Medellin will likely have to cut expenses to mitigate the consequences of energy company EPM’s struggle to deliver a $4 billion hydroelectric dam, according to the city’s finance secretary.
The finances of EPM, which is owned by the Medellin government, are likely to suffer major setbacks as a consequence of the Hidroituango dam that continues to be at risk of collapse after a series of setbacks.
Economic impact to be felt for years
In an interview with local newspaper El Colombiano, Finance Secretary Orlando Uribe said that revenue from the public company contributed 1.2 trillion pesos ($414 million), almost a quarter of Medellin’s annual budget, to the municipal treasury this year.
Uribe said the “the most likely scenario is that in the next four years we will see a major impact on the resources from EPM transfers.”
The finance secretary would not say how big this impact could be, but stressed that “public finances are sound.”
It is possible that if there is a decrease in transfers, we will cut on some investments, but it is premature to say so at this time.
Medellin Finance Secretary Orlando Uribe
EPM looking to sell assets
EPM’s board of directors has given permission to CEO Jorge Londoño, a former opinion pollster with no previous experience in the energy sector, to sell assets in Colombia and abroad up to a value of 3 trillion pesos ($1 billion), El Colombiano reported.
This would allow the company to continue meeting its financial obligations despite setbacks in Ituango, sources within the company told the newspaper.
Even in the best case scenario, the company is likely to be forced to incur in extra costs to finish the HidroItuango dam. Nobody in Colombia has dared to calculate the financial consequences of the worst case scenario, the possible collapse of the dam.
It is important to note that EPM currently has a group-wide cash position of 1.4 trillion pesos ($483 million) and approved undisbursed credit lines of $1.3 billion.
How bad is the situation?
The HidroItuango dam is at risk of collapse because water that is now discharged through the engine room could erode the structure.
Tremors felt over the past few days sparked fears over the geological stability of the mountains between which the dam wall has been built. EPM evacuated all 1,500 workers from the site on Tuesday, effectively shutting down the project for the second time in a month.
If the dam breaks or parts of the mountain give in, this could cause one of the worst disasters in Colombia’s history; a 26-meter wave would destroy everything while forcing a way through the Cauca river valley to the Caribbean Sea.
If the company is able to stabilize the project, EPM will at least have to repair the damage caused to the turbines and the dam wall structure, and pay damaged to locals who lost their homes in unexpected flash floods.
EPM’s probable failure to deliver the dam in November could result in fines from the national government, which is counting on the energy promised by the company.
Profits made from the hydroelectric dam would eventually make up for these losses, but only if EPM is able to finish the dam and only after years of Medellin’s residents tightening their belts.