EPM First-Half 2020 Net Income Falls 45% Year-on-Year; Hidroituango Project Cost Estimate Rises Nearly 6%

Medellin-based multinational utilities giant EPM announced July 28 that its first half (1H) 2020 net income fell 45% year-on-year, to COP$717 billion (US$192 million).

“In the first half of 2020 — globally impacted by the coronavirus pandemic (Covid-19), which has implied significant financial challenges for the organization — the EPM Group’s revenues amounted to COP$9.3 trillion (US$2.5 billion), with growth of 6% compared to the year before,” according to the company.

Operating income fell 7% year-on-year, to COP$2.1 trillion (US$564 million), while operating income margins fell 23%.

Earnings before interest, taxes, depreciation and amortization (EBITDA) dropped 4%, to COP$2.8 trillion (US$752 million), according to the company

Through first-half 2020, EPM transferred COP$1.044 trillion (US$280 million) to the city of Medellin, its sole shareholder. EPM profit transfers routinely account for nearly 25% of the Medellin’s municipal budget revenues.

Net results for 1H 2020 “were impacted by lower cash receipts and higher costs in the provision of services, due to the effects caused by the prolonged dry season and low hydrology in Colombia,” which affected the company’s hydroelectric power sales.

“Lower [power] demand associated with lower economic activity — as a consequence of the coronavirus pandemic (Covid-19) — and cost overruns due to the special measures implemented by EPM during mandatory preventive isolation in the country had a combined [negative] effect on the company, totaling approximately COP$320 billion (US$86 million),” according to EPM.

“To this is added a net accounting expense for a [Colombia peso to U.S. dollar] exchange difference of COP$723 billion (US$194 million), as a result of a restatement of the debt in dollars associated with the accumulated 14.7% devaluation of the Colombian peso.”

However, in the second quarter of 2020, EPM recouped some of the currency-exchange losses suffered in the first quarter. As a result, the company recorded a reversal of COP$612 billion (US$164 million) in prior expenses for exchange differences, “given the revaluation of the Colombian peso during the second quarter of 2020,” according to EPM.

During 1H 2020, EPM Group invested COP$1.2 trillion (US$322 million) in infrastructure.

As of July 2020, the business group totaled 14,046 employees.

Extra Cost Impacts from Covid-19

To help the poorer populations in Colombia during Covid-19 crisis, the national government ordered all utilities to slash the cost of power, water, sewer and natural-gas services and enable interest-free deferrals on repayment for “strata 1 and 2” groups.

In total, such mandatory cuts in revenue cost EPM at least US$104 million.

In addition, EPM contributed COP$3.2 billion (US$859,000) to outfit Covid-19 intensive care units (ICUs) at the University IPS hospital at the University of Antioquia. Likewise, the company allocated COP$1.21 billion (US$325,000) for the acquisition of Covid-19 biosecurity protective clothing.

Hidroituango Hydroelectric Budget Rises

On another front, EPM’s Board of Directors announced July 28 that the 2.4-gigawatt “Hidroituango” hydroelectric project in Antioquia is now estimated to cost at least COP$16.2 trillion (US$4.35 billion) — 5.88% higher than the prior estimate – “as part of the approval process for future terms” of the over-all budget.

According to EPM, latest variations in the project budget include:

“• Increase in the costs of machine house and pipeline works; injections to contain infiltrations of water and consolidation of the massif of the southern zone (units 5 to 8, second stage); improvements to the left-margin alternative road approach; filters, dam drains and instrumentation; lining of galleries; and construction and shielding of tunnels to enable intermediate discharges.

“• Construction of vertical wells in units 5 to 8 that correspond to the southern zone or second stage of the project.

“• Update of the macroeconomic scenario, considering the impact of the increase in the representative market rate (TRM) of the Colombian peso to U.S. dollar.

“• A lower net value of the investments [including] equipment and civil works written off” because of the April 2018 diversion-tunnel collapse and resulting damage to the machine room.

“As of June 30, 2020, the value invested in the project amounts to COP$11.8 trillion (US$3.2 billion),” according to EPM.

“In addition, efforts leading to obtaining compensation payments from insurance companies continue, with which we expect to cover a significant part of the costs of recovering the affected works of the project. To date, US$150 million has been received,” according to the company.

EPM estimates that Hidroituango power-generation units 1 to 4 (first stage) will start operating in 2022, “fulfilling the obligations assigned by the national Energy and Gas Regulation Commission (CREG), in auctions for power-reliability charges in which the project has participated,” according to the company. “Units 5 to 8 (second stage) are scheduled to enter from 2024.”

However, “as new impacts or changes in the current situation are analyzed, both due to the Coronavirus pandemic and other circumstances that may be registered, they will be incorporated into the schedule and new possible entry-into-service scenarios will be established,” the company added.

Covid-19 infections among hundreds of workers at Hidroituango have already resulted in delaying start-up of the first power generation units to 2022, rather than the earlier estimate of December 2021.