Medellin Mayor Reveals Grave Fiscal Threat From Afinia Losses

Medellin Mayor Federico Gutiérrez announced September 11 that he has petitioned the Colombian national government to launch emergency negotiations to solve the financially disastrous situation of its Afinia electric-power subsidiary on the Atlantic Coast (Caribbean region).

The announcement came only days after neighboring utility Air-e petitioned for a national government takeover of its similarly money-losing operations on the Atlantic Coast.

Both Air-e and Afinia were created several years ago to asume operations of the bankrupt “Electricaribe” utility on Colombia’s Atlantic Coast.

Former Medellin Mayor Daniel Quintero is principally responsable for EPM’s disastrous decision to buy half of the former Electricaribe assets and the simultaneous creation of Afinia – and Quintero also bears responsibility for a multi-million-dollar corruption scheme tied to the change of Afinia management, Mayor Gutiérrez stated.

“We call on the [national] government to find a negotiated solution” to the Afinia crisis, Mayor Gutiérrez said.

“If the solution is for the government to acquire 100% of the shares that EPM has in Afinia, then we are willing to carry out this transaction without affecting power service” to the area, which includes the departments of Bolívar, César, Córdoba, Sucre and parts of Magdalena, he added.

Profits from city-owned EPM provide nearly one-quarter of Medellin’s annual budget — hence continued EPM operations of money-losing Afinia would trigger fiscal consequences for Medellin, Gutiérrez warned.

The Atlantic Coast electric power markets historically have suffered from massive theft of power in low-income neighborhoods — and this has cratered the budgets of power companies that need to make huge investments in maintenance and upgrade of distribution infrastructure.

If the Colombian government fails to subsidize power to these poor neighborhoods to prevent power theft, then companies like EPM cannot hope to survive in these markets, EPM explained in a public notice issued last month.

In that notice, EPM detailed the following critical measures that the national goverrnment must take to avoid a collapse of Afinia:

“1. Relief from the payment of the Tariff Option for power users of [low-income] strata 1, 2 and 3. In accordance with what was previously stated by the EPM group, the national government assumed the commitment to cover this debt that these [low-income] users have with the electricity marketing companies.”

But to fix this problem, “a law is awaited, which has not yet been filed, to allow the appropriation of the required resources (COP$2.7 trillion/US$637 million), of which COP$1.1 trillion [US$259 million] will be allocated to Afinia users, which would allow their rate to be reduced by COP$86/kWh, or approximately 8%,” EPM explained.

“2. Adjustment to energy contract prices. Voluntary adjustment of contracts with the aim of reducing [power] prices, mitigating the impacts of the inflationary escalation of recent years, which would allow the rate to be reduced if the relief is focused on the most vulnerable users of the Caribbean Coast.

“In 2022, EPM Generación renegotiated contracts that represented a price reduction of between 2% and 3% of the rate for marketers.

“The Ministry of Mines and Energy (MME) accepted this proposal and issued a resolution with this indication, and is currently awaiting regulation action by the Energy and Gas Regulatory Commission (CREG) to implement the measure.

“3. Tariff relief for users of markets with high energy losses. The EPM Group proposed to socialize losses above the national average (additional losses) among electricity users nationwide, except for strata 1 and 2, which would allow a decrease of COP$68/kWh, that is, 6% of the rate.

“However, there has been no progress by the national government” to address this tariff-relief proposal, EPM added.

“The aggregate impact of the first three proposals projects a decrease of approximately 21% in the cost of providing power service for the most vulnerable users in the Caribbean Region. If the proposal for greater subsidizable consumption is additionally implemented, the decrease in the bill could reach 35% for stratum 1.

“4. Increase the amount of subsidizable consumption. Allow a level of subsidized consumption higher than that currently subsidized. It is proposed to define a subsistence consumption level that at least covers the average consumption of the most vulnerable stratum in the Caribbean Region, which would represent a 20% decrease in the bill for Afinia users in stratum 1 and 12% for stratum 2.

“However, there has been no progress by the national government” to address this proposal, EPM added.

“5. Efficiency and control of market power. Intervene in the market price of those power plants that, based on indicators, are determined to exercise [excessive] market power. In addition, it has been proposed to carry out controls on the variable costs of thermal generators.

“CREG has presented a proposal in relation to market power since 2021, but the respective regulation has not yet been produced.

“6. Greater availability of energy for contracting. This seeks to promote a greater supply of energy to power marketers to mitigate their exposure on the power market and stabilize prices, through new generation projects and flexibility of contracting mechanisms.

“However, this proposal is awaiting the definitive and permanent regulatory adjustments required by the MME and the CREG.

“7. Greater supply and guarantee of supply. An energy production deficit is foreseen. Therefore, it has been proposed to incorporate new generation projects to overcome this deficit (auction mechanism).

“While the CREG has issued a bulletin identifying the need for additional energy from 2025, in order to make the respective calls (auctions), the required regulation is awaited.

“8. Greater protection of energy prices for the user in critical conditions. Proposal to define a lower price for the energy exchange in conditions such as those of the El Niño phenomenon.

“While CREG has submitted a proposal for analysis that considers various prices, there is still no definitive resolution,” EPM added.