold processing, promotion of both local and international investment, and promotion of socially and environmentally responsible mining, she added.

Besides the Continental Project at Buritica, other proposed large-scale gold and copper-mining projects in Antioquia include AngloGold Ashanti’s currently stalled Gramalote and Quebradona projects, she noted.

The Gramalote project at San Roque, Antioquia, is estimated to have potential production of 350,000 to 450,000 ounces of gold per year, with a resource estimate over life-of-mine at 4.22 million ounces, she noted.

AngloGold has already invested US$270 million in the project, but local opposition to date has slowed development.

As for AngloGold’s proposed Quebradona copper-mine in Jericó, Antioquia, this project is in an "advanced stage" of studies to determine the extent and quality of the resource, which includes not only copper but also gold, silver and molybdenum, she said. AngloGold has already invested US$65 million in that proposed project, she added.

As for Medellin-based Mineros S.A., its “Ciénaga Grande” and “La Ye” projects in the municipalities of El Bagre, Zaragoza, Caucasia and Nechí, Antioquia, are in “advanced exploration stages,” according to Balvin.

“During 2017, Mineros allocated the sum of COP$46.5 billion pesos [US$14 million} in the advanced exploration stage, in support of its Colombia mining operations and support for [community-based] rubber plantations,” she said.

As for Gran Colombia Gold (GCG), which including predecessor company Frontino Gold Mines has been mining gold at Segovia, Antioquia for more than 150 years, its production continues apace, as noted in a separate presentation here by GCG exploration VP Alessandro Cecchi.

GCG, which has permanent offices in Toronto and in Medellin, produced 214,439 ounces of gold in the 12-month period from September 2017 to September 2018, Cecchi said. That’s a 23% boost in output over the comparable prior 12-month period, he added.

While Colombia generally and Antioquia specifically have suffered from decades of irresponsible and illegal mining by criminal groups and mercury-spewing miners, as well as mass anti-mining protests and strikes in certain communities, “today the panorama has changed [as more communites] approve mining," Secretary Balvin said. However, instances of violence, murders and disorders still break-out, most recently in certain areas in Antioquia (see October 8, 2018 Medellin Herald, Continental Gold Honors Employees Murdered by FARC ‘Dissidents,’ Hires Top-Flight Security Agency).

In a separate presentation here, Agencia Nacional de Mineria (ANM) mining-promotion vice-president David Gonzales pointed-out that gold is 39% of all Colombian mining concessions, and Antioquia has more than two-thirds of the national gold concessions.

National gold production is expected to increase by 27% in 2020, he added.

Today, Colombia is 18th in global gold production, but fifth in Latin America. Colombia also is 42nd in global copper production, and sixth in Latin America, he said.

Gold-mining projects with already-approved environmental licenses here include Continental’s Buritica project, AngloGold Ashanti’s Gramalote project, Antioquia Gold’s Ciseneros project, and Alicant Mining’s Rionegro (Santander department) project, he said.

Other big upcoming gold-mining projects here include the Cordoba Minerals project at San Matias (Cordoba department), scheduled for 2023; Minesa’s “Soto Norte” project in Santander (currently tied-up in legal disputes over defining and controlling operations adjacent to or within the Santurban Paramo); the Miraflores Mining project at Miraflores, Risaralda, scheduled for 2021; the Batero Gold project at Batero-Quinchia, Risaralda, scheduled for 2023; the Orosur project at Anza, Antioquia, scheduled for 2021; and the Andes Resources project at Andes, Antioquia, scheduled for 2023, he said.

Colombia offers favorable incentives for mining including five-year amortization of assessments and exploration studies; tax refund certificates for miners that boost investments; public-works in-lieu of taxes; a 25% income-tax reduction for innovative R&D; discounts on sales taxes imposed on imported machinery; exemptions on payment and social-security taxes for lower-income employees; and a 25% income-tax deduction for environmental conservation measures, he said.

Obstacles Trip-Up Investment

Despite encouraging signs on several fronts, Colombia still puts-up obstacles to more-aggressive mining investment and development, as noted in a separate presentation here by Exploration Insights analyst Brent Cook.

While global demand for gold and copper continues to rise, “globally, discoveries are declining and odds [for success] are deteriorating,” Cook warned.

“Mining companies are increasingly desperate for new deposits, and Latin America is exceptionally prospective. Yet investment in exploration [here] is low, as perceived and real obstacles include political and bureaucratic problems, protests and lawsuits by non-governmental organizations, uncertainties about the rule of law, and security problems,’ he said.

“Mining investors’ money goes where it feels the investment is secure. And projects get advanced there,” he added.

In a panel discussion here featuring mining-legal experts Hernando Escobar, Hernan Rodriguez and Claudia Herrera, the panelists took note of seemingly contradictory legal decisions by Colombia’s Constitutional Court and the Council of State on whether local communities can block mining projects with “consultation” votes -- even if a project had already been earlier approved by the national government.

The Court ruled on October 12 that “consultations” aren’t the correct legal method to stop mining, and that instead a new legal scheme must be developed by Congress to ensure proper coordination between national mining regulators, local governments and regional environmental agencies.

Ironically, one week after the Court decision, Colombia’s Council of State ruled in a separate lawsuit that it’s legal for mayors to invoke such consultations -- but that the national government ultimately should decide whether to allow such mining.

Yet as legal expert Rodriguez pointed-out here, most members of Colombia's Congress represent areas where mining doesn’t exist. So they likely wouldn’t have much interest in devoting time and energy for a new law governing mining regulation, he said.

While local communities have the responsibility to develop zoning laws (planes de ordenamiento territorial, or POTs), vast areas of Colombia lack updated POTs that otherwise potentially could trip-up or else encourage local mining applications presented to the national government.

Still, if more mining companies were more aggressive and thorough in carrying-out advanced consultations with local communities – including profound examinations of economic, social and environmental impacts of any proposed project – then perhaps some of the most angry protests and "consultations" against mining in certain areas might have been averted, he added.

However, “for now, the [mining] extractive sector and the [Colombian] government do not show signs of going beyond social corporate responsibility projects,” as local analysts at Colombia Risk Monthly noted in their November 2018 newsletter.

“Therefore, confrontation between proponents and opponents of projects [in certain areas] is likely in the near term both in the legislature and on the ground,” the analysts warned.

Published in general news Written by November 17 2018 0

Wall Street bond rater Fitch announced November 16 that it has affirmed Medellin’s favorable “AAA(col)” long-term debt rating despite the financial challenges facing city-owned electric utility EPM because of problems with the giant “Hidroituango” hydroelectric power project.

According to Fitch, Medellin also enjoys a “stable” debt oulook and a favorable “F1+(col)” short-term debt rating.

“The rating action is based on the financial strength of Medellín, which is a reflection of its positive fiscal performance, supported by its importance within the national economic context,” according to Fitch.

“Medellín benefits from the important capital resources coming from the dividends received from EPM [rated ‘AAA (col)’ and ‘F1 + (col)’; stable perspective], which allows the city to be more flexible to allocate funds to finance capital expenditures.

“In general, EPM dividends have represented around 20% of the total revenue of the city since 2012. The transfers to Medellin in 2017 were COP$1.01 trillion [US$319 million], in addition, COP$300 billion [US$95 million] were paid corresponding to the sale of the participation of EPM in Isagen.

“The contingency of the Hidroituango hydroelectric project has impacted EPM’s financial plan, considering the expenses related to the resolution of its technical complications and the change in [power sales revenues] projections due to the delays presented. Fitch classifies EPM transfers as capital income used exclusively to finance Medellín’s capital spending program.

“Therefore, it is not expected that the difficulties in Hidroituango will have a significant effect on the key financial indicators of Medellin in the short-to-medium term. Likewise, Medellín has a high degree of financial flexibility that allows it to make the necessary adjustments to its medium-term financial plans in a scenario of decreasing EPM financial transfers.

“The city maintains a high share of its debt in foreign currency (49.5%), whose risks are under continuous monitoring. This aspect is compensated since 36% of the indebtedness is contracted at a fixed interest rate and [Medellin] has an adequate liquidity position in which the free destination liquid resources have more than once covered claims. In addition, the Medellín administration is working to have [adequate] external debt coverage to reduce the risk exposure at the exchange rate,” Fitch found.

As for the general economic outlook, Fitch rates Medellin as “strong with stable tendency."

"Medellín plays a very important role in the country's economic and social contribution. Its contribution to the national GDP is approximately 7.3% and maintains an unemployment rate of 10% to 11%, higher than the national average," according to Fitch. “However, due to its internal migratory attractiveness, Fitch notes the existence of high investment needs in various social sectors. The city continues on the path of investments that allow improving the coverage rates of its citizens at levels above 95% in education, health and public services,” the ratings agency concluded.

Published in general news Written by November 05 2018 0

Medellin-based electric power giant EPM on November 4 heralded the start-up of the engineered spillway over the giant “Hidroituango” hydroelectric project in Antioquia (see photo, above).

That start-up soon will allow EPM to close a makeshift diversion tunnel through the dam, ensure steady, safe, adequate water-flow of the Cauca River downstream of the dam, and enable repairs to begin in the machine room -- temporarily used to evacuate water following a collapse of the main diversion tunnel last April.

The start-up also means that Medellin eventually would start to recover billions of dollars of future revenues expected to be generated by Hidroituango, as city-owned EPM supplies about 25% of the city’s annual revenues.

“With the start-up of the spillway, a new milestone is reached in compliance with the schedule set for 2021 for the recovery of the project,” according to EPM, which also posted a video of the initial water-flow through the spillway (see:

“The structure of the dam remains stable and in optimal conditions to ensure the passage of water through the spillway and the safety of the communities downstream. EPM will close the water passage through the machine house once we are fully confident that the technical conditions of the project allow it.”

The reservoir behind the dam rose to 405 meters above sea level on the afternoon of Sunday, November 4, enabling safe evacuation of Cauca River water through the spillway.

The spillway has a horizontal length of 405 meters and includes four radial gates, 15.4 meters wide by 19.5 meters high. Opening more gates enables controlled increase of water-flow through the spillway. At the bottom of the structure is a settlement well, enabling smooth, continuous flow of the Cauca River downstream of the dam.

The left channel of the spillway was the first put into operation on November 4, initially enabling evacuation of 200 cubic meters-per-second of Cauca River water.

“These 200 cubic meters-per-second are now added to the 750 cubic meters-per-second of water flowing through the machine house, for a total of 950 cubic meters-per-second on average,” according to EPM.

“This ensures an ‘ecological flow,’ or what’s necessary for a normal flow of the Cauca River, which is 450 cubic meters-per-second -- and this also guarantees the safety of the communities that live downstream of the project,” according to EPM.

Published in general news Written by October 03 2018 0

The “Corvipacifico” construction consortium announced in late September that it is cranking-up construction works on the long-delayed “Pacifico 1” highway between Medellin and Bolombolo.

That highway will connect (via a new bridge across the Cauca River) with the under-construction “Pacifico 2” highway linking Bolombolo to La Pintada  -- both straddling the Cauca River -- and then onward via “Pacifico 3” highway all the way to Colombia's main Pacific freight port at Buenaventura.

To facilitate construction on “Pacifico 1,” Corvipacifico is closing the existing highway between Puerto Escondido and Bolombolo from 9 a.m. to 5 p.m. Mondays through Fridays for the next six months, according to the group.

“This closure is a priority need from the point of view of road safety, and is carried out in order to advance the construction and stabilization of slopes that will be part of the four-lane divided highway, the upper portion of which is located at about 45 meters above the existing road,” according to Corvipacifico.

According to Corfipacifico, construction also has begun on the two big tunnels for Pacifico 1 project, at Amagá (3.6-kilometers length) and Sinifaná (1.3-kilometers).

“These two tunnels that will cross the imposing and rugged geography of Antioquia will be added to the new generation of tunnels throughout Colombia,” according to the group.

The Sinifana tunnel is three kilometers from the town center of Bolombolo, and the Amagá tunnel is located in the municipality of Amagá, a long-time center of artisanal coal extraction.

“The tunnels respectively will be equipped with all the technological equipment for their operation and control with the best safety specifications [including] a ventilation system, lighting, communications, variable signaling and fire protection,” according to the group..

“Following the excavation activities that began recently, we foresee completion in September 2019 in the case of the Sinifaná tunnel, and in September 2021 we foresee completion of the Amagá tunnel,” according to the group.

The COP$3.58 trillion (US$1.2 billion) “Pacifico 1” project reached financial close two years ago (see Medellin Herald June 10, 2016), but construction work has been slow and sporadic.

“Pacifico 1” will total 50.2 kilometers in length, including the two tunnels, 54 new bridges and three new intersections.

Published in general news Written by October 02 2018 0

In an October 2 press conference, EPM general manager Jorge Londoño de la Cuesta contradicted new claims made by Antioquia Governor Luis Perez over supposed contractor errors or negligence surrounding the troubled “Hidroituango” hydroelectric power project in Antioquia.

Gov. Perez claims that construction contractor Consorcio TIFS didn’t comply with the original schedule for building and then later shuttering the first two of three water-diversion tunnels -- and that such delays (and subsequent tunnel closings) eventually led to compensatory speed-up decisions that unfortunately triggered an estimated COP$7 trillion (US$2.33 billion) in cost over-runs.

What’s more, the third diversion tunnel (“GAD” in Spanish initials) built by EPM – which collapsed in April 2018, causing downstream flooding and then emergency measures to avoid a dam collapse – wasn’t built to proper technical standards or capable of handling relatively high water flows, Perez claimed, citing an unpublished study by Universidad Nacional (UNAL).

In addition, Gov. Perez claimed that the explosives subsequently used in a failed attempt to unblock the first two diversion tunnels following the collapse of the “GAD” tunnel” caused dangerous landslides and weakened the rock massif adjacent to the dam, potentially threatening the entire Hidroituango project.

Furthermore, Gov. Perez separately claimed late last month that EPM had used polygraph tests to “blacklist” certain employees under suspicion for leaking potentially damaging financial information -- possibly linked to Hidroituango issues -- to the governor and certain Medellin City Council members.

That latter claim – flatly denied by EPM’s general manager -- provoked the utility to file legal complaints against Gov. Perez and City Councilwoman Luz María Múnera Medina for “calumny and injury” to EPM’s reputation.

As for supposed errors, miscalculations or negligence in the Hidroituango project, Londoño de la Cuesta pointed-out that an independent advisory board had approved the GAD project, contradicting Gov. Perez.

As for the claims about the supposed incapacity of the GAD tunnel to handle high water flows, “Integral S.A.” engineering manager Luis Fernando Restrepo pointed out at the press conference that international technical studies and experience indicated that the tunnel would indeed be capable of handling such flows.

EPM’s Londoño de la Cuesta added that the company is now awaiting results of a technical study by Skava (due in November) to determine whether the GAD tunnel collapse was the result of an undetected geological fault, an engineering design error or a construction error.

Until that study has been completed, it’s “irresponsible” for third parties (such as Gov. Perez) to make “unsubstantiated” claims about the cause of the tunnel collapse and the subsequent economic damage to the Hidroituango project, he said.

Asked whether Gov. Perez is making sensational, conspiratorial claims for political reasons -- with 2019 being an election year -- Londoño stated that “Hidroituango is a project of national interest and we must work together to move ahead, without promoting particular interests.”

“We invite our partner in this project, the Government of Antioquia, to discuss differences through the appropriate channels available in the partnership, of which both of us are part,” Londoño added. “We are 100% willing to investigate what caused the problem in the Hidroituango project, but we do not admit insults being made against the good name of our company.”

As for whether explosives used in the failed attempt to unblock the first two diversion tunnels might have weakened the rock massif adjacent to the dam, Consorcio CCC commercial director Santiago Garcia pointed out that “in the massif where the project is built, we excavated 2,372,000 cubic meters of rock underground, and there was never any evidence of any damage or instability generated associated with blasting.”

What’s more, engineering studies indicated that the GAD diversion tunnel – had it not collapsed last April -- would have been sufficient to handle the water flows that earlier had been handled by the two previous diversion tunnels, he said.

Published in general news Written by September 14 2018 0

The Antioquia departmental government (Gobernacion de Antioquia) and the Area Metropolitana del Valle de Aburra (AMVA, the association of Medellin regional governments) announced September 13 that financing has been secured for a major debottlenecking project of the “Regional Norte” highway between Medellin, Bello and Copacabana.

The current highway suffers huge traffic jams at the intersection of the main Bello highway with the roundabout connecting the “Regional Norte” highway and the Niquia metro station. Extending the congested "Regional Norte" highway north of Medellin alongside the eastern bank of Rio Medellin has been frustrated for some 50 years, proponents noted.

According to the AMVA-Gobernacion joint press release, COP$179 billion (US$59 million) has just been approved for “phases 2, 3 and 4” of the “Avenida Regional Oriental Norte” project.

This scheme partly involves building elevated highways on the eastern side of the Rio Medellin, opposite the existing Regional Norte highway on the western bank.

The project will be undertaken by the existing "Hatovial" highway concessionaire in three new phases, according to the government agencies:

• Phase 2, Northern Oriental Regional Route (Bello): This involves extending the Regional Norte highway on the eastern side of Rio Medellin between Universidad Minuto de Dios (at the Acevedo interchange) and the La Seca interchange (Fontidueño sector) in the municipality of Bello.

The project includes construction of a 3.6-kilometers-long highway with three vehicular lanes and a bicycle corridor, including a 350-meters-long bridge system connecting to the La Seca interchange.
• Phase 3, La Seca Interchange: The La Seca Interchange on the western side of the Rio Medellín river will connect to the eastern side of the river in the vicinity of EPM’s new "North" wastewater-treatment plant in Bello.

This project will include two vehicular lanes of 1.9 kilometers in length, including 0.8 kilometers of bridges -- along with sub-surface intersections -- enabling future expansion of the Metro rail system northward of Niquia and including the highway route to Fontidueño.

“The La Seca Interchange will allow the circulation of some of the 30,000 vehicles that travel daily through the Bello-Hatillo highway and the main route for those heading to the north of the department of Antioquia and the Colombian Caribbean coast,” according to the agencies.

• Phase 4, Copacabana: This project includes a vehicular and bicycling corridor 600-meters long, from 50th street to 48th street, bordering the Piedras Blancas stream and the west bank of Rio Medellín, passing through the Quebrada Las Catas and finally connecting with the main entrance bridge to Copacabana’s central park, according to the agencies.

Published in general news Written by September 03 2018 0

Medellin-based multinational electric-power giant EPM on September 9 revealed in a presentation to the Medellin City Council key financial assumptions about its proposed sale of assets and other measures to cover losses arising from the Hidroituango hydroelectric project diversion-tunnel collapse.

“Among other issues, we highlight that in the case of the Hidroituango hydroelectric project, we assume that the equipment currently in the mechanical room could have suffered some damage [resulting from diversion of Cauca River water through that room], although to date we lack exact information on possible damage,” according to EPM.

To recoup losses, EPM proposes to raise about COP$7 trillion (US$2.27 billion) from asset sales, internal cost reductions and postponement of some capital projects over the next three years.

Among key assumptions to this financial-recuperation plan:

1. Hidroituango would produce its first 300 megawatts (MW) of power in December 2021, with the remaining 2.1-gigawatts of the total 2.4-gigawatts of capacity entering into service at some yet-to-be-determined dates.

2. EPM possibly would net COP$1.2 trillion (US$389 million) in insurance payoffs for infrastructure damage plus another possible COP$1.3 trillion (US$422 million) for loss-of-power sales that had been expected between 2018 and 2021 – all resulting from the diversion-tunnel collapse and subsequent postponement of power sales.

3. Total Hidroituango project costs are now estimated at COP$14 trillion (US$4.5 billion), of which COP$2.5 trillion (US$811 million) corresponds to financial costs.

4. Costs to compensate populations affected by the temporary emergency (following the diversion-tunnel collapse and subsequent measures to relocate threatened downstream populations) are estimated at COP$600 billion (US$195 million), including costs likely to be incurred in 2018, 2019, 2020 and 2021.

5. Costs for installing transmission power lines are estimated at COP$120 billion (US$39 million).

6. Equipment down-time costs are estimated at COP$338 billion (US$109 million) in 2019.

7. Colombian national power prices are seen declining from 2021 to 2026, after Hidroituango comes back on-line.

8. Thermal power generators in Colombia are assumed to burn imported liquefied natural gas (LNG) rather than fuel-oil or domestic gas during the three-year delay in power output from Hidroituango.

9. EPM investments in drinking-water infrastructure in Colombia would continue as normal from 2015 to 2025, with current tariff structures unchanged until 2026.

10. Another 370,000 water customers would be added to EPM’s Colombia network through 2025.

11. The “Emvarias” trash-collection transfer station near Medellin would begin operations in 2021.

12. EPM would sell its Chilean water and power utilities and its 10% stake in Colombian power transmission giant ISA during 2019.

13. EPM wouldn’t lose access to financial markets to cover its debt needs.

14. EPM’s gross income would dip to COP$16.5 trillion (US$5.3 billion) in 2019, down from the COP$18.2 trillion (US$5.9 billion) initially foreseen (prior to the diversion-tunnel collapse and subsequent delay in power sales from Hidroituango). Through 2030, that initial loss of power sales (which would have started in December 2018) continues to penalize total expected revenues each year, hitting COP$27.8 trillion (US$9 billion) in 2030 – down from an expected COP$31.9 trillion (US$10 billion) in 2030, the difference explained by the tunnel-collapse financial impacts.

15. Earnings before interest, taxes, depreciation and amortization (EBITDA) also take hits in most years from 2019 through 2030, although EBITDA should spike to around COP$8.8 trillion (US$2.8 billion) in 2021, EPM estimates.

16. EPM’s annual payments to the city of Medellin (its 100% shareholder) from power sales will fall in 2019, 2020 and 2021 -- compared to 2018 -- but payments then rebound and rise from 2022 onward, hitting COP$2.1 trillion (US$681 million) in 2030.

Asset-Sales Details

In an earlier, September 3 press conference, EPM general manager Jorge Londoño de la Cuesta revealed that the Medellin City Council could decide whether to approve the sale of EPM's 10% stake in power transmitter ISA and Chilean utility assets by early October.

“The sooner the better,” Londoño added, as a quick sale would overcome current market anxieties about EPM’s financial position as a result of losing an estimated COP$6 trillion (US$1.97 billion) to COP$7 trillion (US$2.3 billion) from the Hidroituango hydroelectric-dam project problems.

“We’re confident and optimistic that [the Council] will approve this in the next few weeks,” he added.

Most of the estimated revenue losses from Hidroituango problems come from an estimated three-year delay in electric power sales (COP$4 billion/US$1.3 billion), Londoño said.

The remaining losses include an estimated COP$1.5 trillion (US$492 million) to COP$2 trillion (US$656 million) in related dam-infrastructure repair costs, plus an estimated COP$500 billion (US$164 million) to COP$1 trillion (US$328 million) for compensating temporarily affected populations around the hydroelectric dam.

EPM’s proposed sale of its 10% stake in electric power transmitter ISA is likely to net about COP$1.5 trillion (US$492 million) while the sale of its Chilean water and power utilities likely will generate more than COP$2 trillion (US$656 million), he estimated.

Hence it’s possible that the entire COP$4 billion (US$1.3 billion) in lost electricity sales can be recouped by just those two asset sales, without affecting any core EPM businesses, he estimated.

In addition, EPM aims to delay about COP$2 trillion (US$656 million) of the total COP$14 trillion (US$4.6 billion) in planned infrastructure investments over the next few years. Those delays won’t significantly hurt EPM’s future power, water and sewer services, nor have any impact on current EPM customers. What’s more, these postponements won’t impede achievement of regulatory service standards, he emphasized.

In addition, to generate more savings, EPM expects to trim about COP$500 billion (US$164 million) to COP$1 trillion (US$328 million) in internal costs including cutbacks in various sponsorships and short-term contract labor over the next three years, he said.

As a result, the roughly COP$4 trillion (US$1.3 billion) gained from asset sales, plus the COP$2 trillion (US$656 million) n infrastructure investment delays, plus the up-to-COP$1 trillion (US$328 million) in internal-cost cutbacks would deliver about COP$7 trillion (US$2.3 billion ) in additional revenues – enough to cover all the expected Hidroituango losses and simultaneously ensure that the City of Medellin continues to receive its hefty annual share of EPM profits, he said.

EPM’s payments to the city (EPM’s 100% owner) currently run at about COP$4 trillion (US$1.3 billion), or about 25% of Medellin’s total annual city budget.

While EPM’s full-year 2018 earnings before interest, taxes, depreciation and amortization (EBITDA) won’t be hurt by Hidroituango costs this year, future EBITDA likely would be trimmed somewhat, although Londoño didn’t offer any estimate of the total impact.

As for when EPM will shutter the tunnel that currently diverts Cauca River water through the machine room (necessitated by the diversion-tunnel collapse last April), this decision depends on relative rainfall over the next months. Higher rainfall around the Cauca River basin means greater Cauca River flow, while lower relative rainfall cuts river flow, he explained.

EPM aims to reduce the time it takes between shuttering the machine-room tunnel -- with a consequent rise of water-level behind the dam – and the subsequent, eventual flow of water over the engineered spillway at the top of the dam. Cutting this time-gap to a minimum number of days will mean less impact on downstream populations that depend upon some constant minimal water flow of the river, he added.

Published in general news Written by August 26 2018 0

Colombia’s Controller-General on August 25 unveiled a 442-page report finding that recent problems with the US$5 billion, 2.4-gigawatt “Hidroituango” hydroelectric project in Antioquia are the result of insufficient technical studies, planning and regulatory controls.

The Controller’s report is especially critical of Colombia’s environmental licensing agency (Agencia Nacional de Licencias Ambientales, ANLA) for issuing permits supposedly without sufficiently rigorous technical, environmental, animal and population-risk studies.

However, ANLA immediately issued a public response claiming that the Controller’s report contains “inexact” conclusions that “don’t correspond to reality.”

In part, the response points-out that ANLA wasn’t the entity that initially approved licenses for the project, but rather the Environment Ministry.

What’s more, it’s odd that the Controller didn’t raise objections to the various initial licenses and ANLA license-revisions issued in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017, but only after the diversion-tunnel collapse in late April 2018, ANLA points out.

In addition, ANLA emphasized that it didn’t hide anything from the Controller in ANLA’s subsequent license-revision approvals, the reponse contends.

In any case, Hidroituango project manager EPM recently hired an independent auditor that will investigate the real causes of the diversion-tunnel collapse. That auditor’s report is due by year-end 2018, ANLA added.

What’s more, EPM has undertaken every subsequent ANLA-mandated measure to remediate, fix and shore-up the project since the tunnel-collapse incident, as well as take extraordinary measures to protect and compensate affected downstream populations and wildlife, the agency adds.

Controller Report Highlights

“There are many weaknesses and errors discovered by the Controller in the different stages of the licensing process, such as the approval of the license by the then-Ministry of Environment, without sufficient studies and designs, detailed and updated, which allowed the location of the megaproject in an area with high geological risk,” according to the Controller’s report.

According to the Controller’s report, the Hidroituango project “is located in an area crossed by more than 11 recognized geological faults,” while some 26,000 people living in the area of the hydroelectric dam potentially could suffer disastrous consequences from any dam failure.

An “alternative environmental study” potentially could have led EPM to reconsider whether the chosen Hidroituango site “was the best option from the environmental and social point of view,” according to the report.

“Due to the absence of certain studies and real designs, 12 modifications to the environmental license had to be generated throughout the execution of the project, which also did not have sufficient and detailed studies and designs, and ANLA -- without sufficient bases in some cases -- has granted them,” according to the report.

“In the development of the civil works of the project, there were decisions by the licensee and the environmental authority which were not supported in a technical manner, which generated flaws in the project, such as the final closure of the two main [Cauce River water] diversion tunnels, without having built the floodgates included in the design; and in their replacement the construction of a single [evacuation] tunnel with half the capacity of the two closed tunnels, also located on geological faults,” according to the Controller's report.

What’s more, since EPM’s recently contracted study investigating the cause of the tunnel collapse still hasn’t been completed, it remains possible that some future collapse could occur in the rock massif adjacent to the dam, with potentially catastrophic consequences, according to the Controller.

“The risk can be increased by the arrival of the rainy season in October, when [rainfall] reaches the maximum peak,” according to the report.

“Given the technical uncertainty surrounding the project in terms of its future, the most certain and real thing is that due to its location, the features of the Cauca River, the deficiencies in studies and designs, the [uncertain] civil works developed, the inhabitants that have been affected and the damages caused to natural resources (flora and fauna), the horizon of the project can be considered as uncertain and the systemic risk is permanent,” according to the Controller.

“Due to the [tunnel-collapse] contingency that occurred in April and May of 2018, the current post-emergency conditions and the internal stability of the massif are not the same as those with which the environmental license was [initially] granted.

“As the excavations of the [construction] work and the actions generated by the loss of hydraulic control of the dam possibly weakened the massif, generating structural changes, [these factors] must be evaluated to continue the project.

“Especially the [water volume behind the dam, adjacent to the rock massif] drastically affects the seismicity, induced by the increase of the load due to the weight of the water, the increase of pore pressure in the geological faults and the lubrication of the contact surfaces," according to the report.

The uncertain integrity and stability of the right bank massif, where all the main works of the hydroelectric] plant are located, plus the impact of the temporary diversion of Cauca River water through mechanical room, both raise the possibility that “this massif should never have been saturated and under pressure,” the report concludes.

EPM Statement

On August 27, EPM released the following statement in reaction to the Controller’s report:

“In relation to the findings of the audit report on the compliance of the environmental authorities in the licensing process for the Ituango hydroelectric project, prepared by the Controller-General of the Republic, EPM informs the following:

"1. From the beginning of the [Hidroituango tunnel-collapse] contingency, EPM has expressed its interest in clarifying all doubts that may be held about the work. Therefore, as is our duty and will, we have provided the authorities and the control agencies with the information required to carry out the revisions on the management and execution of the project.

"2. The construction and development process of the Hidroituango hydroelectric project has always been accompanied by the competent [regulatory] authorities.

"3. Several aspects related to the findings announced by the Controller-General’s Office have been in the process of investigation for several weeks by the Corporate Audit and Disciplinary Control [office] of EPM.  EPM respects due process, for which reason it refrains from elaborating upon the facts of the investigations that are in progress. Once the results of the inquiry are known, our conclusions will be divulged in a timely manner."

Page 7 of 17

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U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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