EPM Files US$1.44 Billion Claim Against Hidroituango Insurer Mapfre; Entire EPM Board Resigns in Protest for Being Ignored
Medellin-based electric power giant EPM announced August 11 that it just filed a COP$5.383 trillion (US$1.44 billion) claim against Mapfre Insurance (Colombia) as part of parallel conciliation procedures that seek to resolve an estimated US$2.6 billion in losses resulting from a 2018 tunnel collapse at the Hidroituango hydroelectric project in Antioquia.
The claim against Mapfre is a “request for prejudicial conciliation” in a Medellin Administrative Court “based on the occurrence of a loss in the ‘Construction All Risk Policy’” that EPM had previously bought to protect itself against potential damages and losses during and after construction of its 2.4-gigawatt, US$5 billion Hidroituango project, according to EPM.
The April 28, 2018 collapse of the “auxiliary deviation gallery” (GAD) diversion tunnel inside the Hidroituango project resulted in both physical and financial damages “that have been estimated, to date, in a sum close to COP$10 trillion [US$2.6 billion],” according to EPM.
“Taking into account the coverage, protections and limits of the [Mapfre] policy, the claims of the conciliation request amount to the sum of COP$5.383 trillion [US$1.44 billion],” according to EPM.
EPM previously had announced a parallel conciliation process involving Hidroituango’s construction and design contractors as well as their insurors –Suramericana and Chubb (see Medellin Herald August 10, 2020).
EPM Board Resigns in Protest
Meanwhile, EPM’s entire board — except for Medellin Mayor Daniel Quintero — announced August 10 that they have resigned en-masse in protest over EPM general manager Alvaro Guillermo Rendon and Mayor Quintero’s failure to consult them in transcendental decisions — including the new Hidroituango conciliation process as well as a prior proposed scheme that would radically alter EPM’s entire business model (see Medellin Herald July 3, 2020).
While EPM and the Mayor legally are required to consult with the Medellin City Council on transcendental matters affecting city-owned EPM, the company’s management also “ought to discuss in detail and seek the counsel of the Board of Directors” before making radical decisions, according to the joint letter of resignation signed by the board members.
“We are worried that [top EPM management] are not observing good practices of corporate governance that have characterized Grupo Empresarial EPM,” the letter continues.
Rather than embarking on far-reaching schemes without prior Board consultation, EPM instead ought to prioritize completion of the Hidroituango project, successfully integrate the recently acquired “Caribe Mar” power utility in northern Colombia, and focus on Covid-19 impacts that potentially threaten the finances of its power customers, according to their letter.
Given the “repeated ignoring of the Board of Directors, we are obliged to present our resignation,” the letter concludes.
EPM Management Response
Reacting to the Board resignation, EPM filed an August 11 statement with Colombia’s Superfinanciera oversight agency giving its response.
In the statement, EPM claims that the earlier joint proposal (since withdrawn) by EPM and Mayor Quintero that would radically alter EPM’s business model “had been presented to the board members” even though “the competence for the reform of the statutes is not the Board of Directors, but the City Council, at the initiative of the Mayor.”
In addition, decisions about the new Hidroituango conciliation scheme “did not belong to the Board of Directors,” according to the EPM filing. What’s more, the conciliation decision bypassed the Board because “the terms conferred by the procedural regulations for submitting claims were close to being fulfilled, under penalty of expiration” by a crucial deadline, according to EPM.
Antioquia’s Business Associations Rip EPM Leadership
Meanwhile, the influential “Comite Intergremial de Antioquia” (the Inter-Trade Committee of Antioquia) — which includes all 29 of Antioquia’s main business trade associations and all five Chambers of Commerce — issued an August 12 bulletin denouncing EPM’s top management for actions that triggered the EPM Board’s mass resignation.
“We consider [EPM management’s] ignoring of its statutory Board of Directors in matters of enormous and strategic transcendence — ignoring basic and fundamental aspects of the norms of its own corporate governance — puts at risk the stability and interests of the institution,” according to the Committee bulletin.
The resulting mass resignation of the Board “generates a loss of credibility in the management of the enterprise, gravely affecting its operation, its relationship with lenders and investors, triggering future problems that will result in dire social and economic consequences that will affect millions of persons,” according to the group.
“The Inter-Trade Committee of Antioquia respectfully requests a clear, coherent and sensible explanation on behalf of the legal representative of [EPM] about this confused, questionable and unfortunate situation.”
Because of the EPM Board’s mass resignation, “we announce a decision to promote immediately the formation of a Civic Committee which, acting in oversight, will jealously guard the interests of EPM — which are the interests of Medellin and Antioquia — and [the Committee] will act solely under technical and sensible criteria, opposing and denouncing irregular actions,” the bulletin concludes.