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Colombia President Ivan Duque on March 29 hailed the move by the Ministry of Finance to extend COP$70 trillion (US$17 billion) in favorable credits to banks and their commercial, industrial and consumer customers -- in order to enable broader debt refinancing, maintain employment and keep paying wages to workers during the Coronavirus crisis.

With this program and other new measures, “I have no doubt that Colombia will succeed” in meeting the longer-term economic challenges of the Coronavirus crisis and the current quarantine, Duque said.

Apart from quarantine-exempt grocery and pharmacy buying today, much of consumer spending -- the biggest driver of the Colombian economy -- has been crushed.

What’s more, some restrictions on movement and gatherings are likely to continue past the presumptive April 13 end of the current quarantine, according to President Duque.

With millions of people no longer reporting to work -- and certain industries such as shopping malls, restaurants, hotels, airlines, real estate, entertainment, schools, colleges, museums, gymnasiums and parks shut down – the Colombian economy isn’t generating enough cash velocity to cover many current debts under existing repayment terms.

If this situation continues for months, then (ultimately) banks, industries, retailers and consumers would face a devastating financial crisis. Unless people get back to work, return to spending, and currently shut-down commercial/industrial ventures get back to production, the future looks bleak, as noted in a penetrating new investigation by Colombia-based financial giant Corficolombiana (see: https://investigaciones.corficolombiana.com/documents/38211/0/200316%20-%20Informe%20especial%20coronavirus%20en%20Colombia-2.pdf/b1178cd1-f4f2-73fb-2838-cd54db7d43b4).

On the brighter side, the COP$70 trillion(US$17 billion) newly-extended credits via the “Fondo Nacional de Garantías” (FNG) include COP$20 trillion (US$4.9 billion) for micro-, small- and medium-size enterprises (MSMEs), which account for the vast majority of employment in Colombia. This new government credit line for MSMEs includes a 50% payback guarantee, cutting lender risk in half.

Because of the new credit lines made available to banks, Duque urged lenders to “speed up the credit lines and facilities that allow small entrepreneurs and other entrepreneurs to attend to the situation caused by the coronavirus pandemic.”

“This is a moment where [creditors] have to contribute with solidarity, and I know that the Financial Superintendent [Colombia’s ‘Superfinanciera’ regulatory agency] has been having dialogues with many providers of banking services. The call is to effectively streamline their [processes] to deal with this storm,” Duque added.

Colombia faced a similar financial crisis in 1999/2000, Duque recalled.

“Twenty years ago, our country made a great effort to save the financial system at a time of crisis. Today, at this time, we need a financial system that is also contributing in solidarity to overcome these difficult moments,” Duque said.

Besides the new FNG credit fund, the Colombian government also is now waiving certain taxes and mandatory payments of certain less-critical worker subsidies to help many small and medium-sized companies, he said.

In addition, Colombia’s Bancóldex agency just boosted its credit facilities to COPR$650 billion (US$160 million) for affected export sectors as well as second-tier backstop funding for lenders, he noted.

Meanwhile, in a separate but related March 27 announcement, the Finance Ministry confirmed that Colombia’s poorest people (“estratos uno y dos”) won’t have their utility connections cut during the crisis -- and the national government will help local utilities recover these losses.

“Here we give guarantees to all companies that provide public services so that they have the capacity to continue providing them and they will not be in difficulties,” Finance Ministry vice-minister Juan Alberto Londoño stated.

“This [assurance] is not only for utilities but also for the health sector,” Londoño added. “Companies in the health sector -- hospitals, laboratories that need credits to continue providing their services and that need aid -- will have guarantees from the state,” he said.

In addition, “universities and other sectors that we have been identifying -- and that we ask everyone to help us identify -- will be extended credit,” he added.

ANDI President Urges One-Year Debt Holiday

Meanwhile, in a March 29 opinion column published in Bogota daily newspaper El Tiempo, Bruce MacMaster, president of ANDI -- Colombia’s main industrial/commercial trade association -- stated that the Colombian government should start to consider even-more-radical credit measures.

“Three months ago, no one would have imagined that countries closed their borders, hotels and restaurants no longer are working, much less that 90% of the population would remain locked up in their homes, with society threatened by an illness that we are not capable of controlling, and with an economy totally at risk,” MacMaster wrote.

“If this situation continues, a good part of the economic achievements of the 20th and 21st centuries can be lost, unemployment levels will increase, the capacity of institutions to finance universal health and education could be compromised, and the business fabric that has played a major role in building development and generating massive employment could be seriously affected.”

Today’s private-sector solidarity measures and new government-aid initiatives are helping to alleviate the current crisis – including the new COP$70 trillion FNG credits, he noted.

But these alone wouldn't be enough to head-off a longer-term disaster if current the crisis continues, MacMaster warned.

Besides cash liquidity-crunches for consumers, “there is the liquidity of companies, which are the vehicles to generate employment and income for millions of families,” he said.

“A good part of the [industrial/commercial] financial commitment today has to do with debt service,” MacMaster explained.

As a result, the Colombia government “ought to think of doing a massive program -- hopefully automatic -- that would allow companies that require [financial relief] to postpone all debt service payments for a year.

“By allowing the [Superfinanciera financial regulator] to waive current repayment terms, the Bank of the Republic could [step in] to provide liquidity to the financial sector,” which in turn would pass-through this aid to the industrial/commercial sectors, he explained.

“For the financial sector, it is better to leave [debt] resources with good clients than to put them into receivership [bankruptcy]. This [one-year debt holiday] would free up resources necessary to meet the primary need – that is, people -- by supporting the viability of the productive sector, which will ultimately will have to pay back the credits,” MacMaster concluded.


Colombia President Ivan Duque announced March 27 that the Coronavirus crisis and the resulting quarantine of most of the population is likely to cut Colombia’s gross domestic product (“PIB” in Spanish initials) this year.

While late-2019 and early-2020 forecasts had indicated that Colombia seemed on track for around 3.5% PIB growth this year, Duque stated that “we are going from, perhaps, in the first quarter of this year -- one of the best first quarters of the last 10 years -- to a tough second quarter, painful.”

In the face of the current economic downturn, both government and the private sector must “prepare to see how we are going to make an economic recovery that is sustainable and that also allows us to live with this virus while a vaccine appears,” he added.

Employers in both the private and public sectors are going to have to adopt “best practices in terms of control in labor scenarios,” he said.

“I believe that this is going to change many policies within companies where we are going to need [body] temperature mediators [to detect fevers]; where do we go, if someone has symptoms, to know how to say to that person: look, stay at home while you get better,” he said.

Meanwhile, the global oil-price crash triggered by falling global demand and a market-share war between Russia and Saudi Arabia will hurt Colombian government oil-revenues temporarily.

“It’s natural for the price to fall due to lower demand, but deliberately trying to generate an oversupply [from the market-share war] leads to negatively impacting the world economy [and] seems to me an act of extreme irresponsibility,” he said.

Fedesarrollo Cuts 2020 PIB Outlook

Meanwhile, Fedesarrollo -- Colombia’s leading economic think-tank – on March 27 cut its full-year 2020 PIB outlook for Colombia to 1.2%, down from its 3.5% 2020 growth forecast last December.

The “optimistic” scenario for Colombian PIB growth is 2.3% while the “pessimistic” scenario is a negative 0.4%, according to Fedesarrollo.

Colombian exports are likely to fall by 8.8% while imports would declined by an even steeper 15.8%, according to the forecast. Meanwhile, domestic consumer spending likely will dip by 2.2% and capital formation would fall by 11%, according to the latest forecast.

 

 


Medellin-based multinational utilities giant EPM revealed in a March 27 filing with Colombia’s Superfinanciera corporate oversight agency that its full-year 2019 earnings before interest, taxes, depreciation and amortization (EBITDA) rose 17% year-on-year, to COP$6 trillion (US$1.5 billion).

EBITDA margin hit 33% -- best in five years, according to EPM.

Out of its 2019 earnings, COP$1.5 trillion (US$376 million) this year will go directly to the city of Medellin -- EPM’s sole shareholder.

Gross revenues rose 12% year-on-year, to COP$$18.4 trillion (US$4.6 billion) -- 64% of which was generated in Colombia and the remaining 36% in its foreign markets.

Investments in public-service infrastructure during 2019 totaled COP$3.2 trillion (US$803 million), according to the company.

In total, EPM provided utility services to 10.4 million clients in six countries last year, the company added.

Over the last 12 years, EPM’s profit transfers to the city of Medellin total COP$10.9 trillion (US$2.7 billion), enabling investments in public education, welfare, infrastructure, housing, health, security and environmental protection, according to the company.

During 2019, EPM also spent COP$1.5 trillion (US$376 million ) on goods and services, generating more wealth and employment for Colombians, the company noted. What’s more, EPM spent another COP$261 billion (US$65 million) in payments to local communities and for environmental projects.

Capital spending on the US$5 billion, 2.4-gigawatt Hidroituango hydroelectric plant in Antioquia (now more than 75% complete) totaled COP$$1.1 trillion (US$276 million) last year.

Assets grew 5%, to COP$54.9 trillion (US$13.8 billion), while liabilities rose 1%, to COP$30.7 trillion (US$7.7 billion).

Debt to EBITDA ratio improved to 3.49 in 2019 versus 3.86 in 219, while total financial debt dipped to 40% in 2019 versus 41% in 2018 -- mainly due to the COP$525 billion (US$132 million) insurance payment received as partial compensation for damages suffered at the Hidroituango hydroelectric project, the company added.


Medellin-based electric power giant EPM announced March 24 that Wall Street bond rater Moody’s just decided to maintain EPM’s “Baa3” investment-grade bond rating following its winning bid for the "CaribeMar” utility in Colombia’s Caribbean region.

“After the analysis of non-recurring issues that the company has been going through -- such as the [three-year start-up delay, to 2021] of the Hidroituango hydroelectric project since April 2018, and particularly considering the recent award of CaribeMar [auction] to EPM -- the rating firm Moody’s Investors Service reaffirmed the ‘Baa3’ investment grade rating for international bond issues and EPM’s corporate debt,” EPM revealed.

“Moody’s mentions that with the acquisition of CaribeMar, EPM further consolidates its leadership in the energy business in Colombia, going from a market share of approximately 23% to 35%. This will expand the provision of the energy distribution service in the northern departments of Bolívar, Cesar, Córdoba and Sucre.

“The rating firm also highlights operational synergies given the new acquisition in a geographic area adjacent to existing operations that will be of benefit to the entire business group,” EPM added.

XM: Coronavirus Cuts Power Demand

Elsewhere on the electric-power front, Medellin-based national power-market operator XM announced March 24 that Colombian power demand has fallen about 12% because of personal and corporate cutbacks since the emergence of the Coronavirus crisis.

“The implementation of preventive measures aimed at reducing the spread of COVID-19 has impacted the demand for electrical energy in the country, which during the [past] weekend had a reduction of up to 12% daily, compared to equivalent days” of the prior weekend, according to XM.

“In countries with similar conditions of social distancing as a consequence of COVID-19, [power-demand] reductions have been from 7% to 33%,”  XM added, citing new statistics from the U.S.-based Electric Power Research Institute.

Commenting on this phenomenon, XM general manager María Nohemi Arboleda stated: “The invitation to Colombians is that we continue to make responsible use of resources, abiding by the indications of staying at home as defined by the national government and, above all, protecting people’s health.”


Medellin-based multinational electric power giant EPM announced March 20 that it won the auction bidding for the “CaribeMar” assets formerly belonging to the financially troubled, state-owned “Electricaribe” power utility around the Caribbean coast of Colombia.

As a result, EPM “will be the new operator of the electric power service in Bolívar, Cesar, Córdoba and Sucre” departments, according to the company, 100% owned by the city of Medellin.

The addition of CaribeMar means EPM will expand its electric power service to 1.5 million more customers in Colombia. As a result, EPM will have a total of 19 million power customers in Colombia, or 35% of the entire Colombian electric power distribution and retail markets, up from 23% currently.

The deal will become final “in the coming months, when the national government completes the [sale] of CaribeMar,” according to EPM.

The national government has already assumed pension liabilities for retired and retiring employees of the former Electricaribe utility.  But EPM and (separately) Costa Energy Consortium -- which won a separate bid for the “CaribeSol” division of Electricaribe -- now will have to assume other liabilities, along with existing Electricaribe assets.

According to Colombia’s “Superservicios” (Superintendence of Public Utility Services) agency, EPM is expected to invest COP$5 trillion (US$1.2 billion) over the next 10 years to restore and upgrade faltering infrastructure left by an essentially bankrupt Electricaribe.

“During Electricaribe's intervention we have secured the resources for the continuity of the service, as is our constitutional obligation through the Business Fund,” Superservicios Superintendent Natasha Avendaño García stated.

The new operators of the former Electricaribe “will assume the investment and loss reduction plans aimed at improving networks, stations and substations and infrastructure in general, as well as the technification of [supply and demand] measurement systems,” she added.

Meanwhile, EPM general manager Álvaro Guillermo Rendón López stated that EPM is “committed to growth with sustainability in the energy commercialization and distribution market.”

“After the awarding of CaribeMar this Friday [March 20], the national government must close the financial transaction for the purchase of 100% of the shares, establish the new company and prepare and deliver the assets and liabilities included,” according to EPM.

“Meanwhile, the energy service will continue to be provided as it is today by the national government. It is important to remember that Electricaribe is a company intervened by the Superintendency of Public Services and in possession for liquidation purposes,” the company added.

EPM officers and executives “accompanied by an investment bank and external advisers, carefully studied and analyzed the viability and opportunity of the [CaribeMar] operation, always thinking of the company’s sustainability, in a business that will include investments of around COP$4 trillion [US$970 million] in the next five years,” according to EPM.

Electricaribe effectively went into bankruptcy following years of failing to recoup its heavy operating expenses, leading to frequent service instabilities -- largely the result of a decades-long culture of massive power theft in coastal cities, mainly in low-income neighborhoods.

Cleverly, EPM in recent decades pioneered the development and installation of a novel pay-as-you-go metering system – praised by power experts around the world – which enables low-income customers to buy subsidized “power cards” at neighborhood stores, letting them only buy the power they actually need rather than wasting “free” power via illegal connections -- connections that inevitably would destroy the ability of EPM (or any utility) to recoup investments in adequate generation and distribution infrastructure.


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About Medellin Herald

Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

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.

Medellin Herald welcomes your editorial contributions, comments and story-idea suggestions. Send us a message using the "contact" section.

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